Sides Warm Up For SOX Case at the Supreme Court

Arguments are shaping up for the U.S. Supreme Court’s hearing of its first whistleblower case brought under the Sarbanes-Oxley Act (SOX): This week, employee advocates filed an amicus curiae brief for the National Employment Lawyers Association (NELA) and the Government Accountability Project (GAP).

The brief was drafted, in part, by The Employment Law Group, P.C.

The Court will hear the case, Lawson v. FMR LLC, during the term that begins in October. The Obama administration also filed an amicus brief this week.

Passed in 2002 in the wake of the Enron scandal, SOX sets strict standards for financial behavior by public companies and, as codified in Section 1514A of the U.S. Code, protects “employees” against retaliation for blowing the whistle on a number of specific violations.

Lawson asks the question: Which “employees,” exactly, are protected?

Does SOX protect only whistleblowers employed directly by a public company that is suspected of wrongdoing — or does it also shield whistleblowers who work for privately held contractors of the suspected company?

The Lawson plaintiffs worked for different parts of privately held FMR, the financial giant behind Fidelity’s mutual funds; each had raised flags about possible wrongdoing at publicly traded Fidelity funds. One plaintiff was later fired, while the other says she was effectively forced to resign.

But since neither plaintiff worked directly at a fund — Fidelity’s funds are standalone corporations with no direct employees — FMR claimed it was free to retaliate against them for reporting their concerns.

(FMR didn’t admit the retaliation; the case has not gotten that far yet.)

The case reached the Supreme Court after being dismissed by the U.S. Court of Appeals for the First Circuit, which agreed that SOX didn’t protect the two Lawson plaintiffs. Among its reasons was the heading of 1514A, which reads: “Whistleblower Protection for Employees of Publicly Traded Companies.”

The NELA/GAP brief calls this a “cramped reading” that denies protection to “the very employees that Congress intended to protect” with SOX. It makes five basic arguments for protecting employees of non-public contractors under SOX:

• The SOX law explicitly covers employees of non-public contractors.
• Legislative history shows that covering such employees was a major purpose of SOX, which courts should not subvert.
• The U.S. Department of Labor, which enforces the SOX whistleblower provision, agrees that non-public employees are covered, and courts should defer to its rule-making authority.
• The relevant provisions of SOX were modeled on another law that even more explicitly protects employees of non-public contractors.
• Remedial laws like SOX should be read broadly, or the problems they address won’t be solved.

A common-sense theme also weaves through the brief: If the First Circuit’s decision in Lawson is allowed to stand, would-be whistleblowers at a latter-day version of Enron’s accounting firm still could be silenced today, even though encouraging such revelations was a big reason for SOX.

And in the case of the enormous mutual fund industry, where funds use only contracted expertise, “all the employees would be without protection,” according to the brief.

That is a recipe for disaster, it said.

Tagged: Administrative Review Board (ARB), Enforcement Bodies, Sarbanes-Oxley Act (SOX), Whistleblower Laws (Federal)