On February 3, 2012, the U.S. Court of Appeals for the 1st Circuit reversed a March 2010 decision in Lawson v. FMR LLC, ruling that the Sarbanes-Oxley whistleblower provision does not cover employees of a public company’s contractor or subcontractor if the employees report violations. The plaintiffs, Jackie Lawson and Jonathan Zang, each claimed their respective firings were a form of retaliation. Both of the companies for which they were employed operate under the Fidelity Investments family, and both worked for Fidelity mutual funds companies. Looking at the language of Sarbanes-Oxley and its legislative intent, the Court found that because Congress had explicitly enacted broader whistleblower protection elsewhere, it would have done so in regards to contractors of public companies if it so had the intent.
The National Law Journal reports that Chief Judge Sandra Lynch authored the majority ruling:
Lynch observed that “Congress made choices about different regulatory mechanisms for different entities” and did not intend the whistleblower section’s private right of action to be accessible to employees of nonpublic companies. She noted that different regulatory mechanisms apply to accountants and lawyers, for example.
“Elsewhere in SOX, Congress did specifically address investment companies and investment advisers, and made it explicit when it intended coverage and when it did not,” Lynch wrote.
Lynch also noted that, in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act amended Sarbanes-Oxley “by explicitly extending whistleblower coverage to employees of public companies’ subsidiaries and employees of statistical rating organizations.”
Although this is one of the first decisions of its kind, it won’t be the last time the issue is challenged. The National Law Journal reports that the Department of Labor and the SEC filed amici briefs in defense of the plaintiffs:
The DOL, which filed an amicus brief supporting the plaintiffs, “is reviewing the decision,” according to spokeswoman Mary Brandenberger.
Two other amici filed briefs. The SEC, which supported the plaintiffs, is reviewing the decision, according to spokesman John Nester in an e-mailed statement. “While the Lawson court held that [the relevant section] of Sarbanes Oxley does not protect whistleblowers employed by private agents or contractors of publicly-traded companies, those employees are protected from retaliation under the Commission’s Dodd-Frank whistleblower regulations when they report to the Commission what they reasonably believe are violations of the securities laws,” Nester wrote.