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SOX Whistleblower Protections Extend to Employees of Privately Held Companies that Contract with Public Companies

Bose McKinney Evans LLP - Indianapolis Office

March 12, 2014

Previously published on March 6, 2014

The U.S. Supreme Court on Tuesday, March 4, handed down an important decision regarding the reach of the anti-retaliation provisions of the federal Sarbanes-Oxley Act (SOX), holding that the law’s whistleblower protections extend to contractors and subcontractors of publicly traded companies. SOX, which became law in 2002, was the U.S. Congress’ response to highly publicized corporate accounting scandals such as Enron, MCI/WorldCom and Tyco. The law introduced a host of new regulations pertaining to accounting standards, financial reporting obligations and whistleblower protections, through its anti-retaliation provisions, in an effort to combat corporate fraud.

The SOX anti-retaliation provisions, which are broader than similar provisions under other federal laws, protect employees who raise concerns about improper conduct. SOX also imposes a standard of proof on employers who seek to prove the absence of retaliation that is higher than the burden employees face in proving the plausibility of their claims. Relief available to employees under this provision is also broad, including reinstatement, back pay, compensatory damages (including potentially, emotional distress damages), attorneys’ fees and litigation costs. In addition, individual supervisors and decision-makers may be held personally liable for violations of the anti-retaliation provisions.

To date, the common understanding has been that SOX applies only to publicly traded companies, and therefore employees of privately held companies could not invoke SOX’s anti-retaliation protections. On Tuesday, that presumption changed. Now, under the Supreme Court’s decision, employees of private companies that contract with publicly held companies are also covered by SOX’s anti-retaliation provisions.

Practically speaking, private employers who contract with publicly traded companies should understand the effects of these new rights on their workforces. Employee policies and handbooks should be promptly reviewed and updated to satisfy SOX’s requirements; and affected employers should be prepared to lawfully handle any related “whistleblowing” allegations or complaints they may receive from concerned or disgruntled employees.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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