On March 4th, the United States Supreme Court handed down the decision of Lawson, et al. v. FMR LLC, et al., 2014 U.S. LEXIS 1783 (March 4, 2014). Lawson addressed a situation where employees of a privately held company that contracted with a publically held firm claimed to be “whistleblowers” under the protection of the Sarbanes-Oxley anti-retaliation law.
The majority in Lawson constituted a rather motely crew. Justice Ginsburg, a reliable liberal on the bench, delivered the majority opinion. To no surprise, she was joined by Justice Breyer and Kagan. As a bit of a surprise, she was also joined by Chief Justice Roberts and Justice Scalia. Justice Thomas dissented. He was joined by Kennedy and Alito. Justice Sotomayor also filed a dissenting opinion.
The case involved a Plaintiff who alleged “that he was fired in retaliation for raising concerns about inaccuracies in a draft SEC registration statement concerning certain Fidelity funds.” Fidelity is a publically held company. However, it is a publically held company that has absolutely no employees. Zero. The Plaintiffs were essentially part of a management company, which is not publically held, that provides services to Fidelity. According to the Supreme Court, the issue was whether Sarbanes-Oxley:
shield[s] only those employed by the public company itself, or does it shield as well employees of privately held contractors and subcontractors – for example, investment advisors, law firms, accounting enterprises – who perform work for the public company?
The Supreme Court, citing both statutory interpretation and “common sense,” held:
We hold, based on the text of [the statute] the mischief to which Congress was responding, and earlier legislation Congress drew upon, that the provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public companies served by the private contractors and subcontractors.
This makes a whole heck of a lot of sense. A company should not be able to shield itself from whistleblower protection by simply refusing to employ anybody. In other words, it shouldn’t be able to outsource all of their management to a privately held company to avoid Sarbanes-Oxley liability. Moreover, it provides a deterrent to the exact type of illegality that Sarbanes-Oxley attempted to address. Now, lawyers, accountants, consultants, and other contractors who were aware of fraud at a publically held client, can do what they should do. They can blow the whistle on this activity and be assured that the whistleblower protections of Sarbanes-Oxley will protect them in the event they are a victim of retaliation.
