Most of you are aware that Sarbanes-Oxley prohibits public companies from retaliating against employees who “blow the whistle” on their employers by reporting violations of securities laws or certain other violations of federal law.1 But just how far does that protection extend? Do Sarbanes-Oxley’s whistleblower protections also extend to employees of private companies that do business with public companies? On March 4, 2014 in Lawson v. FMR LLC, the U.S. Supreme Court held that they do.2
The decision turned on the meaning of the phrase “discharge… an employee…” found in the statute. Arguably that phrase is ambiguous because it does not specify whose employees it refers to. The First Circuit held that it referred only to employees of the public company, not to employees of contractors and subcontractors.3 But the Supreme Court disagreed. As Justice Ginsburg put it in the majority opinion, “[Section 1514A] shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.”
Given the facts in Lawson, this result makes sense. The plaintiffs in that case were employed by private companies that managed mutual funds. The mutual funds themselves were public companies, but they had no employees. Thus, the only people who could possibly report violations by the mutual funds were employees of the private management companies. As Justice Ginsburg put it, “[I]f the whistle is to be blown…, the whistleblowing employee must be on another company’s payroll….” Plus, as Justice Ginsburg pointed out, Sarbanes-Oxley was intended in part to prevent another Enron scandal, and, in that scandal, employees of Arthur Anderson, a private subcontractor, suffered retaliation for bringing misconduct to light. The Court was not willing to interpret section 1514A in a way that would have excluded Arthur Anderson’s employees from its protection.
But what does this mean to other private companies—and even individuals—that do business with public companies? Justice Sotomayor raised some frightening possibilities. In her dissent, joined by Justices Kennedy and Alito, she argued:
As interpreted today, the Sarbanes-Oxley Act authorizes a babysitter to bring a federal case against his employer—a parent who happens to work at the local Walmart (a public company)—if the parent stops employing the babysitter after he expresses concern that the parent’s teenage son may have participated in an Internet purchase fraud. And it opens the door to a cause of action against a small business that contracts to clean the local Starbucks (a public company) if an employee is demoted after reporting that another nonpublic company client has mailed the cleaning company a fraudulent invoice.
If Justice Sotomayor is right, nearly everyone—and nearly all whistleblowing—is now subject to section 1514A of Sarbanes-Oxley. Whether the law will develop as she fears remains to be seen. For now, all we know for sure is that Sarbanes-Oxley’s whistleblower protections apply to employees of private companies who do business with public companies. That means it is more important than ever for owners and managers of public and private companies to provide employees with a way to report potential misconduct, to take those reports seriously, and not to retaliate against employees who make them.
For further guidance regarding how to avoid or respond to these types of whistleblower claims, please contact William D. Edwards, Chair of Ulmer & Berne LLP’s Employment and Labor practice group.
See 18 U.S.C. § 1414A(a).
 __ U.S. __, 2014 WL 813701 (March 4, 2014).
 Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012).