Sarbanes Oxley Whistleblower Law: Robust Protection for Corporate Whistleblowers
How does the Sarbanes-Oxley Act protect corporate whistleblowers?
The Sarbanes-Oxley Act (“SOX”) prohibits employers from taking adverse employment actions against employees (also referred to here as “whistleblowers”) in retaliation for reporting information about conduct that the employees reasonably believe constitutes securities fraud, shareholder fraud, bank fraud, mail fraud, wire fraud, or a violation of any SEC rule or regulation. Adverse employment actions include discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Even disclosing the identity of a whistleblower has been held to be an adverse employment action under SOX.
The purpose of these protections is to combat a “corporate code of silence” that discouraged employees from reporting suspected fraud internally or to the authorities. To avoid another Enronesque catastrophe, Congress sought to ensure that whistleblowers could serve as an effective early-warning system for potential fraud. Congress did so by specifying that to be protected under SOX: (1) whistleblowers need not complain of actual fraud but rather conduct that they reasonably believe constitutes fraud, and (2) whistleblowers need not wait until fraud occurs but rather may complain about violations that they reasonably believe are likely to occur.
Who is protected under the Sarbanes-Oxley Whistleblower Protection Law?
Section 806 of SOX protects (1) employees of publicly traded companies and (2) employees of contractors and subcontractors of publicly traded companies who report fraud committed by a publicly traded company (as opposed to fraud committed by a private company, including contractors and subcontractors).
What whistleblowing is protected under SOX, i.e., what is SOX protected activity or SOX protected conduct?
SOX protects employee disclosures of conduct that an employee reasonably believes constitutes securities fraud, shareholder fraud, bank fraud, mail fraud, wire fraud, or a violation of any SEC rule or regulation. SOX protects disclosures of violations that a whistleblower reasonably believes are likely to occur, even if such violations have not yet been committed.
Does a whistleblower have to disclose an actual violation of law to be protected under SOX?
No: whistleblowers need not disclose actual fraud. Rather, they merely must disclose conduct that they reasonably believe constitutes any type of fraud enumerated in Section 806 of SOX.
Are disclosures made in the ordinary course of performing one’s job duties protected under Sarbanes-Oxley?
Most likely yes. Most Department of Labor Administrative Law Judges (“ALJ”) who have addressed this issue, as well as the Administrative Review Board (“ARB”), have held that disclosures made pursuant to one’s job duties are protected. A U.S. district court in New York reached the same conclusion.
While employers may assert the duty-speech defense—that disclosures made while performing routine job duties are not protected—the decisions by the ALJs, ARB, and U.S. district court that have addressed this issue suggest that courts will reject the duty-speech defense.
What types of retaliation are prohibited by the Sarbanes-Oxley Act?
A broad range of retaliatory actions are actionable under SOX, including discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Even disclosing the identity of a whistleblower has been held to be an adverse employment action under SOX.
What damages or remedies can a corporate whistleblower recover under SOX?
A prevailing SOX whistleblower may obtain several types of relief, including lost wages and benefits; reinstatement; and special damages, which include damages for emotional distress, impairment of reputation, personal humiliation, and other noneconomic harm resulting from the retaliation.
Juries have recently awarded substantial damages to SOX whistleblowers. In August 2015, a federal jury in New York awarded $1.6 million in compensatory damages to a SOX whistleblower, even though the whistleblower had not suffered substantial economic loss. In March 2014, a California jury awarded $6 million in compensatory damages to another SOX whistleblower. (The parties settled before a punitive-damages determination was made.) And in September 2013, the U.S. Court of Appeals for the Ninth Circuit affirmed a jury verdict that awarded $2.2 million in damages plus $2.4 million in attorney’s fees to two SOX whistleblowers who had been fired in retaliation for their disclosure.
What must a whistleblower prove to prevail in a Sarbanes-Oxley retaliation case?
A whistleblower must demonstrate by a preponderance of the evidence that (1) he or she engaged in protected activity; (2) the employer knew of the whistleblower’s protected activity; (3) the whistleblower suffered an adverse personnel action; and (4) the protected activity was a “contributing factor” in the adverse action.
The contributing-factor causation standard is broad and forgiving. A whistleblower need only proffer evidence that his or her protected activity played any role whatsoever in the adverse action. Even if the protected activity is one of many reasons why the employer took the adverse action, the whistleblower prevails in establishing contributing-factor causation. To prove causation, a whistleblower may use circumstantial evidence including “motive, bias, work pressures, past and current relationships of the involved parties, animus, temporal proximity, pretext, shifting explanations, and material changes in employer practices, among other types of evidence.” Bobreski v. J. Givoo Consultants, Inc., ARB No. 13-001 (U.S. Dep’t of Labor Aug. 29, 2014).
An employer can overcome a whistleblower’s showing of contributing-factor causation only by demonstrating by clear and convincing evidence that it would have taken the same adverse action against the whistleblower had the whistleblower not engaged in protected activity. It is not sufficient for an employer to demonstrate that it relied on legitimate reasons in addition to the employee’s protected activity when deciding to take the adverse action; no matter how minuscule the protected activity was in the employer’s decision, it is a contributing factor unless the employer would have—not merely could have—taken the same adverse action absent the protected activity.
What is the statute of limitations under SOX?
The statute of limitations is 180 days. Specifically, a whistleblower may bring a SOX claim “not later than 180 days after the date on which the violation occurs, or after the date on which the employee became aware of the violation.” 18 U.S.C. § 1514A(b)(2)(D).
Can SOX Whistleblowers Obtain a Reward or Bounty for Disclosing Fraud to the SEC?
Yes, the SEC Whistleblower Reward Program provides whistleblowers with a strong monetary incentive to report wrongdoing to the SEC. To learn more about how to qualify for an SEC whistleblower award, download our guide to the SEC Whistleblower Program and call us to schedule a free consultation at 202-262-8959,
SOX Whistleblower Protection FAQs
- Do federal laws protect whistleblowers against retaliation?
- Will I get a reward for reporting fraud being committed by my employer?
- What is the statute of limitations to file a SOX claim?
- Where are SOX whistleblower cases litigated?
- Do mandatory arbitration agreements encompass SOX whistleblower claims?
- What level of detail is required in a Sarbanes-Oxley complaint?
- Can I sue an individual under the Sarbanes-Oxley Act?
- Are whistleblowers in the financial services or banking industry protected against retaliation?
- Who administers the whistleblower protection provision of the Sarbanes-Oxley Act?
Protected Whistleblowing Under Sarbanes-Oxley
- Who is protected under the whistleblower protection provision of the Sarbanes-Oxley Act?
- What whistleblowing is protected under SOX?
- Must a whistleblower disclose unequivocal unlawful conduct to be protected?
- Does the Sarbanes-Oxley Act protect whistleblowing in the course of performing one’s job duties?
Prohibited Retaliation Against Whistleblowers
- What acts of retaliation are prohibited under SOX?
- Is threatening a countersuit against a whistleblower an act of retaliation?
- Is a lawsuit against a whistleblower actionable retaliation?
Proving a Violation of Sarbanes-Oxley Whistleblower Provision
- How does a whistleblower prove retaliation?
- What is the burden a SOX whistleblower must meet to prove retaliation?
- What is an employer’s burden in a SOX whistleblower case?
- Can I use confidential documents from my job to prove a whistleblower retaliation case?
- Am I permitted to make secret recordings at work to use in a whistleblower case?
- Is knowledge of protected conduct and close temporal proximity sufficient to prove retaliation?
- Does a SOX whistleblower need to prove that the employer’s reason for the adverse action is untrue?
- What causal connection must be established to prove whistleblower retaliation?
Relief or Damages for SOX Whistleblowers
- What remedies are available to employees under the Sarbanes Oxley whistleblower law?
- What do employers typically demand in the settlement of an employment case?
Experienced Sarbanes Whistleblower Protection Attorneys
The whistleblower lawyers at Zuckerman Law have substantial experience litigating Sarbanes Oxley whistleblower retaliation claims. Click here to read client testimonials about the firm’s work in SOX whistleblower and other employment-related litigation. To schedule a free preliminary consultation, click here or call us at 202-262-8959.