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Sarbanes Oxley (SOX) Whistleblower Law

Sarbanes Oxley Whistleblower Law: Robust Protection for Corporate Whistleblowers 

How does the Sarbanes-Oxley Act protect 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 SOX 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?

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 unlawful under SOX?

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 can a 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 largest award to date in a SOX anti-retaliation case—and ruled that the whistleblower was also entitled to punitive damages. (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 SOX 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).