Labor Department Continues Broad Reading of SOX Whistleblower Shield

Guest Commentary

Ryan T. Scharnell, Conner & Winters LLP*

After the U.S. Court of Appeals for the First Circuit decided earlier this year in Lawson v. FMR, 670 F.3d 61 (1st Cir. 2012), that the Sarbanes-Oxley whistleblower provision, Section 806, does not cover employees of most non-public companies, many debated whether the Department of Labor (DOL) would respect the analysis of the First Circuit or continue its own trend to broadly interpret Section 806. Recently, the Administrative Review Board (ARB) answered that question by rejecting Lawson and holding that employees of private companies may bring SOX whistleblower lawsuits. See Spinner v. Landau and Assocs., ARB Case Nos. 10-111; -115

The complainant in the above-referenced case, Spinner, worked for David Landau and Associates (DLA), which is not a publicly traded company. DLA provided auditing and forensic services to a publicly traded company, S.L. Green Realty Corp. (S.L. Green), including SOX audits.  After initially being assigned to audit S.L. Green, DLA terminated Spinner. Spinner filed a whistleblower complaint in which he alleged he was terminated because he reported internal control and reconciliation problems at S.L. Green. An Administrative Law Judge (ALJ) granted summary judgment in DLA’s favor on the basis that Section 806 only protects employees of publicly traded companies.

The ARB has now reversed that decision. The ARB noted that Spinner’s claim did not arise within the jurisdiction of the First Circuit and that Lawson “is not controlling in this case, and we decline to adopt it.” Instead, building on its previous decisions, the ARB held that Section 806 protects “employees of contractors, subcontractors, or agents of publicly traded companies, regardless of the fact that the contractor, subcontractor, or agent was not itself a publicly traded company.” To counter Lawson, the ARB explained in great detail its reliance on textual analysis, the title to Section 806, legislative history, statutory framework, and analogous whistleblower statutes.

Spinner exemplifies and continues the pronounced trend of the current ARB to expand the reach of federal whistleblower protections. An appeal of the ARB’s decision is likely, and it remains to be seen whether the appeals court will side with Lawson or defer to the ARB’s ruling.

*Ryan T. Scharnell is an associate in the Tulsa, OK office of the law firm of Conner & Winters, LLP ().  He defends clients in whistleblower, employment and commercial litigation. Along with partner Donn Meindertsma, Mr. Scharnell authored an April 27, 2012 WLF Legal Backgrounder, Appeals Court Limits Reach of SOX Whistleblower Protection.