On March 4, 2014, the U.S. Supreme Court issued its decision in Lawson v. FMR LLC, addressing for the first time the whistleblower provision of Section 806 of the Sarbanes-Oxley Act (SOX), which provided in relevant part:
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].
While it is clear from the statutory language that a private contractor or subcontractor of a public company cannot engage in retaliatory actions against an employee, courts have divided on whether “an employee” refers only to the public, SOX-reporting company’s employees, or also protects employees of the private contractor or subcontractor from retaliation.
In Lawson, the U.S. Court of Appeals for the First Circuit took the former view, holding that the meaning of “employee” in Section 806 is unambiguous, and that employees of privately-held companies are not covered by SOX’s whistleblower protections regardless of who their employer contracts with. In a 6-3 split decision, however, the high court reversed and remanded the First Circuit’s decision, finding instead that SOX’s anti-retaliation provision also covers employees of private contractors and subcontractors that are hired by public companies covered by the law. In so doing, the Court significantly expanded SOX’s whistleblower protections to give the law what appears to be, in the words of Justice Sotomayor’s dissent, a “stunning reach.”
The plaintiffs in Lawson were two former employees of private companies that contracted to advise and manage mutual funds, which had no employees and are covered by SOX as companies required to make certain regulatory filings. After they were allegedly retaliated against for attempting to report a purported fraud related to mutual funds, the plaintiffs brought a whistleblower claim against their former employers under Section 806. The defendants’ motion to dismiss was initially denied by the District Court, but the First Circuit reversed the decision and found that dismissal was appropriate because Section 806 did not protect the plaintiffs as employees of private companies.
On appeal, the Supreme Court examined the text of the statute, the context in which it was enacted, and its legislative history. Writing for the majority, Justice Ruth Bader Ginsburg wrote with regard to statutory text that the language of Section 806 is unambiguous, and contains “numerous indicators that the statute’s prohibitions govern the relationship between a contractor and its own employees.” With regard to legislative intent, Justice Ginsburg likewise found that Section 806 was enacted “to encourage whistleblowing by contractor employees who suspect fraud involving the public companies with whom they work.” Justice Ginsberg was joined in the majority by Chief Justice Roberts, and Justices Breyer and Kagan. Justices Scalia penned a separate opinion, joined by Justice Thomas, concurring in the ruling but criticizing the majority’s focus on legislative intent and comparisons to other whistleblower laws.
In a strongly worded dissent in which she was joined by Justices Kennedy and Alito, Justice Sotomayor wrote that the majority’s opinion gave the SOX whistleblower laws a “stunning reach” that could lead to “absurd results,” and that “nothing in the text, context, or purpose of the Sarbanes-Oxley Act suggests that Congress actually wanted to do so.” Finding that the statutory text is ambiguous, and that Congress intended a narrow reading of Section 806 that excluded employees of private companies, Justice Sotomayor dissented that whatever “laudatory purpose” the majority’s interpretation of the whistleblower law might serve, “that is not the statute Congress wrote.”
The dissent notwithstanding, the Court’s decision is now the law of the land, and will likely remain so unless and until Congress acts to overturn the majority’s interpretation of Section 806. While the majority was dismissive of any “floodgate-opening concerns” about a potential deluge of new whistleblower litigation, there is no question that the number of employees covered by SOX’s whistleblower provisions has been enormously expanded by the Court’s ruling. As such, many private employers who have become accustomed to thinking of themselves as outside the scope of SOX’s whistleblower provisions will need to reevaluate their practices and procedures in light of Lawson, and take steps to minimize the potential for whistleblower claims. Such steps can include, among other things, changes to the company’s training programs, employee documentation and record-keeping procedures, and internal policies governing the discipline process and the permissible grounds for taking adverse action against an employee.
At a minimum, private companies who contract to do business with public companies should seek the assistance of counsel to conduct a thorough review of their internal control and compliance procedures, in addition to modifying their anti-retaliation policies as needed. Companies should also conduct training on what is and is not permissible given SOX’s whistleblower provisions, and make it clear that knee-jerk firings and other adverse actions must be avoided when an employee reports fraud or other misconduct covered by SOX, whether allegedly occurring at the public company or at the contractor-employer. Likewise, public companies need to recognize that they may now be found liable not only for retaliation against their own employees who report SOX violations, but also for retaliatory acts conducted by agents of the public company against the employees of its private contractors and subcontractors. Public company employers thus may also need to reconsider their SOX reporting and anti-retaliation policies in light of the fact that Lawson greatly expanded the pool of potential whistleblower claimants.
As a final note on Lawson, it is worth noting that the Supreme Court chose not to weigh in on another important issue recognized in the case – the extent to which a prior decision by the Department of Labor’s (“DOL”) Administrative Review Board’s (“ARB”) was entitled to deference by the Court. Several months after the First Circuit’s decision in Lawson, the ARB came to the opposite conclusion in Spinner v. David Landau & Associates, LLC. In that case, the ARB held that the meaning of “employee” in Section 806 was ambiguous, and therefore the ARB did not have to follow the First Circuit’s ruling. Instead, the ARB sought to expand SOX’s reach in holding that Section 806 applied to employees of privately-held companies if they had contracts with publicly-traded companies.
Thus, when the Supreme Court agreed to hear Lawson, many observers hoped that the Court would use it as an opportunity to decide the proper level of deference that courts should give to the ARB’s construction of SOX. The Court, however, essentially passed on the issue, simply noting in a footnote that “[b]ecause we agree with the ARB’s conclusion that [Section 806] affords protection to a contractor’s employees, we need not decide what weight that conclusion should carry.” But while the deference issue was left unanswered, the Court’s Lawson decision will almost certainly have a large impact in the arena of SOX whistleblower litigation. At the very least, it has given both public company and private company employers plenty to consider in ensuring that they are in compliance with SOX’s anti-retaliation laws.
 571 U.S. ___ (March 4, 2014).
 18 U.S.C. § 1514A(a) (2006 ed.) (emphasis added).
 See Lawson v. FMR, LLC, 670 F.3d 61 (1st Cir. 2012).
 Slip op. at 16.
 Id. at 19. Despite Justice Ginsburg’s observation, the rule of Lawson extends to reports of alleged misconduct committed by both the public company and the employer-contractor. Indeed, as pointed out in the dissent, under the majority’s holding, the employer-contractor’s alleged misconduct may have nothing to do with the contract between the employer-contractor and the public company.
 Id. at 2 (Sotomayor, dissenting).
 Id. at 20.
 Slip op. at 22.
 ARB Nos. 10-111, 10-115 (May 31, 2012).
 For its part, the First Circuit noted in its decision that, because the statute was unambiguous, the court owed no so-called Chevron deference to any contrary agency determinations. See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (holding that agency interpretations of ambiguous statutes will be upheld so long as they are reasonable, but where a statute is unambiguous, the courts as well as the administrative agencies must give effect to its clear meaning).
 Slip op. at 9 n.6. The dissent in Lawson argues that the majority in fact declined deference by not endorsing all of the ARB’s holding in Spinner. Slip op. at 17 n.11.