Finally, We Know What's Worse Between an Ax-Wielding George Clooney and a Litigious Nanny

After much anticipation, the Supreme Court has settled the debate over which is more dangerous – an “ax-wielding” George Clooney or litigious “nannies, housekeepers and caretakers.” Seriously. In a recent ruling addressing the proper scope of whistleblower retaliation protections under the Sarbanes-Oxley Act (“SOX”), these odd caricatures loomed large in the Court’s decision to recognize expanded whistleblower protections under SOX to employees of privately held companies who perform services for publicly held companies.

The ruling is perhaps best understood in Enron terms because Congress passed SOX with the goal of preventing ‘another Enron’: an employee of the now defunct Arthur Anderson accounting firm, which allegedly helped Enron carry out its fraud, should be protected for blowing the whistle on ‘an Enron’ regardless of whether the retaliation is carried out by Enron or Arthur Anderson. After all, many publicly held mutual funds employ no one but instead rely on contractors to perform investment advisory services.

Against that backdrop, the majority of the Court’s justices agreed that expanded SOX protection was necessary to prevent public companies from evading SOX by contracting with “ax-wielding specialists” to do their dirty work similar to the character played by Clooney in Up in the Air. Worried by that majority belief that SOX needed to protect against ax-wielding George Clooneys, the Court’s dissenting minority justices expressed concerned about the flood of litigation that they believe will ensue as a result of the ruling. Arguing that the Court’s decision will mean SOX whistleblower lawsuits will no longer be limited to white-collar professionals providing investor-related services to public companies, they claimed “nannies, housekeepers, and caretakers” will file a flood of lawsuits merely because their employers work for public companies. For example, a babysitter may file a SOX claim if his employer happens to work at a public company and fires the babysitter for expressing concern that a household member “participated in an Internet purchase fraud.”

Notwithstanding such colorful rhetoric, the Court’s decision was clear: whistleblowers are now protected from retaliation under SOX regardless of whether they complain of a company’s alleged dirty work as an employee of either a public company or of a private company providing services to the public company. Privately held companies accordingly can no longer assume they are immune from liability for retaliating against an employee or contractor who blows the whistle on a publicly held company for which it provides services.

Time will tell whether the expansion of SOX whistleblower protections will unleash a flood of new lawsuits from non-traditional whistleblowers. In the meantime, as we recently pointed out, employers should remain cautious in making personnel decisions (e.g., change of title, office move, disallowing attendance at a conference) when an employee has otherwise raised complaints about company activity or the activity of a company for which the employer provides services. Employers must be able to show definitively, and with good reasons, why adverse personnel moves are made, and be prepared to show the same decision would have been made even absent the employee’s complaint.