ARB Holds Private Firm Accountants Are Covered By SOX


In Spinner v. David Landau and Associates, LLC, the Department of Labor’s Administrative Review Board (“ARB”) held that an accountant for a private firm was a covered employee under SOX where the firm performed services for publicly traded clients. In so holding, the ARB rejected the First Circuit’s contrary interpretation of SOX in Lawson v. FMR LLC. The Spinner decision provides new ammunition for employees of non-public companies seeking to bring SOX whistleblower claims against their firms and raises significant liability concerns for firms that have operated under the assumption that their employees were not covered by SOX’s whistleblower provisions.

Spinner was a CPA, Certified Internal Auditor, and Certified Fraud Examiner who worked for David Landau and Associates (“DLA”), a firm that provides internal audit, forensics, and advisory and management consulting services, including SOX audit and compliance services. DLA assigned Spinner to perform full-time auditing services for one of its publicly traded clients, S.L. Green Realty. DLA subsequently removed Spinner from this assignment and terminated his employment, upon which Spinner filed a SOX complaint, alleging that he was terminated because he reported internal control and reconciliation problems at S.L. Green.

DLA sought dismissal of Spinner’s SOX complaint in part on the ground that DLA was not a covered employer under SOX because it was not publicly traded. Spinner countered that he was covered by SOX as an employee of DLA because DLA was a “contractor, subcontractor, or agent” of S.L. Green and therefore covered by SOX. The Department of Labor Administrative Law Judge (“ALJ”) agreed with DLA and dismissed the case. On appeal, the ARB reversed and remanded, holding that Spinner was indeed a covered employee under SOX because he was employed by a contractor of a publicly traded company. Although the ARB appeared to limit its holding to accountants employed by private accounting firms, its reasoning appears applicable to all contractors working with public companies.

The ARB looked to the language of SOX itself, which provides that “no [publicly traded] company or any officer, employee contractor, subcontractor, or agent of such company, may…discriminate against an employee” and determined that this language does not explicitly limit coverage to employees of publicly traded companies. The ARB then turned to the DOL’s regulations, which it explained it was bound to follow and which define SOX’s protections as extending to “employees of publicly traded companies as well as the employees of contractors, subcontractors, and agents of those publicly traded companies.” The ARB opined that SOX’s legislative history further confirmed the broad coverage of SOX, as “Congress was clearly concerned about the role Arthur Anderson [sic] played in the Enron ‘debacle’ and the retaliation exercised against one of its partners who attempted to blow the whistle.”

In reaching the conclusion that Spinner was covered by SOX, the ARB rejected the First Circuit’s contrary analysis of this issue in Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012). In Lawson, the First Circuit held that the term “employee” within the meaning of SOX section 806 included only employees of publicly traded companies, not the employees of contractors, subcontractors or agents of publicly traded companies.  In that case, the plaintiffs were employees of Fidelity Investments, which was a non-publicly traded entity that acted as an investment advisor to the Fidelity family of mutual funds, which were publicly held investment funds required to file reports under section 15(d) of the Securities Exchange Act of 1934. The investment funds themselves had no employees, and Fidelity Investments performed a variety of administrative and executive tasks for the mutual funds, including deciding how the funds’ assets would be invested.

The First Circuit determined that both the statutory title and caption of SOX section 806 (“Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud” and “Whistleblower protection for employees of publicly traded companies,” respectively) were statements of congressional intent that militated against a more expansive interpretation of the scope of the term “employee” to include employees of contractors, subcontractors, or agents. The First Circuit also held that other textual provisions of SOX, its legislative history, the purpose of the legislation, and Congress’ rejection of a bill to amend the definition of employee, all provided further support for its interpretation of the Act.

Notwithstanding the First Circuit’s decision in Lawson, which is controlling for cases arising in the First Circuit, the ARB’s decision in Spinner will impact DOL SOX cases arising in other jurisdictions until those circuits weigh in on this issue. Thus, we will likely see an uptick in SOX whistleblower cases brought by employees of non-public companies who contract with public companies in the wake of Spinner. Until the conflict between Spinner and Lawson is resolved, private accounting firms should treat employee reports of potential legal or regulatory violations as potentially covered by SOX and should reevaluate, and, if necessary, revise, their whistleblower and anti-retaliation policies and procedures to ensure that they reflect current best practices under SOX.