Yesterday the Supreme Court in a 6-3 decision made clear that the whistleblower protection provisions of the Sarbanes-Oxley Act of 2002 (“SOX”) extend to the employees of contractors and subcontractors that contract with public companies—“a contractor may not retaliate against its own employees for engaging in protected whistleblowing activity.”
The Court believed the text of 18 U.S.C. § 1514A (the SOX whistleblower protection provision) was intended to cover the conduct of contractors and subcontractors toward their own employees. In reaching this conclusion the Court repeatedly referenced the Enron and WorldCom scandals, stating that Congress was reacting to these events when it passed SOX and so it was understandable that Congress would want to extend whistleblower protections to the employees of accounting firms and law firms—some of the people most likely to have knowledge of corporate fraud.
Private companies that contract or subcontract with public companies must now be alert to SOX’s whistleblower protection provisions. Even though SOX does not apply to such companies in general, this Supreme Court ruling cautions such companies to be even more careful about their actions when confronted by an employee alleging wrongdoing.