WASHINGTON – The Supreme Court ruled Tuesday that whistleblower protections in a federal law passed in response to the Enron financial scandal apply broadly to employees of publicly traded companies and contractors hired by the companies.
The justices voted 6-3 in favour of two former employees of companies that administer the Fidelity family of mutual funds. The workers claimed they faced retaliation after they reported allegations of fraud affecting Fidelity funds.
The case involved the reach of a provision of the Sarbanes-Oxley Act, passed in 2002 in response to the Enron scandal, which protects whistleblower activity. The measure was intended to protect people who expose the kind of corporate misdeeds that arose at Enron.
Justice Ruth Bader Ginsburg said in her opinion that the law “shelters employees of private contractors that serve public companies, just as it shelters the public companies’ own employees.”
Justices Sonia Sotomayor, Samuel Alito and Anthony Kennedy dissented.
Sotomayor said the court’s decision gives the law a “stunning reach” and could potentially allow a baby sitter to bring a federal case against the family that employed him.
Business groups also criticized the decision as likely to lead to a raft of frivolous lawsuits.
But the head of the National Whistleblower Center said the decision will make it harder for companies to silence whistleblowers. “The Supreme Court closed a potentially devastating loophole in corporate whistleblower protection,” said Stephen M. Kohn, the group’s executive director.
Jackie Hosang Lawson and Jonathan M. Zang complained of retaliation for whistleblower activities from the privately held parent company and subsidiary companies that run the Fidelity family of mutual funds.
Lawson resigned after complaining of harassment, and Zang was dismissed, and they both sued. A lower court refused to throw out their complaints, but that decision was overturned. The federal appeals court in Boston said only people who work for public companies are protected by the Sarbanes Oxley Act.
Fidelity Senior Vice-President Vincent G. Loporchio said the company will continue to fight Lawson’s and Zang’s claims. “It is important to note that there has been no determination of the merits of either former employee’s claims by any of the courts. The allegations were unfounded when they were made, and they continue to be unfounded today.”
The case is Lawson v FMR, 12-3.