Whistleblowers who work for businesses with government contracts are protected under Sarbanes-Oxley according to a new case decided by the United States Supreme Court.
In Lawson v. FMR LLC, the justices ruled that the whistleblower protections of the Sarbanes-Oxley Act apply to contractors and subcontractors of privately held companies. Accordingly, attorneys, accountants and other consultants who perform work for public corporations are protected from retaliation, such as termination, suspension, or harassment, just like a typical employee would be.
The Sarbanes-Oxley Act was signed into law in the wake of the Enron scandal as a way to restore public trust. This legislative history contributed to the Supreme Court’s decision. As explained by Justice Ruth Bader Ginsberg, who authored the majority opinion: “[O]utside professionals bear significant responsibility for reporting fraud by the public companies with whom they contract, and that fear of retaliation was the primary deterrent to such reporting by the employees of Enron’s contractors.”
The Sarbanes-Oxley Act is the only way for insiders to report illegal activity. The Securities and Exchange Commission’s whistleblower program, launched in 2012 under the Dodd-Frank Act, logged more than 3,000 tips in its first year of operation. Last year, the agency awarded a record $14 million to a whistleblower who helped to uncover investment fraud.
Whistleblower claims under the False Claims Act, which imposes liability for fraud against the federal government, have also reached record levels in recent years. A record total of 752 qui tam suits were filed in fiscal year 2013, resulting in the recovery of $3.8 billion. Most recently, the Department of Justice announced that whistleblower would receive $63.9 million for information that resulted in JPMorgan Chase & Co.’s mortgage fraud settlement.
While critics of such programs argue that whistleblowers are only looking to turn a profit, most only turn to the federal government after being rebuffed by their employers. Even in the wake of the financial crisis, many corporations have failed to implement internal reporting programs that encourage workers to pursue in-house remedies and assure them that they will not face retaliation for their actions.
For a more in-depth discussion of the Supreme Court’s decision, please visit the Scarinci Hollenbeck Business Law News blog.
Donald Scarinci is a managing partner at Lyndhurst, N.J. based law firm Scarinci Hollenbeck. He is also the editor of the Constitutional Law Reporter and Government and Law blogs.
