RESPONDENT: FMR LLC, et al.
LOCATION: United States District Court, Massachusetts
DOCKET NO.: 12-3
DECIDED BY: Roberts Court (2010-2016)
CITATION: 572 US (2014)
GRANTED: May 20, 2013
ARGUED: Nov 12, 2013
DECIDED: Mar 04, 2014
Eric Schnapper - for the petitioners
Mark A. Perry - for the respondents
Nicole A. Saharsky - Assistant to the Solicitor General, Department of Justice, for the United States, as amicus curiae, supporting the petitioners
Facts of the case
The plaintiffs, Jackie Lawson and Jonathan Zang, brought a lawsuit against their former employer, FMR LLC, a subcontractor of Fidelity Investments (Fidelity), alleging that the company unlawfully fired them in retaliation for filing complaints. Both Lawson and Zang told the Occupational Health and Safety Administration (OSHA) that they believed that Fidelity had violated certain rules and regulations set forth by both the Security and Exchange Commission (SEC) and federal laws relating to fraud against shareholders. Sometime after filing these complaints, Zang was terminated for unsatisfactory performance. Lawson filed several retaliation claims against her employer with OSHA, and resigned in 2007, claiming that she had been constructively discharged.
Zang and Lawson each filed separate actions against their former employers in district court. They alleged that the defendants violated "whistleblower" protection sections of the Sarbanes-Oakley Act by taking retaliatory actions against them. The district court found in favor of the plaintiffs and held that the whistleblower provisions extended to employees of private agents, contractors, and subcontractors to public companies and that the plaintiffs had engaged in protected activity under the statute. The defendants appealed to the U.S. Court of Appeals for the First Circuit, which reversed the decision. Looking at both Congressional intent and the plain meaning of the statute, the Court of Appeals held that the plaintiffs were not protected employees under the act.
Is an employee of a privately held contractor or subcontractor of a public company protected from retaliation under the whistleblower-protection provision of the Sarbanes-Oxley Act?
Media for Lawson and Zang v. FMR, LLCAudio Transcription for Oral Argument - November 12, 2013 in Lawson and Zang v. FMR, LLC
Audio Transcription for Opinion Announcement - March 04, 2014 in Lawson and Zang v. FMR, LLC
Justice Ginsburg has our opinion this morning in case 12-3 Lawson v. FMR, LLC.
In 2002 after the collapse of the Enron Corporation, Congress passed the Sarbanes-Oxley Act, a law design to safeguard investors in public companies and restore trust in the financial markets.
At issue in this case the Act's protection for whistleblowers.
The relevant provision 18 U.S.C. Section 1514A prohibits public companies as well as their contractors, subcontractors, agents, employees and officers from retaliating against an employee who engages and protected whistle blowing activity.
The question presented are the employees who are shielded by the retaliation prohibition confined to persons on a public companies payroll or does the prohibition also shield employees of privately held contractors who perform work for the public company.
Plaintiffs below petitioners here are former employees of private companies that contract to advise or manage mutual funds.
We refer to those employers collectively as FMR.
As is common in the industry, the mutual funds served by FMR are public companies with no employees of their own.
Both plaintiffs alleged that after they blew the whistle on fraud regarding the mutual funds they suffered retaliation by FMR.
Each commenced suit in federal court.
FMR moved to dismiss the suits, the plaintiffs could state no claim under Section 1514A, FMR argued, for that provision protects only employees of public companies not employees of private companies that contract to serve public companies.
Although the United States District Court for the District of Massachusetts denied FMR's motions, the Court of Appeals for the First Circuit held as FMR had argued that the term and the employee in Section 1514A refers only to employees of public companies and does not cover persons on a private contractor's payroll.
We reverse the First Circuit's judgment based on the statutory text and the mischief to which Congress was responding.
We hold that Section 1514A shelters employees of private contractors that served public companies just as it shelters the public companies own employees.
Reduced to its relevant elements Section 1514A provides that no contract that may discharge an employee for whistle blowing activity.
That seems to say a contractor may not fire its own whistle blowing employees.
Beyond this ordinary meaning of the term an employee Section 1514A as a whole supports our reading.
The retaliatory measures prohibited by Section 1514A include discharge demotion, suspension, harassment or discrimination in employment terms and conditions.
But those are most obviously adverse actions an employer takes against its own, not another's employees.
Contractors generally are not positioned to discharge, or demote, or take other listed adverse actions against employees of the public company they serve.
FRM's interpretation of Section 1514A to cover only public company employees with the strength to insignificance Section 1514A spend on retaliation by contractors.
A reading of Section 1514A's text aligns with the provision's purpose.
Congress, the legislative record bears out understood that outside professionals, accountants, lawyers, fund managers for example are responsible for reporting forward involving public companies, the public companies they served.
Congress further learns that fear of retaliation was the primary reason why the employees of Enron and its contractors kept quiet about the fraudulent practices they witnessed.
A reading of Section 1514A that did not reach employees of contractors like FMR would have an extreme consequence in the mutual fund industry.
It will give the mutual fund industry a blanket exemption from Sarbanes-Oxley's ban or retaliation against whistleblowers.
As earlier, I mentioned mutual funds ordinarily have no employees of their own.
They are managed instead by independent investment advisers.
Onto our reading of the statute these investment advisers or contractors prohibited from retaliating against their own employees for blowing the whistle on fraud affecting investors and mutual funds.
As the industry is structured, the contractor's employees are likely to be the only first-hand witnesses to the shareholder fraud of concern to Congress.