SCOTUS Says SOX Whistleblower Protections Cover Employees at Private Companies, Too

“… the Lawson decision should be a sobering one for employers.” (Jeffrey Dunlaevy of Ogletree Deakins)

Private contractors across the country now need to adopt new procedures for responding to employees who blow the whistle. That’s because the US Supreme Court ruled earlier this week in Lawson v. FMR that the whistleblower protections of the Sarbanes-Oxley Act – which traditionally covers only public companies – also extend to employees of private contractors when they are working for a public company.

The background, from attorneys at Skadden Arps:

“The employees seeking protection under Sarbanes-Oxley were employed by a private investment advisor to a family of public mutual funds. The employees alleged retaliation after they raised concerns related to the company’s cost-accounting methodologies and SEC disclosures.

The district court denied the company’s motion to dismiss after determining that the Act applied not only to employees of public companies, but also to employees of private companies that are contractors to a public company. The U.S. Court of Appeals for the First Circuit reversed, holding that the Act prohibits retaliation by public companies and their contractors against employees of a public company, but does not prohibit retaliation against employees of a nonpublic company by a public company or its contractors.

The Supreme Court reversed the decision of the First Circuit, holding that the plain language of the Act ‘shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.’”

Three early takeaways from the ruling for private employers:

1. You’ll need to learn new rules:

“Because Sarbanes-Oxley whistleblower claims are subject to different substantive and procedural rules than retaliation claims under other statutes, it is essential that employers act quickly to evaluate and minimize risk when such a claim is possible.” (Jeffrey Dunlaevy of Ogletree Deakins)

2. You should develop whistleblower policies and reporting procedures:

“Employers of every size and type will have to prepare themselves for potential Sarbanes-Oxley whistleblower claims, merely because they are a contractor or subcontractor of a publicly traded company. To the extent that private company employers have not previously implemented codes of conduct, whistleblower policies and the like, this decision may well suggest that it is time to consider doing so.” (Connie Bertram, Lloyd Chinn, Harris Mufson, and Steven Pearlman of Proskauer)

3. This probably isn’t the last you’ll hear of SOX whistleblower protections:

“The Court concedes that clarity may be needed, whether from Congress or from further litigation. Given the proliferation of whistleblower litigation in recent years, it is safe to assume that Lawson will be just the beginning of the debate regarding the scope of SOX’s whistleblower protection.” (Bryan House of Foley & Lardner)

The updates:

Read more on Lawson v. FMR at JD Supra Business Advisor>>