The Sarbanes-Oxley Act's whistle-blower provisions extend to the privately held contractors of public companies, said a divided U.S. Supreme Court Tuesday in a ruling that is expected to have a significant impact on privately held firms.

“Given Congress' concern about contractor conduct of the kind that contributed to Enron (Corp.)'s collapse, we regard with suspicion construction of (Sarbanes-Oxley's whistle-blower provision) to protect whistle-blowers only when they are employed by a public company, and not when they work for the public company's contractor,” wrote Justice Ruth Ginsburg, in the high court's 6-3 ruling in Jackie Hosang Lawson et al. v. FMR L.L.C. et al.

The ruling overturns a February 2012 ruling by a panel of the 1st U.S. Circuit Court of Appeals in Boston, which held that employees of privately held contractors working for public firms are not protected by Sarbanes-Oxley's whistle-blower anti-retaliation provision.

The high court's ruling deals with separate lawsuits, both brought by former employees of private contractors that advise and manage the Fidelity family of mutual funds operated by Boston-based FMR Corp.

Both plaintiffs allege retaliation for reporting fraud and contend they are covered under Section 806 of Sarbanes-Oxley, which is now reflected in Title 18 of the United States Code and provides protection for whistle-blowers against retaliation.

Reading Sarbanes-Oxley as providing coverage to these employees is “consistent with the text of the statute and with common sense,” says the majority ruling. FMR's interpretation, which would exclude contractors' employees “would shrink to insignificance the provisions' ban on retaliation by contractors.”

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“It is common ground that Congress installed whistle-blower protection in the Sarbanes-Oxley Act as one means to ward off another Enron debacle,” said the ruling. “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,” the majority opinion states.

“In short, we cannot countenance the position advanced by FMR and the dissent … that Congress intended to leave these professionals vulnerable to discharge or other retaliatory action for complying with the law,” said the ruling, in overturning the 1st Circuit's decisions and remanding the case.

Observers say the ruling is highly significant for the some 6 million privately held firms in the country.

The ruling “expands coverage of the statute far beyond what most people who practice in this area ever thought it would be, and has significant implications for companies that are not publicly traded but that do business with publicly traded companies,” said Edward T. Ellis, a partner with law firm Littler Mendelson P.C. in Philadelphia, which had submitted an amicus brief on behalf of the Alexandria, Va.-based Society for Human Resource Management in Fidelity's support.

The ruling will require “many companies to create compliance systems and to train their human resources personnel to identify fraud problems, investigate them and protect whistle-blowers or would-be whistle blowers,” Mr. Ellis said.

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“Obviously, there's going to be a very dramatic expansion in the number of employees who can now assert a Section 806 claim,” said Connie N. Bertram, a partner with law firm Proskauer Rose L.L.P. in Washington, whereas before it was thought to be limited to employees of public companies.

Publicly held companies have had robust provisions to encourage whistle-blowers to report their claims and protect them from retaliation since Sarbanes-Oxley's enactment in 2002, Ms. Bertram said.

Now, privately held companies, many of whom “probably have in place fairly robust compliance programs” designed to report issues such as sexual harassment and other prohibited activities, “need to make certain their policies cover the reporting of fraud” by their customers and clients, she said.