But dissent opinion worries the ruling will invite a flood of claims from employees Congress never intended to protect
If you work for a private company that contracts with public ones, the Supreme Court has decided you can safely blow the whistle on fraud by your employer. Sarbanes-Oxley’s protections, which have unambiguously protected public company employees since the law’s enactment, now extend to private companies, too.
Mid-sized and large private companies need to train human resources people, set up investigation protocols and ensure there’s no retaliation against employees who raise issues, counsels Edward Ellis, co-chair of Littler Mendelson’s Whistleblowing & Retaliation Practice. ‘At smaller companies top management needs to be trained’ as they know their people and can prevent retaliation directly,’ he says. (Littler Mendelson filed an amicus brief in support of the employer in the case.)
At issue in Lawson v. FMR LLC was the Sarbanes-Oxley language that prohibits retaliation against whistleblowers. There was disagreement about whether the language protects only public company employees or also applies to  employees of firms they contract with such as contractors or agents.
The Court’s 6-3 majority decided that employees of contractors are covered, although not all six agreed for the same reasons. The main opinion, by Justice Ginsburg, cited the statute’s text and purpose, the judicial interpretation of a related statute, regulator interpretation of the SOX provision, and legislative history. Justices Scalia and Thomas concurred, but both rejected the legislative history and the related statute as not useful for interpretation purposes. Still, no one in the majority seriously considered the dissenters’ main contention that extending protection to the employees of ‘any officer, employee, contractor, subcontractor, or agent of such company’ would result in a flood of lawsuits Congress never intended.
Justice Sotomayor’s dissent, joined by Justices Alito and Kennedy, insisted that the majority’s interpretation would give whistleblower protection to ‘any household employee of the millions of people who work for a public company and any employee of the hundreds of thousands of private businesses that contract to perform work for a public company,’ including ‘a babysitter’ whose employer is ‘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.’ The dissenting Justices also assert that an employee of the ‘business that contracts to clean the local Starbucks (a public company)’ is protected if that ‘employee is demoted after reporting that another nonpublic company client has mailed the cleaning company a fraudulent invoice.’
Ellis agrees with the statutory interpretation urged by the dissenters, but doubts that future plaintiffs would include babysitters and gardeners. Still, the Court’s ruling surprised him because he sees the interpretation as very broad.
‘It seems obvious to me that this is going to extend the coverage of whistleblower protections far beyond what anyone contemplated in 2002,’ he says. ‘I just find it hard to believe that a statute that was passed to protect shareholders of public companies is now being applied to protect virtually every employee in the United States.’
Although Supreme Court cases center on what laws or the Constitution mean, the facts of the cases raising the questions also matter. Lawson’s facts were particularly pro-plaintiffs, who worked for a private company hired by a mutual fund to invest the fund’s money on behalf of the fund’s investors. The plaintiffs allege they discovered their employer was defrauding the fund, reported it and were fired as a thank-you. If only public company employees are protected, they have no claim. But in this situation, it would mean that no one could safely report the fraud and thus protect the fund’s investors, because the mutual fund itself had no employees. That result seems problematic since protecting whistleblowers who report fraud committed against investors in public companies was the central purpose of the SOX retaliation provisions.
Although the Court answered the biggest question with its Lawson decision, future cases will be needed to resolve who precisely is covered. Does the statute really reach the babysitter of a Wal-Mart greeter? The majority (sans Justices Scalia and Thomas) believes limiting principles are available to prevent absurdities, but assert that if they’re wrong, Congress could easily fix the problem by amending the SOX provision to remove personal employees of public company officers and employees from its reach.
While private employers, who never considered their employees covered by SOX, may be forced to scramble to set up new systems, Ellis notes that New Jersey has had an all-purpose whistleblower protection law for at least 25 years. Employers who operate in that state should already have the necessary systems in place. Reflecting on his years of practice in New Jersey, Ellis reconsidered the risk of SOX lawsuits by babysitters: ‘You get some pretty weird stuff in New Jersey.’
