Employees of nonpublic companies not eligible for SOX protection

1st Circuit narrows application of SOX whistleblower protection provision

In Lawson v. Fidelity Management & Research, LLC, the 1st Circuit ruled on Feb. 3 that the whistleblower protection provision of section 806 of the Sarbanes- Oxley Act of 2002 (SOX) does not apply to employees of nonpublic companies, even those who work for private contractors or subcontractors to public companies.

The plaintiffs, Jackie Lawson and Jonathan Zang, filed two separate but similar suits, each alleging retaliation by their employers—private, contracted advisers to the Fidelity mutual funds—for raising concerns over potential securities fraud and cost inaccuracies, which resulted in the loss of their jobs.

Scrutinizing Statutes

The title of section 806 is “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud.” Subsection (a) forbids companies with securities registered under section 12 of the Securities Exchange Act of 1934 or “any officer, employee, contractor, subcontractor, or agent of such company” from discriminating against employees who report securities violations.

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