Supreme Court Broadens SOX Whistleblower Protections

Earlier this month in Lawson v. FMR LLC, the U.S. Supreme Court ruled that the Sarbanes-Oxley Act (“SOX”) protects employees of private companies who blow the whistle on wrongdoing at publicly held companies. This means that if your employer does work for a publicly held company and you report that company for fraudulent accounting practices or another type of wrongdoing covered by SOX, your employer cannot retaliate against you.

Lawson involved two employees of private companies (collectively referred to as FMR) that contracted to work on mutual funds. The two FMR employees alleged that FMR fired them because they blew the whistle on fraud related to those mutual funds. The Court of Appeals for the First Circuit said that SOX did not protect the FMR employees because SOX applies only to employees of the mutual fund company, not to employees of other companies who worked for the mutual fund company. The Supreme Court reversed that decision, resolving a split in lower courts and broadening the reach of SOX’s whistleblower protections.

Lawson is a victory for employees and the public good. Congress passed SOX in 2002 in response to accounting scandals at publicly held companies. In these scandals, executives, managers, and board members were involved in shady accounting practices that led to the collapse of several major corporations. The fall of these companies had a substantial impact on the public’s faith in financial markets due to massive and unexpected shareholder losses. Congress passed SOX to encourage reporting of wrongdoing before it leads to financial disaster. Lawson furthers this goal by eliminating an unwarranted distinction about who employs the whistleblower.

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