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Supreme Court Clarifies That Whistleblower Protection for Public Company Employees Also Protects Employees of Contractors and Subcontractors of Public Companies

03.13.14

“To safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron Corporation, Congress enacted the Sarbanes-Oxley Act of 2002.” Lawson v. FMR LLC, 571 U.S. __, slip op. at 1 (March 4, 2014). Among other things, a provision of the Act, 18 U.S.C. § 1514A, provides protection for whistleblowers from retaliation. For over a decade, the Department of Labor, the agency with initial responsibility for whistleblower claims, has interpreted Section 1514A as protecting employees of public company contractors. On Feb. 3, 2012, the First Circuit disagreed holding that Section 1514A only protects public company employees. On March 4, 2014, the United States Supreme Court in a divided decision, confirmed that Section 1514A’s protection does, indeed, extend to employees of public company contractors. However, the Court’s decision exposes a variety of ambiguities in the text of Section 1514A that likely will serve as fodder for future disputes.

In particular, Lawson clarified that “an employee” for purposes of Section 1514A includes an employee of a public company contractor. Lawson, however, expressly reserved for later decision whether Section 1514A prohibited a regulated actor (i.e., a public company, its officers, employees, contractors, subcontractors, or agents) from retaliating against the employees of other regulated actors.

Lawson also calls into question the scope of the whistleblowing protected by Section 1514A. Amici warned that including contractor employees in the protected class could extend the protections afforded by Section 1514A to whistleblowing activity unrelated to investor fraud. While the Court largely dismissed this concern, a plurality of the Court seemingly endorses the Solicitor General’s suggestion that Section 1514A should be interpreted to protect contractor employees only to the extent that their whistleblowing relates to the contractor fulfilling its role as a contractor for the public company. The concurrence specifically rejects this suggestion. The dissent proposes that Congress “restrict the fraud reports that trigger whistleblower protection to those that implicate the interests of public company investors” as a means to restore “the balance struck by Congress” which the Court’s decision “upsets”.

The Court’s discussion also exposes ambiguity regarding the contractors to whom Section 1514A applies. As with the scope of protected whistleblowing activity, the plurality seems to favor Plaintiffs’ suggestion that the term “‘contractor’ does not extend to every fleeting business relationship” but only to “a party whose performance of a contract will take place over a significant period of time.” As one of its restorative measures, the dissent recommends that Congress limit covered contractors to “those professionals that can assist in detecting fraud on public company shareholders, . . .” The concurrence does not address this issue. Nonetheless, a majority of the Court would appear to be amendable to some interpretation of “contractor” that would further limit the scope of Section 1514A.

For more on these ambiguities and the views of the various Justices regarding them, see the full version of this article.

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