Supreme Court Expands Whistleblower Protections to Private Companies

On March 4, 2014, the United States Supreme Court expanded the reach of the Sarbanes-Oxley Act of 2002 to increase the scope of persons protected as whistleblowers. Lawson v. FMR LLC, 571 U.S. ___ (2014). The Supreme Court, voting 6-3, reversed the decision of the Court of Appeals for the First Circuit and concluded that the Sarbanes-Oxley Act’s whistleblower protection provision encompasses employees of private contractors and subcontractors who work for a public company; it is not limited to the public company’s employees alone. In her majority opinion, Justice Ruth Bader Ginsburg said that in enacting the Sarbanes-Oxley Act, Congress was “aiming to encourage whistleblowing by contractor employees who suspect fraud involving the public companies with whom they work” in order to avoid another Enron-type debacle. Justices Sonia Sotomayor, Anthony Kennedy and Samuel Alito dissented on the basis that this ruling improperly expands the reach of the Sarbanes-Oxley Act because the statutory language was limited to employees of public companies.

The Supreme Court’s ruling confirmed that the whistleblower protections of the Sarbanes-Oxley Act apply to all persons who do work at, or for, a public company, even though they are private contractors. As a result of this decision, courts are likely to see an acceleration of the already expanding number of False Claims Act and retaliation lawsuits. The impact will be seen in the financial, healthcare and defense industries among other sectors where public companies frequently use outside professionals, such as consultants and accountants, to assist with a project.  

In light of this decision, public companies and private companies who serve as contractors or subcontractors for public companies should review and update their anti-retaliation policies. For more information on this matter, please contact Jonathan Feld at 312-627-5680 (Chicago) or 202-906-8716 (Washington D.C.), Zafreen Husain at 202-906-8622 (Washington D.C.), any of the lawyers listed to the left, or your Dykema relationship attorney. 

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