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Thursday, March 6, 2014

Supreme Court SOX Business

Jackie Lawson worked at Fidelity Investments, a privately held company, and alerted her supervisors to the alleged improper retention of $10 million of fees. Fidelity Investments served as a contract investment adviser to publically traded mutual fund companies with $1.7 trillion of U.S. investment assets. Shortly after her complaint she was passed over for a promotion and threatened with punishment for insubordination.

Jonathan Zang, who also served as a Fidelity Investments fund advisor claimed that he was given  poor reviews and fired in retaliation for his complaint that a new pay plan for Fidelity portfolio managers inaccurately and illegally described how pay was calculated. Both Lawson and Zang felt they had been retaliated against by their employer for bringing their whistleblower complaints revealing alleged fraud which directly impacted the Fidelity Mutual Fund.

Both employees eventually filled Sarbanes-Oxley Act (SOX) lawsuits in Federal Court. SOX was enacted in 2002 in the aftermath of the Enron collapse to protect investors in public companies with its linchpin being an anti-retaliation provision protecting whistle blowing employees. The two Fidelity Investments whistleblowers asked the court to find that SOX protects private company employees serving under contract as advisers to publicly traded company.

In a closely watched case the United States Supreme Court on Tuesday held that SOX whistleblower protections also cover contractors and subcontractors of publicly traded companies. This is an expansive view of SOX and means literally that millions of employees of private companies, accountants, lawyers and advisors with a contract with a public company who blow the whistle on corporate fraud may be SOX covered employees.  This was the high court's first-ever SOX whistleblower case. 

Justice Ruth Bader Ginsburg wrote for the high Court majority, “The plaintiffs' interpretation of SOX as meaning that contractors may not discriminate against its own workers for blowing the whistle is consistent not just with the statutory language but with common sense. Moreover, we resist attributing to Congress a purpose to stop a contractor from retaliating against whistleblowers employed by the public company the contractor serves, while leaving the contractor free to retaliate against its own employees when they reveal corporate fraud.”

Common Sense Counsel: This holding that SOX bans whistleblower retaliation by private contractors of publicly traded employers joins a line of decisions, Acts and Regulations which grant broad protections to employees who whistleblow about OSHA, False Claims, Affordable Health Care Act and 22 different Federal Acts for which OSHA conducts whistleblower investigations. However, the  four shots to inoculate your business from whistleblower claims are all the same and were detailed in my article Beware of the Blown Whistle on March 2. 

Tommy Eden is a partner working out of the Constangy, Brooks & Smith, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at or 334-246-2901.