A Supreme Court Win for Whistleblowers

The Supreme Court gave corporate whistleblowers a significant victory today in a crucial decision that will help ensure that whistleblowers employed by contractors of public companies, such as accounting firms, law firms and consulting firms, are protected from unlawful retaliation. The case, Lawson v. FRM LLC, available at http://www.supremecourt.gov/opinions/13pdf/12-3_4f57.pdf, specifically involved the anti-retaliation provisions of the Sarbanes-Oxley Act of 2002, often referred to as SOX, which make it illegal for an employer to fire, harass, demote or otherwise retaliate against an employee who reports fraud involving a public company, or certain other companies that are required to make public filings with the SEC. The Court held that these vital protections extend not only to employees of the public company itself, but also to employees of private companies that serve as contractors for public companies.

While the anti-retaliation provisions of SOX are separate from those provided under the SEC Whistleblower Program rules and the Dodd-Frank law – which include their own robust remedies for whistleblowers who face retaliation from their employers – the Lawson decision is significant for current and potential SEC whistleblowers in many ways.

First, it helps ensure that an SEC whistleblower who is an employee of a public company contractor will have a full arsenal of legal protection if he or she is retaliated against for reporting possible securities violations involving public companies. The protections available under SOX are particularly important if an SEC whistleblower is retaliated against after he or she internally reports possible misconduct, but before blowing the whistle to the SEC, because courts have reached conflicting conclusions about whether Dodd-Frank and the SEC rules cover retaliation for internal reporting. Whistleblowers covered by SOX, on the other hand, need not have reported externally to receive employment-related protections. For this and other reasons, many of our SEC whistleblower clients who pursue retaliation claims against their employers decide, in consultation with their employment counsel, to bring both SOX and Dodd-Frank retaliation claims, and Lawson gives more whistleblowers the opportunity to leverage this strategy.

Second, the decision is a strong acknowledgment by the Court of the importance of whistleblowers, and the fact that outside contractors, including accountants, auditors, consultants, lawyers, and investment advisers, are often in the best (and sometimes only) position to detect, report and stop corporate fraud. Rejecting efforts to narrow the definition of a “whistleblower,” the Court instead emphasized that the Congressional goal of “protecting investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws” cannot be effectively realized if “gatekeeper” whistleblowers like outside accountants and consultants are not protected. The Court’s common-sense approach, and recognition of the critical role of whistleblowers in securities enforcement, bodes well for future whistleblower cases that are likely to come before the Court in the years ahead.