U.S. Supreme Court Asked to Expand Sarbanes-Oxley Whistleblower Protection

Contributed by Jon Hoag

In February of this year the First Circuit declared that the whistleblower protections contained in the Sarbanes-Oxley Act (SOX) do not protect whistleblowers at privately-held firms, such as investment advisors and accountant, which are contractors or subcontractors for publicly traded companies or mutual funds.  Lawson v. FMR, LLC, 670 F.3d 61 (1st Cir. 2012).  The court dismissed the claims of the plaintiffs – Lawson and Zang – because both Lawson and Zang were employed by a contractor of a mutual fund.  The court reasoned that the whistleblower language was unambiguous and did not protect employees of privately-held firms that contract or subcontract with entities covered by the SOX whistleblower protections.

The Administrative Review Board (ARB) of the Department of Labor is responsible for administrative claims arising under SOX’s whistleblower provisions.  Approximately four months after Lawson, the ARB issued a strong decision rejecting Lawson and plainly stating that employees of entities that contract or subcontract with publicly traded companies or mutual funds are covered by the whistleblower protections.  Spinner v. David Landau and Associates, LLC, ARB Nos. 10-111 and 115, ALJ No. 2010-SOX-29 (ARB May 31, 2012).  Lawson and Zang have seized upon the ARB’s detailed criticism of the 1st Circuit’s analysis as their basis for urging the Supreme Court to take up their case to reverse the 1st Circuit’s narrow interpretation of SOX’s whistleblower protections.

We will be watching this case closely.  Retaliation and whistleblower claims are on the rise.  We anticipate that SOX and other whistleblower type claims will continue to gain momentum, especially if the Supreme Court expands whistleblower protection to all employees of contractors and subcontractors of publicly traded companies or mutual funds.  Illinois employers should also keep in mind that Illinois passed its own Whistleblower law to mirror SOX and the Illinois’ Whistleblower Act provides broad coverage to employees.  Simply, employers must take any employee complaint or concern regarding possible unlawful activity of the employer seriously with particular care towards the employee who initiated the complaint.