On March 4, 2014, the Supreme Court held that a provision of the Sarbanes-Oxley Act of 2002, 116 Stat. 745, shields not only employees of a public company from retaliation for whistleblowing, but also shields the employees of privately held contractors and subcontractors who report violations to the SEC from retaliation by their privately held employers.Lawson v. FMR LLC, No. 12-3, 2014 U.S. LEXIS 1783 (March 4, 2014) (interpreting 18 U.S.C. § 1514A). Justice Ginsburg noted in her opinion for the Court that this interpretation of 18 U.S.C. § 1514A, sheltering accountants, lawyers and other consultants to the public company, was both consistent with the text of the statute and “common sense.”
The petitioners in Lawson included two former employees of privately held companies that had provided advisory and management services to the Fidelity family of mutual funds. Notably, the Fidelity funds themselves have no employees, which is common in the mutual fund industry. Petitioner Lawson alleged that, after she raised concerns about certain cost accounting methodologies, believing operating expenses of the mutual funds had been overstated, she suffered a number of adverse employment actions and was constructively discharged. Petitioner Zang alleged that he was fired in retaliation for raising concerns about inaccuracies in a draft SEC registration statement. Because the FMR subsidiaries were privately held, FMR maintained that § 1514A was meant to protect only employees of public companies--i.e., companies that either have a class of securities registered under section 12 of the Securities Exchange Act of 1934 or that are required to file reports under section 15(d) of that Act.
The District Court in Massachusetts rejected FMR’s argument, but a divided panel of the First Circuit Court of Appeals reversed the decision in an interlocutory appeal. Several months later, the Department of Labor’s Administrative Review Board issued a decision in an unrelated case disagreeing with the Court of Appeals’ interpretation of § 1514A. The Supreme Court then granted certiorari to resolve the differences in opinion and rejected FMR’s interpretation.
The Supreme Court’s opinion in Lawson discussed both the context and purpose of the Sarbanes-Oxley Act, noting that during its investigations following Enron, Congress learned that when employees of Enron and its accounting firm, Arthur Anderson, attempted to report corporate misconduct, they faced retaliation, including discharge. Justice Ginsberg further noted that, because of these findings, the Sarbanes-Oxley Act contains numerous provisions aimed at controlling the conduct of accountants, auditors, and lawyers who work with the company. “Given Congress’ concern about contractor conduct of the kind that contributed to the Enron collapse, [the Court regards] with suspicion construction of § 1514A to protect whistleblowers only when they are employed in a public company and not when they work for the public company’s contractor.” Ultimately, therefore, the Court determined that § 1514A must be read to protect employees of private contractors to the public company from retaliation for whistleblowing in order to fulfill Congress’ purpose for the Act.