Court Asked to Define “Employee”
To make sense of how the new SOX ruling applies only to small businesses that retaliate against whistleblowing contractors and subcontractors they employ, let’s look at the definition of “employee” as it is relates to Sarbanes-Oxley.
Language included in SOX prohibits “any officer, employee, contractor, subcontractor, or agent” of a public company from discriminating against, firing, or taking other retaliatory actions taken against an “employee” because of their role as a whistleblower.
SCOTUS was challenged with determining who is considered an “employee” and who falls under the statute’s protected class category.
Language on the ruling’s last page says the Court’s decision has widespread implications for the financial-services industry, its employees, and the corporate structures of SOX-regulated entities. The decision now opens up private employers to new civil liability via their contracts with public companies.
Employers who do business with public companies need to familiarize themselves with the regulations governing public companies and know when those regulations have been violated, as well as their rights and potential liabilities pursuant to the whistleblower protections of SOX.[ii]
More Companies Now Impacted
According the the Wall Street Journal, This ruling means that “exposure to Sarbanes-Oxley (SOX) whistleblower protection claims is now something both public companies and private companies have to assess as “any private employer who happens to be a contractor of a public company is subject to a suit.”
The court noted in its opinion that the intent of SOX is to “ward off another Enron debacle” by empowering employees to report fraud.[iii]
Ruth Bader Ginsberg, who cast the deciding vote in favor of the ruling, expressed concern that the intent of the statute to punish and deter corporate and criminal fraud “could be subverted if whistleblower protections were extended to individuals who work for a public company but not to those who work for a public company’s contractor, subcontractor, or agent,” according to the Wall Street Journal.
(More from CMS: Fraud and Ethics Hotline Service)
Concerns Over Scope of Ruling
Justice Sonia Sotomayor, who voted against the ruling, expressed concern that the Court’s majority interpretation of SOX creates a “sweeping source of litigation,” stating that the law’s punishments now extend to domestic workers including babysitters, nannies, housekeepers, and any other individual performing work for an officer, contractor, subcontractor, or agent of a public company.
A majority of Justices concluded that the language of the statute’s second reference to “employee” does not lay out any opinion or argument over whether an employee must be directly employed by the company.
The U.S. Department of Labor (DOL), which enforces federal whistleblower protections, had previously determined that the statute’s whistleblower regulations apply to employees of private contractors and subcontractors.
Although neither the Supreme Court’s decision nor language contained in the original statute state that a working arrangement must exist between the whistleblower and the public company, all nine Justices agreed that if the Court’s decision results in excessive litigation, Congress has the power to amend the law.