Source: https://workplacelegalpc.com/u-s-supreme-court-expands-whistleblower-liability/
Timestamp: 2018-11-16 06:22:33
Document Index: 125476618

Matched Legal Cases: ['§1514', '§1514', '§1514', '§1514', '§1514', '§1514', '§1514', '§1514', '§1514']

U.S. Supreme Court Expands Whistleblower Liability
March 19, 2014 by Jeffrey S. Sloan
The Sarbanes-Oxley Act of 2002 (“SOA”) included protections for whistleblowers at public companies. Section 806 of the SOA states that no publicly-traded company, or any officer, employee, contractor, subcontractor, or agent of such public company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee for whistleblowing or engaging in other protected activities. See 18 U.S.C. §1514A.
But this language left open a very big question — that is, are the employees of privately-owned “contractors” and “sub-contractors” of the public company also protected by §1514A’s whistleblower protections? The answer is “Yes,” according to the U.S. Supreme Court in its 6-3 decision in Lawson v. FMR LLC (Case No. 12-3, 2014 BL 57948).
The plaintiffs in Lawson were employed by an investment advising firm (“FMR”) that provided advisory and management services to the Fidelity family of mutual funds. The Fidelity funds were publicly-traded companies; however, they had no employees of their own because they contracted with investment advising firms (like FMR) to handle their day-to-day operations.
One plaintiff worked for FMR for 14 years. She alleged that, after she raised concerns about certain cost accounting methodologies (believing that they overstated expenses associated with operating the mutual funds) she suffered a series of adverse actions, ultimately amounting to constructive discharge. A second plaintiff worked for FMR for 8 years. He alleged that he was fired in retaliation for raising concerns about inaccuracies in a draft SEC registration statement concerning certain Fidelity funds.
Both plaintiffs sued FMR alleging illegal retaliation in violation of §1514A.
FMR moved to dismiss the case, arguing that plaintiff could not bring an action because she was not an employee of a “public” company as required by SOA. The District Court rejected FMR’s interpretation of §1514A and denied FMR’s motion. The First Circuit Court of Appeals then reversed the District Court’s decision, ruling that only employees of a public company are protected by §1514A.
The Supreme Court reversed the First Circuit Court of Appeal and concluded that §1514A was intended not only to protect employees of public companies, but also to “shelter” the employees of private contractors and subcontractors. The Court based its ruling on a number of key facts:
First, the Court concluded that the language of §1514A clearly supported its interpretation by clearly and explicitly referencing “contractors” and “subcontractors.” Second, the Court noted that the uniqueness of the mutual fund industry — specifically, that it is common in the industry for public mutual fund company to have no employees at all and to manage its affairs entirely through outside contractors and sub-contractors. In this context, the Court concluded, whistleblower protection for employees of the public company only would make little sense because there would be no employees at all to protect.
Finally, the Court examined the historical context and legislative history of §1514A and noted that it was passed as a response to the Enron scandal. That scandal, noted the Court, was perpetrated not only by Enron employees but by outside entities such as the Arthur Andersen accounting firm. According to the Court, in enacting the statute, “Congress was as focused on the role of Enron’s outside contractors in facilitating the fraud as it was on the actions of Enron’s own officers.” Accordingly, “it would thwart Congress’ dominant aim if contractors were taken off the hook for retaliating against their whistle-blowing employees.”
Interestingly, however, the Court declined to decide whether employees of all of the other actors governed by the whistleblower retaliation provision — that is to say, “officers,” “employees,” and other “agents” — would also be protected. To reach that far was unnecessary, said the Court, because the plaintiff sought only a “mainstream application” of §1514A and its language. Still, the Court made it clear in other language that it would likely extend the protection to these other actors in future cases.
As a result of Lawson, SOA whistleblower lawsuits are no longer a problem for large, public companies only. Now, all employers — even small, private companies — who contract or sub-contract with a public company may also face SOA liability. As a result, it is critical for all employers to adopt robust internal compliance procedures and to carefully and promptly evaluate all internal complaints about alleged fraud or other company wrongdoing.
You can find the U.S. Supreme Court’s full opinion in Lawson v. FMR LLC here.
Categories: Employment Litigation Tags: compliance, Lawson, Sarbanes-Oxley, U.S. Supreme Court, whistleblower