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SOX (Sarbanes Oxley) Whistleblower Protections Apply to Private Contractors That Work for Public Companies

The United States Supreme Court recently held in Lawson v. FMR (March 4, 2014) that the Sarbanes-Oxley (SOX) whistleblower protections include employees of a public company’s private contractors and subcontractors. The Court’s 6-3 decision concluded that the express language of the statutory provision, 15 U.S.C. 1514A(a), was clear:

"No [public] company . . . , or any . . . contractor [or] subcontractor . . . of such company, may discharge, demote, suspend, threaten, harass, or . . .discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity]."

The Court’s construction also was consistent with the intent of the SOX whistleblower provision because outside professionals like accountants, auditors and attorneys bear significant responsibility for reporting fraud by public companies with whom they contract. Indeed, the Court noted that SOX was enacted in part because Congress was concerned that employees of Enron and its outside accounting firm, Arthur Andersen, had attempted to report corporate misconduct but were threatened with retaliation, including discharge. Unless private contractors and subcontractors were covered, "[l]egions of accountants and lawyers would be denied section 1514A’s protections."

What does Lawson mean for accountants and accounting firms?

First, for any accounting services rendered to a public company—whether audit or consulting services—the accounting firm can face new federal civil liabilities when their employees allege they suffered retaliation for reporting fraud or other wrongdoing relating to the public company client. The accounting firm would already have state law liability under the New Jersey Conscientious Employee Protection Act, N.J.S.A. 34:319-1.

Second, the precise scope of Lawson is unclear. The dissenters (Justices Sotomayor, Kennedy and Alito) suggested that the majority’s reading could lead to lawsuits by babysitters against parents who worked at Walmart. But less fanciful scenarios would present harder questions: for instnace, would all of the employees of an accounting firm be protected simply because a single one of its professionals had worked on a matter for a public company?

Third, given that Lawson is likely to be expansively construed, employers should make sure their written policies include non-retaliation policies, not just anti-discrimination and harassment policies, and that those policies cover the new fraud-related reports under SOX.

Fourth, train supervisory personnel so they are familiar with the SOX-related whistleblower protections.

Fifth, implement internal complaint mechanisms that will allow the company to deal with any employee reports of fraudulent or illegal activity, and document the handling of such reports.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume IV, Number 127


About this Author

John Mitchell, Environmental Litigation Lawyer, Drinker Biddle

John P. Mitchell assists clients with large environmental lawsuits relating to soil and groundwater contamination and natural resource damages. He also handles other complex commercial litigation matters, including consumer fraud act cases, commercial foreclosure/creditors’ rights actions on behalf of large national lending institutions and other clients, actions in lieu of prerogative writs on behalf of developers and owners challenging zoning ordinances and challenging and defending municipal actions concerning development applications, commercial...