Supreme Court Extends SOX Whistleblower Protection to Contractors

The Reverend Martin Luther King, Jr. once said, “Darkness cannot drive out darkness; only light can do that.” Following a rash of financial calamities largely caused by risky and illegal conduct within publicly traded companies, Congress enacted the Sarbanes-Oxley Act (SOX) to shine light into corporate boardrooms and corridors and protect the employees of publicly-traded companies from retaliation for reporting illegal activities. In the twelve years since SOX became law, corporations have invariably found ways to circumvent its scope, forcing the courts into a game of legal whack-a-mole as new loopholes are discovered and exploited. In March of 2014, the Supreme Court once again brought down the mallet.

SOX, fairly straightforward in its language regarding whistleblower protection, prohibits public companies as well as the officers, employees, contractors and agents of such companies from engaging in retaliatory conduct against whistleblowers. In Lawson v. FMR, LLC, the question before the court was whether these prohibitions extended to the employees of private companies while performing contracted work for publicly-traded companies. The Court held that it did, closing yet another loophole that allowed public companies to escape the strictures of SOX:

  • Writing for the majority, Justice Ginsberg, joined by Justices Roberts, Breyer and Kagan, found that the legislative record suggested Congress had intended for SOX to extend to privately-held contractors who provide services to publicly-traded companies.
  • Justices Scalia and Thomas concurred in the result but reached their conclusions based solely on the language and context of the applicable statutes.
  • Justice Sotomayor, joined by Justices Kennedy and Alito, dissented, finding that the majority’s interpretation would grant the Act an impossible scope, potentially allowing “a babysitter to bring a federal case [under SOX] against his employer — a parent who happens to work at Walmart . . .”

This new precedent significantly increases the reach of Sarbanes-Oxley and now allows whistleblower attorneys to assert claims on behalf of employees of certain privately-held businesses.