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6 Mar, 2014

U.S. Supreme Court extends whistleblower protection to private contractors

JURIST, University of Pittsburgh Law School, 04 March 2014 – The US Supreme Court has ruled [Download the full text of the opinion here] Tuesday in Lawson v. FMR LLC that the whistleblower provision 18 USC § 1514A [Cornell LII backgrounder] of the Sarbones Oxley Act of 2002 (SOX) protects employees of private contractors and subcontractors performing work for the public company, just as it shelters employees of the public company.

The opinion references the “mischief” that Congress was responding to with the passage of SOX in 2002, including the retaliatory practices against employees that questioned fraudulent practices within Enron and Arthur Anderson. With this backdrop, the court upheld whistleblower protection for private contractors of a public employee, citing the numerous provisions in SOX aimed at controlling the conduct of accountants, auditors, and lawyers who work with public companies.

The court stated: “Given Congress’ concern about contractor conduct of the kind that contributed to Enron’s collapse, we regard with suspicion construction of § 1514A to protect whistleblowers only when they are employed by a public company, and not when they work for the public company’s contractor.”

The Supreme Court granted certiorari in the case in May after the US Court of Appeals for the First Circuit held that privately-employed contractors and subcontractors, may retaliate against their own employees, but are prohibited from retaliating against employees of the public companies with which they work. The Supreme Court’s opinion on Tuesday reversed and remanded the ruling from the First Circuit.

The lawsuit originated when plaintiffs Jackie Lawson and Jonathan Zang initiated proceedings against their former employers, privately held companies offering advisory and management services to the Fidelity family of mutual funds, under the larger FMR LLC corporate structure. The Fidelity funds themselves have no employees. Lawson was employed by Fidelity Brokerage Services, LLC, a subsidiary of FMR LLC, and Zang was employed by a different FMR LLC subsidiary. Lawson was employed by FMR for 14 years.

After she raised concerns about Fidelity cost-accounting methods she was subjected to a series of adverse actions, ultimately resulting in her constructive discharge. Zang was employed by FMR for eight years and he claimed a retaliatory discharge after he raised concerns about inaccuracies in a draft of SEC registration statement concerning Fidelity funds.