March 2014

By: James B. Sherman, Esq. & Phoebe A. Taurick, Esq.

In a 6-3 decision, the United States Supreme Court held in Larson v. FMR LLC that the Sarbanes-Oxley Act (SOX) protects the employees of contractors and subcontractors of publicly-traded companies from retaliation for protected whistleblowing under the statute. SOX was enacted in 2002 in response to the collapse of the Enron Corporation, to “prevent and punish corporate and criminal fraud, protect the victims of such fraud, and hold wrongdoers accountable for their actions.” Along with other reforms, SOX specifically protects employees of publicly-traded companies from retaliation for providing information or participating in an investigation regarding the types of fraud the statute was enacted to prevent. Less clear, however, was whether employees of contractors for publicly-traded companies were similarly protected.

With this ruling, the Supreme Court implicates contractors such as accounting firms, law firms, and investment advisers (as in the instant case) whose employees blow the whistle on fraud perpetrated by their employers’ clients. This decision will likely expand the reach of SOX into more wrongful discharge scenarios, as employees of these contractors are now protected from retaliation for blowing the whistle on publicly-traded clients or customers. Therefore, all employers are cautioned to think twice and carefully review the situation before negatively reacting to an employee’s criticism, disapproval or complaints involving the employer’s publicly-traded clients and vendors.