March 25, 2014

Employees Of Independent Contractors Can Be Protected Whistleblowers

Category: Claims & Defenses | Author: | Share:

In Lawson v. FMR LLC, ___ U.S. ___ (U.S. March 4, 2014), Cause No. 12-3, the Supreme Court issued an important decision extending whistleblower protection to the employees of subcontractors of public companies, and it noted that law firms may be one such contractor. Could you be a protected whistleblower?

In this case, two individuals worked for private companies that provides advisory and management services to the Fidelity family of mutual funds, and Fidelity is a public company. Each of the plaintiffs believed that the mutual funds made inaccurate statements in a draft SEC registration statement, and each were fired in retaliation for raising those concerns. They both filed suit, claiming that they were protected whistleblowers under the Sarbanes-Oxley Act of 2002. FMR moved to dismiss, arguing that it was a private company and that its employees were not protected under the Act. The district court denied the motion, but the circuit court reversed, and the Supreme Court granted certiorari.

The statutory language in question provided as follows:

No [public] company . . . , or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].

FMR argued that this provision only protected employees of the public company, but the Court found this nonsensical for two reasons. First, it noted that FMR’s interpretation of the text requires insertion of “of a public company” after “an employee,” and that Congress did not make any such insertion (even though it did in other contexts). Second, the Court recognized that “[c]ontractors are not ordinarily positioned to take adverse actions against employees of the public company with whom they contract,” so FMR’s reading of the statute would shrink some of the protections “to insignificance.”

The Court went on to describe in particular why this provision extends to “lawyers and accountants,” as these professionals perform lots of work for public companies and are in a position to blow the kinds of whistles the Act is meant to protect. “[W]e cannot countenance that Congress intended to leave these professionals vulnerable to discharge or other retaliatory action for complying with the law.”

In short, law firms must recognize that they cannot retaliate against a lawyer who whistle blows about problems at a public company, even if that activity causes a strain in the firm-client relationship. And individual attorneys can feel freer to express themselves in a whistle-blowing capacity.

Lesson:

          Employees of a public company’s contractors are protected if they engage in whistle-blowing activities regarding the public company.

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