More and more, companies are hiring contract employees for short- and long-term projects. Contract workers can be less expensive and a little easier to manage. It is, for example, much easier to let go of a contractor than it is to discharge a full-time employee. But maintaining the line between contractor and employee can be tricky at times. The 1st U.S. Circuit Court of Appeals recently handed down a decision that either clarified or muddied that distinction for employers.
It started with a public corporation (we’ll call it ABC Corp.) contracting with a company (123 Company) to provide management and advertising services. When two of the 123 Co. employees lost their jobs, they claimed that they were fired because they had raised concerns of possible securities fraud at ABC Corp. The employees sued for whistle-blower protection under Section 806 of the Sarbanes-Oxley Act. Section 806 is titled, “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud.”
The plaintiffs argued that the whistle-blower provisions of the act extended to employees of a private company under contract with a public company. The federal district court agreed. ABC Corp. appealed and said that the act only protected employees of public companies from retaliation by the company itself as well as the company’s contractors, subcontractors and agents.
At the 1st Circuit, a two of the three judges agreed with the public company’s interpretation of the act. The Chief Judge wrote in her opinion that “the more natural reading of the section goes to who is prohibited from retaliating” and not to what type of employee is covered under the act. She also wrote that the appellate court had to use the section title language and captions, which are very limited, to interpret the meaning of the act. She stated that the title alone shows that when Congress wrote the law, it intended that the whistle-blower protections not apply to employees of private companies.
The dissenting opinion called the majority decision “a faulty statutory-interpretation exercise” and “judicial overreaching of the highest order.” The judge writing for the dissent stated that the majority interpreted the act with too many limitations. He added that he believes that the plain language of the statute should be interpreted as having no restriction on employees of companies that are under contract with a public company.
If the plaintiffs want to appeal the decision, they will have to apply to the U.S. Supreme Court. Neither the plaintiffs nor their company have announced any such plans.
Source: Courthouse News Service, “No Whistle-blower Shield for Private Contractors,” Travis Sanford, Feb. 17, 2012
