(CN) - The Sarbanes-Oxley Act shields whistleblower employees of private contractors and subcontractors, not just of public companies, the Supreme Court ruled Tuesday.
The justices voted 6-3 to reverse the 1st Circuit's dismissal of a lawsuit filed by whistleblowers Jackie Lawson and Jonathan Zang.
Lawson and Zang worked for Fidelity Management and Research (now FMR Corp.) or subsidiary Fidelity Brokerage Services - both private companies contracted to advise or manage mutual funds.
In separate lawsuits, they claimed they were fired for raising concerns about possible securities fraud at the publicly owned and traded Fidelity mutual funds.
They each sought protection under section 806 of the Sarbanes-Oxley Act of 2002, called "Whistleblower Protection for Employees of Publicly Traded Companies." Section 806 is part of the broader section 1514A's prohibitions on retaliation.
FMR argued that the law's protections were meant for employees of publicly traded companies, not privately held contractors.
The 1st Circuit agreed and dismissed the consolidated cases, though Judge O. Rogeriee Thompson called the majority's opinion "judicial overreaching of the highest order" in a 23-page dissent.
She said the statute "does not limit its coverage to 'an employee of a publicly held company' - it just refers broadly to 'an employee,'" despite its title.
"Boiling the statute down to its relevant syntactic elements, it provides that 'no ... contractor ... may discharge ... an employee.'" she wrote. (Ellipses in original.)
The high court agreed with Thompson, saying the provision "shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by contractors and subcontractors."
"FMR's interpretation of the text requires an insertion of 'of a public company' after 'an employee,'" Justice Ruth Bader Ginsburg wrote for the majority.
She rejected FMR's claim that Congress included contractors of public companies in the statute simply to prevent public companies from shielding themselves from liability by hiring an "ax-wielding specialist" like George Clooney's character in the movie "Up in the Air."
"Hiring the ax-wielder would not insulate the company from liability," Ginsburg wrote. "Moreover, we see no indication that retaliatory ax-wielding specialists are the real-world problem that prompted Congress to add contractors to §1514A."
"It is common ground that Congress installed whistleblower protection in the Sarbanes-Oxley Act as one means to ward off another Enron debacle," Ginsburg wrote, referring to the energy company's 2001 collapse.
"Also clear from the legislative record is Congress' understanding that outside professionals bear significant responsibility for reporting fraud by the public companies with whom they contract, and that fear of retaliation was the primary deterrent to such reporting by the employees of Enron's contractors."
She later added: "From this legislative history, one can safely conclude that Congress enacted §1514A aiming to encourage whistleblowing by contractor employees who suspect fraud involving the public companies with whom they work."
In a dissenting opinion, Justice Sonia Sotomayor said the majority's interpretation gives the provision "a stunning reach."
"As interpreted today, the Sarbanes-Oxley Act authorizes a babysitter to bring a federal case against his employer - a parent who happens to work at the local Walmart (a public company) - if the parent stops employing the babysitter after he expresses concern that the parent's teenage son may have participated in an Internet purchase fraud," Sotomayor wrote.
But Ginsburg countered that the dissent's view would allow contractors' employees, including accountants, lawyers, and mutual fund advisers and managers, to slip through a "huge hole" in whistleblower protection.
"Instead of indulging in fanciful visions of whistleblowing babysitters and the like, the dissent might pause to consider whether a Congress, prompted by the Enron debacle, would exclude from whistleblower protection countless professionals equipped to bring fraud on investors to a halt," Ginsburg wrote.
Justice Antonin Scalia wrote separately to say that while he agrees with the majority's conclusion, "I do not endorse ... the Court's occasional excursions beyond the interpretative terra firma of text and context, into the swamps of legislative history."
Scalia's concurrence was joined by Justice Clarence Thomas.
Justices Samuel Alito and Anthony Kennedy joined Sotomayor in dissent.
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