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U.S. Supreme Court to Review Denial of Whistleblower Protection Under Sarbanes-Oxley to Contractors

Published by on June 18, 2013

The U.S. Supreme Court recently granted a writ of certiorari for a First Circuit decision dealing with the whistleblower protections of the Sarbanes-Oxley Act. In Lawson v. FMR, Inc., the U.S. Court of Appeals for the First Circuit held, as a matter of first impression, that only employees of public companies receive whistleblower protection against retaliatory […]

The U.S. Supreme Court recently granted a writ of certiorari for a First Circuit decision dealing with the whistleblower protections of the Sarbanes-Oxley Act. In Lawson v. FMR, Inc., the U.S. Court of Appeals for the First Circuit held, as a matter of first impression, that only employees of public companies receive whistleblower protection against retaliatory actions by their employer.  The Court found that this protection does not apply to employees of contractors or subcontractors working for the public company.  More after the break.

Plaintiffs Jackie Hosang Lawson and Jonathan Zang, former employees of FMR, Inc.’s (“FMR”) subsidiaries, brought separate actions in federal district court. FMR is a private company managing Fidelity mutual fund accounts through a contract with the shareholder owners of the accounts. FMR eventually absorbed the subsidiaries and directly employed the plaintiffs. Lawson and Zang alleged that they were terminated in retaliation for pointing out inaccuracies in certain Fidelity fund registration statements and raising concerns about cost accounting methodologies. The plaintiffs claimed that their terminations violated the Sarbanes-Oxley Act’s whistleblower protections for employees of public companies.

Under the whistleblower provision codified at 18 U.S.C. 1514A(b)(1)(A), employees of publicly traded companies that own a class of securities registered under Section 12 of the Securities & Exchange Act cannot be terminated for undertaking lawful acts, including alerting superiors of potential violations of the securities laws. Lawson and Zang argued that as employees of the company contracted to manage the Fidelity accounts, they received whistleblower protection. FMR moved to dismiss the suits, arguing that as employees of the contractor and not the publicly traded company, Lawson and Zang did not receive whistleblower protection under 1514A. The district court certified the matter for interlocutory appeal, and the First Circuit granted the request.

After an extensive statutory review, the Court of Appeals determined that Lawson and Zang did not qualify as employees under 18 U.S.C. 1514A. Specifically, the Court found that 18 U.S.C. 1514A only applied to individuals specifically employed by the publicly traded company. Construing the statute to apply to the employees of the public company’s contractors or agents would provide much broader protection than Congress intended. The Court found that this interpretation was supported by other provisions in the act that provided whistleblower protection for individuals in other situations. Given the specificity of section 1514A, the Court held that the provision was limited to employees of publicly traded companies only. Lastly, the Court found that the act’s legislative history further belied Congress’ intent that section 1514A should only apply to public company employees.

SCOTUSBlog has the lower court’s opinion and information on the proceedings in the U.S. Supreme Court here.

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