In an opinion issued on March 4, 2014, the U.S. Supreme Court extended the whistleblower protections of the Sarbanes-Oxley Act to employees of private companies that do business with public companies, such as investment advisors, accountants and lawyers. By adopting a broad view of whistleblower protections, the Court’s decision in Lawson v. FMR LLC, Case No. 12-3 (U.S. Mar. 4, 2013), expands the group of employees who are eligible for protection under the law as whistleblowers.

In Lawson, two former employees of private companies that provided investment advice to the Fidelity family of mutual funds claimed that their former employer had fired them in retaliation for raising concerns about Fidelity mutual funds. They each brought claims under Section 806 of the Sarbanes-Oxley Act of 2002, which provides that public companies may not retaliate against “any officer, employee, contractor, subcontractor, or agent of such company” because of whistleblowing or other protected activity. 18 U.S.C. § 1514A. Although the district court initially allowed these claims to proceed, the U.S. Court of Appeals for the First Circuit rejected the claims on the ground that the reference to “employee” in Section 806 of Sarbanes-Oxley referred to employees of public companies, not employees of private companies that do business with public companies. Because these employees worked for private companies that did business with public companies, not the public companies themselves, their claims could not proceed.

In its first-ever decision on the whistleblower protections of Sarbanes-Oxley, the U.S. Supreme Court reversed this decision in a 6-3 opinion by Justice Ginsberg. The Court’s decision focused primarily on the text of the statute, and the Court concluded that the reference to “employee” in Section 806 referred to employees of contractors and subcontractors who work for public companies, not just employees of public companies. The Court’s opinion also relied on the history of the Sarbanes-Oxley Act, which was enacted in 2002 in the wake of the Enron scandal. The Court viewed Sarbanes-Oxley as an attempt by Congress to “ward off another Enron debacle,” and found that the role of outside professionals such as accountants, law firms, contractors and other agents is crucial to identifying shareholder fraud. Following this decision, these outside contractors are now entitled to bring whistleblower claims under Sarbanes-Oxley.

In a strong dissent, Justice Sotomayor predicted that the decision created “a sweeping source of litigation that Congress could not have intended,” and that the decision imposes “costly litigation burdens on any private business that happens to have an ongoing contract with a public company.” The dissent also raised concerns about the limits of the decision and raised the possibility that Sarbanes-Oxley arguably now covers household employees of anyone who works at a public company, including babysitters and landscapers. The majority opinion rejected this scenario, noting that there was “scant evidence that these floodgate-opening concerns are more than hypothetical.”

The Lawson opinion makes it clear that private companies that do business with public companies must be aware that their employees could proceed with whistleblower claims under Sarbanes-Oxley. More generally, the decision is consistent with the trend among many lower federal courts to expand, rather than restrict, whistleblower protections for employees.