U.S. justices extend employee whistleblower protections

WASHINGTON (Reuters) - The U.S. Supreme Court ruled on Tuesday that whistleblower protections apply broadly, saying that employees of subcontractors, including investment advisers, law firms and accounting firms, should also be protected from employer retaliation.

The justices voted 6-3 along non-ideological lines in a ruling that extends whistleblower protections beyond employees of publicly traded companies.

The three dissenting justices said the ruling had a "stunning reach" that could give protection to household employees like babysitters.

The justices were interpreting part of the Sarbanes-Oxley Act, the 2002 Wall Street reform law passed by Congress that sets standards for all U.S. publicly traded company boards, management and public accounting firms.

Lawyers representing public companies warned that the ruling expands the scope of the provision from roughly 5,000 companies to several million, including small businesses.

"That's not what Sarbanes-Oxley was about," said Lloyd Chinn, a lawyer at the Proskauer law firm in New York, saying that the law was only intended to protect investors in public companies.

The court majority said the decision was in accordance with how the U.S. Department of Labor had interpreted the law for almost a decade.

Justice Ruth Bader Ginsburg, writing for the majority, noted that Congress had enacted Sarbanes-Oxley after accounting problems brought down energy company Enron Corp and communications provider WorldCom Inc, calling those events the "mischief to which Congress was responding."

She questioned whether Congress, "prompted by the Enron debacle, would exclude from whistleblower protection countless professionals equipped to bring fraud on investors to a halt."

Jordan Thomas, a New York-based lawyer at Labaton Sucharow who represents whistleblowers, said the ruling "sends the clear message to potential whistleblowers that they will be protected from retaliation for wrongdoing regardless of their legal relationship to a public company."

DISSENTING OPINION SAYS REACH IS TOO BROAD

The court ruled that two whistleblowers were legally protected against retaliation after they raised concerns to their employer, FMR LLC, the parent company of Fidelity Investments, about how some mutual funds were being managed.

While Fidelity's mutual funds are public companies and are required to file reports with the U.S. Securities and Exchange Commission, management services are provided by private companies under contract with the funds, including Fidelity Brokerage Services LLC.

In its ruling, the majority dismissed Fidelity's narrow interpretation of the provision, which the company said was only intended to prevent companies from avoiding liability by hiring contractors specifically to fire people.

Ginsburg wrote that such contractors, including the character portrayed by actor George Clooney in the 2009 film "Up in the Air," were not the "real-world problem" that prompted Congress to act. Congress could easily tweak the law to exempt household employees if necessary, she added.

Justice Sonia Sotomayor, joined by Justices Anthony Kennedy and Samuel Alito, wrote a dissenting opinion. She said the majority's interpretation gave the law too broad a reach. Not only babysitters but also small businesses that contract with public companies could be swept up, such as a service that cleans a Starbucks coffee shop, Sotomayor wrote.

Ginsburg said Congress could easily tweak the law to exempt household employees if necessary.

The ruling was a win for plaintiffs Jackie Lawson and Jonathan Zang. Lawson, who worked at Fidelity from 1993 until 2007, complained that she alerted supervisors to problems, including alleged improper accounting practices, only to be passed over for a promotion and threatened with punishment for insubordination.

Zang, who ran several mutual funds from 1998 to 2005, alleged Fidelity gave him poor reviews and fired him in retaliation for his complaint that a new pay plan for Fidelity portfolio managers inaccurately and illegally described how pay was calculated.

In a 2012 ruling, the 1st U.S. Circuit Court of Appeals in Boston sided with Fidelity. The case is Lawson v. FMR, U.S. Supreme Court, No. 12-3.

(Reporting by Lawrence Hurley; Additional reporting by Sarah N. Lynch; Editing by Howard Goller and Leslie Adler)

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