In the early 2000s, corporate and accounting scandals involving Enron, Tyco, WorldCom, and other publicly traded companies cost investors billions of dollars and prompted federal legislation to reform corporate financial practices. The Sarbanes-Oxley Act (SOX) covers everything from mandatory financial disclosures to enhanced penalties for white-collar crime to requiring a company’s CEO to sign corporate tax returns. The law also includes penalties for retaliating against whistleblowers who provide information or assist in federal investigations.

Generally, SOX applies only to publicly traded companies.  However, in a recent decision Lawson v. FMR LLC., 571 U. S. ____ (2014), the United States Supreme Court expanded the law’s anti-retaliation provisions to some private employer – specifically, to contractors and subcontractors performing work for publicly traded companies.

Who is an “employee”?

The relevant section of SOX prohibits “any officer, employee, contractor, subcontractor, or agent” of a public company from discharging, discriminating, or otherwise retaliating against an “employee” because of his whistleblower activities. The question before the Court was who is considered an “employee” and thus a member of the statute’s protected class.

Justice Ruth Bader Ginsberg delivered the majority (6-3) opinion, concluding that the plain language of the statute’s second reference to “employee” does not specify whether an employee must be directly employed by the company. The majority expressed concern that SOX’s intent to punish and deter corporate and criminal fraud could be subverted if whistleblower protections were not extended to workers who work for a public company’s contractor, subcontractor, or agent.

In a spirited dissent, Justice Sonia Sotomayor expressed concern that the majority’s interpretation of SOX creates a “sweeping source of litigation.” Specifically, she pondered whether the law now extends to babysitters, nannies, housekeepers, and any other individual performing work for an officer, contractor, subcontractor, or agent of a public company.

Although the Supreme Court’s decision and SOX do not state that there must be a working relationship between the whistleblower and the public company, both the majority and dissenting opinions pointed out that if excessive litigation occurs because of the Court’s decision, Congress has the power to amend the law.

The U.S. Department of Labor (DOL), which enforces federal whistleblower protections, had already interpreted SOX’s whistleblower provisions to apply to employees of private contractors and subcontractors. Thus far, the DOL has avoided the storm of litigation that concerned the dissent.  Therefore, at least for now, the Court’s decision appears to solidify an already existing agency practice.