SEC and Supreme Court Broaden Protections for Whistleblowers

Both the SEC and the U.S. Supreme Court recently acted to broaden protections for whistleblowers. In February, the SEC filed an amicus brief in the 2nd Circuit, arguing that the anti-retaliation provisions of the Dodd-Frank Act apply to both employees who report misconduct internally and those who report it to the Commission. Liu v. Siemens AG, No. 13-4385. In March, the Supreme Court issued its decisions in Lawson v. FMR LLC, 571 U.S. __ (2014), holding that whistleblower protections of Section 806 of the Sarbanes-Oxley Act of 2002 (“SOX”) protect employees of a public company’s contractors and subcontractors.

With regard to the 2nd Circuit brief, the SEC expressed concern that an adverse ruling could hamper the effectiveness of internal compliance programs—fewer protections for whistleblowers who report internally means fewer reports, and therefore less overall compliance. The chief of the SEC’s whistleblower office said in a statement that, “We need strong internal compliance programs to ensure that companies are doing the right thing. They play a vital role in the overall policy space . . . We can’t be everywhere.” We previously reported on the SEC’s related whistleblower award program under Dodd-Frank here.

The Supreme Court decision in Lawson significantly expands the universe of companies regulated by the SOX whistleblower protections from about 5,000 public companies to potentially 6 million private ones who serve as the public companies’ contractors and subcontractors. Now, potential SOX whistleblower retaliation claims can be brought against any company that is a contractor or subcontractor of a public company.

For more detailed analysis of the Lawson decision, see here.