On May 20, 2013, the United States Supreme Court granted a petition for a writ of certiorari to review the United States Court of Appeals for the First Circuit’s decision holding that SOX’s whistleblower protection does not extend to employees of a publicly traded company’s contractors.  Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012).  Notably, this is the first time the Supreme Court has been called upon to resolve an issue under Section 806 of the Sarbanes-Oxley Act.  

Background

Section 806 of the Sarbanes-Oxley Act of 2002 (“SOX”), codified at 18 U.S.C. § 1514A, prohibits retaliation against employees of public companies who report suspected violations of Securities and Exchange Commission rules or federal laws relating to fraud.  The SOX whistleblower protection provisions of § 1514A(a) state that no public company (i.e., registers securities under Section 12 of the Securities Exchange Act of 1934, required to file reports under Section 15(d) of the Securities Exchange Act of 1934 or certain subsidiaries thereof) or “officer, employee, contractor, subcontractor, or agent…of such company” may “discriminate against an employee” for engaging in a protected activity.  18 U.S.C. § 1514A(a).   

Two former employees, Jackie Hosang Lawson and Jonathan M. Zang , brought separate suits alleging unlawful retaliation under § 806 of SOX against FMR LLC and other related private companies (“FMR”) that provide, pursuant to contract, investment advising services to the Fidelity family of mutual funds. The Fidelity mutual funds were not parties to either suit and are investment companies organized under the Investment Company Act of 1940.  The Fidelity mutual funds are not owned, controlled by or affiliated with FMR. 

After initially filing complaints with the Occupational Safety & Health Administration (“OSHA”), Lawson and Zang commenced de novo actions in federal district court.  FMR moved to dismiss plaintiffs’ claims in district court, arguing that plaintiffs were not “covered employees” under § 1514A(a) because the statute does not protect employees of private subsidiaries of public companies.  FMR maintained that the listing of “contractor” and “subcontractor” (along with other possible actors) merely identifies those who are barred from retaliating against employees of public companies, but does not extend protection to the employees of those contractors and subcontractors.  Plaintiffs took the position that both the employees of public companies and those who are the employees of those public companies’ contractors and subcontractor are protected employees under the SOX whistleblower provisions.  Following the district court’s denial of its motion to dismiss on this basis, FMR successfully petitioned for an interlocutory appeal of § 1514A(a)’s applicability to the plaintiffs to the First Circuit Court of Appeals. 

The First Circuit’s Decision

On February 3, 2012, as the first (and only) court of appeals to address this issue, the First Circuit reversed the district court’s interpretation of § 1514A(a), holding that SOX’s whistleblower protection is limited to employees of publicly traded companies and does not extend to employees of a publicly traded company’s contractors and subcontractors.  Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012).  First, the court examined the text of the statute and found that FMR’s interpretation was “the more natural reading” because no evidence suggested that Congress intended the list of agents barred from discriminating to also define those protected from discrimination.  The court considered the title of SOX § 806 and the caption of § 1514A(a), both of which referred to “employees of publicly traded companies”, not private companies.  The court found that the wording of the title and caption of the statute to be a clear signal that the protection should be limited to employees of publically traded companies.  The court also examined similar statutory provisions in SOX and other Acts, and found that when Congress desired to provide for broader coverage than just public company employees, it was explicit when it did so.  Finally, the court explained that the legislative history of SOX specifically showed that the protection of § 1514A(a) was intended for employees of publicly traded companies, given that it was enacted in the wake of the demise of Enron – a public company.  In that same vein, it also relied upon Congress’s rejection of a proposed amendment to § 1514A that would have expressly provided for coverage of employees of investment advisers to mutual funds.  And the First Circuit pointed out supportive legislative history accompanying the Dodd-Frank amendment to § 1514A bringing certain non-publicly traded subsidiaries of public companies within its coverage.  Finally, the First Circuit declined to defer to contrary agency views, as expressed in Department of Labor regulations and in amicus briefs filed by the Department of Labor and the SEC.  

Petition for Certiorari and Implications

On June 28, 2012, plaintiffs filed a petition for certiorari with the United States Supreme Court.  In their petition, plaintiffs relied on the current Administrative Review Board’s (“ARB”) decision in Spinner v. Landau & Assocs. LLC, 2012 WL 2073374 (ARB May 31, 2012), issued less than four months after the First Circuit’s decision.  The ARB had never before directly addressed the question of coverage for employees of contractors and subcontractors to public employers.  In Spinner, the ARB reached the opposite conclusion from the First Circuit and extended SOX protections to employees of privately held contractors or subcontractors of a public company.  Plaintiffs argued that, because the ARB will apply its decision in Spinner to administrative claims arising in every circuit other than the First Circuit, the Supreme Court should resolve the issue.  The Court granted their petition for certiorari on May 20, 2013.

The Court will therefore decide “whether an employee of a privately held contractor or subcontractor of a public company is protected from retaliation by Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A.”  In so doing, the Court may also resolve (i) the degree to which courts will defer to the Department of Labor on issues relating to the interpretation of SOX, (ii) whether the SOX whistleblower provision will be interpreted in accordance with the purpose of SOX, i.e., the protection of the investing public from fraud by public companies or (iii) whether SOX has instead been transformed (by the current Department of Labor) into a general whistleblower protection statute, completely divorced from the statute’s overall purpose of rooting out public company fraud on shareholders.

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Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.

Photo of Noa Baddish Noa Baddish

Noa M. Baddish is a senior counsel in the Labor & Employment Law Department. She is a member of the Sports, Employment Litigation & Arbitration, Class and Collective Action, Wage & Hour and Whistleblower & Retaliation Practice Groups.

Noa’s practice concentrates on all…

Noa M. Baddish is a senior counsel in the Labor & Employment Law Department. She is a member of the Sports, Employment Litigation & Arbitration, Class and Collective Action, Wage & Hour and Whistleblower & Retaliation Practice Groups.

Noa’s practice concentrates on all aspects of labor and employment law. Her employment litigation practice in state and federal courts includes class and collective actions and defending claims of discrimination, harassment, breach of contract and violations of wage and hour laws. Noa represents Major League Baseball and its clubs in an ongoing litigation brought by current and former minor league players who allege minimum wage and overtime violations. In addition, Noa has represented clients in the media and entertainment and fashion industries in lawsuits brought by unpaid interns in wage and hour disputes.

Noa also provides significant assistance on counseling matters on a wide array of issues for clients in various industries, including, but not limited to, sports, law firms, financial institutions, media and fashion.

Noa has been recognized as a Rising Star by New York Super Lawyers since 2015. She has authored and contributed to several articles and newsletters on employment and labor topics, including “State Whistleblowing Laws Provide Whopping Verdicts,” New York Law Journal (January 2014). Noa is also a frequent contributor to the Firm’s Whistleblower Defense blog.

Previously served as Assistant General Counsel to the New York City Mayor’s Office of Labor Relations, Noa defended the Mayor and City agencies against both employee grievances at arbitration and improper practice petitions before the Board of Collective Bargaining. Prior to that, she was a Law Clerk to Judge Ellen L. Koblitz of the Appellate Division of the New Jersey Superior Court.

While in law school, Noa served on the Executive Board as notes and articles editor of the Fordham Urban Law Journal.