Employees of private contractors and subcontractors who provide services to publicly traded companies including mutual funds are protected by the whistleblower provisions of Sarbanes-Oxley Act of 2002 (“Act”), the United States Supreme Court held in its decision dated March 4, 2014. See 18 U.S.C. § 1514A; Lawson v. FMR LLC, — S. Ct. —, 2014 WL 813701, *7, 2014 U.S. LEXIS 1783 (2014). The majority decision, written by Justice Ginsburg, relied on the language of the Act, applying “their ordinary meaning.” Lawson, *7.
The case involved two employees who formerly worked for “privately held companies that provide advisory and management services to” Fidelity funds. Id. at *6. One of the employees worked for Fidelity Brokerage Services, LLC, a subsidiary of the Respondents, for 14 years. Id. This employee alleged that she suffered a series of adverse employment actions, eventually being constructively discharged, after raising concerns about certain cost accounting methodologies that may have overstated expenses associated with operating the mutual funds. Id. The second employee worked for Fidelity Management & Research Co. and later by a different subsidiary, FMR, Co., Inc. for eight years, and alleged he was fired after raising concerns about inaccuracies in a draft SEC registration statement concerning certain Fidelity funds. Id.
The Respondents argued that the intent of Congress was to include only those contractors who fire employees of public companies, such as the “ax-wielding specialist” exemplified by George Clooney’s character in the movie Up in the Air. Id. at *7. In that movie, Mr. Clooney was hired by companies for the sole purpose of passing on the news that certain employees had been fired. The Court reasoned that if the company made the decisions about who would be fired, as they did in Up in the Air, they would not be insulated from liability by the contractor, who would merely be communicating the information to the employees. Id.
The holding of the Supreme Court has a significant impact in the area of whistleblower protections. This decision solidifies whistleblower protection to employees of contractors. This is significant for mutual funds, which the Supreme Court noted do not generally employ any of their own employees and are “managed, instead, by independent investment advisors. Id. at *12.
The Court held that the plain language of the Act and the treatment of a similar whistleblower provision protecting employees who complain about violations relating to air carrier safety supported its conclusion. The Act stated “[n]o [public] company… or any officer, employee, contractor, or subcontractor … may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against any employee in the terms and conditions of employment because of [whistleblowing or other protected activity].” Id. at *3 (citing § 1514A(a) (2006 ed.)). Separately, the Court in a minority decision cited the legislative history for the Act, but this part was not joined by Justices Scalia and Thomas, and therefore was not a part of the holding of the majority.
The attorneys at Malecki Law are committed to providing advocacy to whistleblowers who courageously wave the flag about fraudulent conduct occurring in the securities industry. If you believe you have original information about potentially fraudulent conduct, contact Malecki Law for a confidential consultation.