Recent Department of Labor Decision Makes Sarbanes-Oxley Whistleblower Retaliation Complaints a Concern for Private Firms that Contract with Public Companies

Spinner v. David Landau & Associates, ARB Case Nos. 10-111, 10-115 (May 31, 2012) is only the most recent in a series of Department of Labor Administrative Review Board (“ARB”) decisions expanding the anti-retaliation protections afforded employees under section 806 of the Sarbanes-Oxley Act (“SOX”).  What makes Spinner significant is the fact that it is the first decision to conclude that SOX protections can, under certain circumstances, extend to employees of private firms.  Also significant is the fact that, in reaching its conclusion, the ARB explicitly refused to adopt the reasoning of a previously issued First Circuit Court of Appeals decision that reaches the contrary conclusion.

The Decision

Spinner arose from a SOX retaliation complaint filed by an internal auditor employed by a private auditing firm.  He alleged that the firm terminated his employment after he reported internal control and reconciliation problems at a public company that had engaged the firm to provide auditing services.

After its initial investigation of the complaint, the DOL determined that the Complainant, as a contractor of a public company, was covered by SOX but that the employer had avoided liability by establishing that it would have terminated his employment even if he had not engaged in protected activity.  The Complainant appealed to an Administrative Law Judge, and the employer moved for summary decision, arguing that, as an employee of a private firm, Complainant was not covered by SOX’s anti-retaliation protections.  The ALJ granted the employer’s motion, and the Complainant appealed to the ARB.

On appeal, the ARB reversed the ALJ, concluding that SOX’s whistleblower protection provision covers employees of privately held contractors and subcontractors of public companies. As support for its conclusion, the ARB found that neither the plain language nor legislative history of SOX indicates that Congress intended the statute’s protections to extend only to employees of public companies. Significantly, the ARB discussed and declined to adopt the First Circuit’s recently issued analysis in Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012), which held, in a case of first impression, that SOX’s whistleblower protections do not apply to employees of private firms that contract with public companies, noting that Spinner did not arise in the First Circuit and, as a result, that it was not bound by Lawson.

Spinner’s Implications

Spinner’s import is clear: private firms that contract with public companies must take appropriate measures to prepare to handle SOX whistleblower retaliation claims.  Such firms should immediately become familiar with SOX and implement procedures for the receipt and treatment of retaliation complaints.