DOL Disagrees With First Circuit's 'Natural Reading' Of SOX And Decides That Whistleblower Protection Does Extend To Employees And Public Company Contractors

Author:Ms Linda Jackson and Emily H. Jenkins
Profession:Venable LLP
 
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The U.S. Department of Labor Administrative Review Board, or ARB, recently held that whistleblower protection under the Sarbanes-Oxley Act ("SOX") extends to employees of contractors providing SOX-compliance services to publicly traded companies. The decision, Spinner v. David Landau & Associates, specifically rejects the First Circuit's recent holding in Lawson v. FMR, LLC ( Click here to read our alert on this case). In Lawson, a case of first impression, the First Circuit reached the opposite conclusion and held that coverage was available only to employees of publicly traded companies.

Section 806 of SOX protects certain employees who, among other things, report activity or provide evidence of fraud and violations of the SEC's rules or regulations. It provides, in pertinent part, that:

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 [who engaged in whistleblower protected activity].

Both the Spinner and Lawson opinions recognized that different readings may be given to the term "employee," and that SOX does not define the term. In reaching completely contrary conclusions, the opinions evidence the growing divide between federal courts and the ARB regarding the scope of Section 806 coverage.

What Happened

David Landau & Associates, or DLA, provides a variety of services, including SOX audit and compliance services, via contract to S.L. Green Realty Corporation. S.L. Green is publicly traded, DLA is not. Thomas Spinner was hired by DLA as an internal auditor in March 2008, and began working on the S.L. Green contract in September 2008. Shortly after, Mr. Spinner reported internal control and reconciliation problems at S.L. Green and then he was fired.

In December 2008, Mr. Spinner filed an administrative complaint against DLA claiming whistleblower status and unlawful termination. An initial investigation by DOL determined that Mr. Spinner would have been terminated even if he had not engaged in protected activity. On review, an administrative law judge, or ALJ, disagreed with the results of the investigation, but determined that, as a matter of law, DLA was not a covered entity and Mr. Spinner was not a covered employee under Section 806 because his employer, DLA, was a private company. The ARB granted an appeal to Mr. Spinner and reversed the ALJ's decision. In so doing, the ARB expressly rejected...

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