On March 4, 2014, the U.S. Supreme Court issued its much anticipated decision in Lawson v. FMR LLC, resolving a dispute over the scope of the whistleblower provision of the Sarbanes-Oxley Act, 15 U.S.C. § 7201, et seq. (“SOX”). Private contractors and subcontractors of public companies should give their attention to this decision. Although SOX is generally thought of as a statute that regulates public companies and their employees, the Lawson decision extends SOX’s whistleblower provisions to cover private companies and their employees as well.
Enacted in 2002, SOX implemented new financial and conflict of interest disclosure requirements and greater corporate and criminal fraud accountability for public companies. SOX also includes a whistleblower provision protecting from retaliation employees who report or cooperate in investigations of violations of the federal securities laws or the regulations of the Securities & Exchange Commission (“SEC”). 18 U.S.C. § 1514A (“section 1514A”). In Lawson, the Supreme Court, by a 6 to 3 vote, held that section 1514A not only protects employees of public companies, but also makes it unlawful for private companies to retaliate against their own employees when the private company is a contractor or subcontractor of a public company.
In relevant part, section 1514A prohibits retaliation against an “employee” carried out by a public company “or any officer, employee, contractor, subcontractor, or agent of such company.” The plaintiffs in Lawson were former employees of private companies under contract to advise and manage mutual finds. The mutual funds were public companies and, as is common in the industry, had no employees of their own. Plaintiff Lawson claimed she was constructively discharged by her employer after she raised concerns that certain accounting methodologies resulted in the overstatement of expenses. Plaintiff Zeng alleged he was fired after he raised concerns about inaccuracies in a draft SEC registration statement. Both plaintiffs brought suit in federal district court under section 1514A.