In Lawson v. FMR, LLC, decided March 4, 2014, the Supreme Court has now opened the door to  whistleblower claims under the Sarbanes-Oxley Act of 2002 (SOX) that have no connection with the Enron-style financial reporting fraud that was the stated target of that statute. Employers that are not publicly traded companies – even the smallest mom-and-pop businesses — now must prepare for the risk that a disgruntled employee may make a “whistleblower retaliation” claim under SOX, unrelated to any publicly traded company or any allegation of fraud affecting investors.

The plaintiffs in Lawson v. FMR, LLC claimed they suffered retaliation for reporting alleged fraud in financial reports for a publicly traded company – the type of fraud accusation that fits comfortably within the SOX whistleblower provision. The wrinkle in the case was that they were not employees of the publicly traded company, but instead were employees of non-public companies that provided advisory and management services to the publicly traded company. The Supreme Court ruled that even though their employers were not publicly traded companies, the SOX whistleblower provision applied because they claimed they suffered retaliation for reporting alleged fraud involving financial reporting of the publicly traded company.

Unfortunately for many employers, the Court did not limit its ruling to cases that directly involve allegations of fraud in financial reporting for publicly traded companies or the services that the private employer provided to the public company. The Court also did not limit decisions of other courts and the Department of Labor which have said that employee’s accusations of fraud do not need to relate to securities or financial reporting.

The dissenting opinion protested that the majority has now given SOX “a stunning reach,” saying “it opens the door to a cause of action against a small business that contracts to clean the local Starbucks (a public company) if an employee is demoted after reporting that another nonpublic company has mailed the cleaning company a fraudulent invoice.”

Private employers that never thought SOX applied to them must now prepare to meet those risks, and must be alert if any employee makes any report or suggestion alleging fraud or dishonest conduct. Employers should also anticipate that employees who are in trouble due to performance or misconduct will have a motive to make such accusations in order to try to insulate themselves from discipline or termination.