The Supreme Court in Lawson vs FMR, LLC (delivered March 4, 2014 after a 6-3 vote) has ruled that employees of private companies engaged by public companies are covered by the whistleblower protections of Sarbanes-Oxley Act of 2002 (“SOX”).

In Lawson, two employees of FMR, LLC (a private employer contracted with by publicly traded mutual funds) claimed they were retaliated against by their employer after raising issues of fraud. They filed See more +

The Supreme Court in Lawson vs FMR, LLC (delivered March 4, 2014 after a 6-3 vote) has ruled that employees of private companies engaged by public companies are covered by the whistleblower protections of Sarbanes-Oxley Act of 2002 (“SOX”).

In Lawson, two employees of FMR, LLC (a private employer contracted with by publicly traded mutual funds) claimed they were retaliated against by their employer after raising issues of fraud. They filed for whistleblower protection under SOX. FMR responded by claiming that their employees were not protected by SOX from firing or retaliation because SOX applied only to claims brought by employees of public companies.

A Seminal Shift in Coverage

SOX was enacted largely in response to shareholder fraud at a publicly traded company, Enron. SOX included a provision to protect whistleblowers from retaliation to encourage reporting of fraud. No one ever argued that these protections did not apply to employees of public companies. In fact as pointed out by dissenting Justice Sotomayor, the name of the pertinent SOX section was “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud.” For years it was a widely held position that this whistleblower protection applied solely to employees of the 5,000 or so companies with publicly traded securities in the U.S.

Lawson changes that position entirely. The decision’s seminal shift in SOX coverage opens up the potential for more claims brought by employees of the third parties of private companies who have been engaged by public companies.

What’s the Practical Impact on Exposure?

The true size of this potential new universe of protected claimants is still uncertain.

Depending on your position, you either think that there will be an overwhelming rush by accountants, law firms and even in the most extreme cases, baby sitters (as argued in the dissenting opinion of Justice Sotomayor) to bring retaliation claims. Or, you believe it will be “business as usual.” Much of this final debate may hinge on an undecided question about the types of claims protected and whether or not, as many allege, they are limited to shareholder fraud. But one thing is clear. Public and private companies alike must now take greater care with how whistleblowers are handled after a report has been filed.

http://trust.navexglobal.com/WhistleblowerBundle_TalktoUs.html See less -