SOX Whistleblower Protection
The U.S. Supreme Court has ruled that the whistleblower protection granted by the Sarbanes-Oxley Act of 2002 (SOX Act) to employees of public companies extends to employees of privately held contractors who perform work for public companies.
In Lawson v. FMR LLC, two former employees of privately held FMR LLC, which provides services to publicly traded Fidelity mutual funds, claim they lost their jobs after reporting fraud. They claimed whistleblower protection rights under the Sarbanes-Oxley Act of 2002. A federal appeals court denied their claim, ruling that the former employees could not invoke Sarbanes-Oxley because they did not (and had not) worked for publicly traded companies.
President George W. Bush signed the SOX Act into law on July 30, 2002. It mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud by public companies subject to securities laws. Among other provisions, it amended the U.S. Code to add section 1514A.
This section, in part, granted whistleblower protection to employees of publicly traded companies. It states that no covered company “or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee …” who reports violations of SEC regulations or other federal laws relating to fraud against shareholders.
At issue in Lawson v. FMR LLC was whether the phrasing applied only to employees of publicly traded companies, or also to employees of contractors, subcontractors, and agents. The federal appeals court interpreted the language narrowly to apply only to employees of publicly traded companies. A majority of the Supreme Court justices disagreed.
The majority accepted that a broader interpretation was necessary to prevent a “huge hole” in the law from making contractors’ employees vulnerable to retaliation by their employers for blowing the whistle on a scheme to defraud a public company’s investors. The majority particularly wanted to ensure that section 1514 of the U.S Code, as amended by Sarbanes-Oxley, not be interpreted to avoid insulating the “entire mutual fund industry” from its provisions, since “virtually all mutual funds are structured so that they have no employees of their own; they are managed instead by independent investment advisors.” (U.S Supreme Court, 2014)
While the mutual fund industry is the most immediately affected, this ruling has implications for contractors and subcontractors of all publicly traded companies that are subject to the SOX Act.
Ethical Advocate can assist companies of all sizes in meeting Sarbanes-Oxley Act requirements and in creating a culture of ethics and accountability.
Supreme Court of the United States, Opinions: Lawson v. FMR LLC, March 4, 2014. http://www.supremecourt.gov/opinions/13pdf/12-3_4f57.pdf