DOL Ruling Expands SOX Whistleblower Protections And Widens Court Conflict

Author:Mr Eric Martin
Profession:McGuireWoods LLP

On May 31, 2012, the Department of Labor's Administrative Review Board (ARB) ruled in Spinner v. David Landau & Associates that the whistleblower protections of the Sarbanes-Oxley Act apply to employees of non-public companies that contract with public companies. The holding significantly expands the class of individuals to whom SOX protections ostensibly apply and will almost certainly result in an increase in (1) SOX whistleblower filings, and (2) further disputes with federal courts regarding whether the DOL's coverage interpretation is appropriate.

Prior Circuit Court Decision

In Lawson v. FMR LLC, two employees of companies that provided contract services to a public company filed complaints, alleging that they were fired from their jobs in retaliation for activity protected by SOX's whistleblower provisions. A DOL administrative law judge (ALJ) dismissed one case, holding that the employee was not covered under SOX. Both employees then removed their cases to federal court, where they were consolidated. The District Court held that the employees were covered by SOX, but certified the issue for interlocutory appeal.

The U.S. Court of Appeals for the First Circuit, in a detailed opinion, disagreed with the District Court, holding that the whistleblower protections of SOX applied only to employees of publicly traded companies. The Court undertook a detailed textual analysis of the statute, examined the legislative history and reviewed other factors to reach its conclusion. Further, only one judge on the panel dissented, writing that the Court should have given deference to the agency's interpretation and applied a broad definition of the term "employee."

Spinner Decision

Fewer than four months later, in Spinner v. David Landau & Associates, the ARB examined the identical issue addressed by Lawson. The ARB held that because Spinner did not arise in the First Circuit, the Board was not bound by the decision in Lawson. The ARB then rejected the analysis of the Court of Appeals in Lawson, conducting its own textual and legislative history analysis to reach the opposite...

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