Who administers the whistleblower-protection provision of SOX?

The U.S. Department of Labor Occupational Safety and Health Administration (“OSHA”) administers the anti-retaliation provision of SOX. A SOX whistleblower claim must be filed initially with OSHA. OSHA will then investigate the complaint and may order preliminary reinstatement of the whistleblowers if it finds “reasonable cause” to believe that retaliation occurred.

OSHA finds “reasonable cause” when it determines that a reasonable judge could rule for the whistleblower. And a reasonable judge could rule so only where there is evidence supporting each element of a SOX retaliation claim. Generally, though, less evidence is required to establish “reasonable cause” at this stage than to prevail at trial. “OSHA’s responsibility to determine whether there is reasonable cause to believe a violation occurred is greater than the complainant’s initial burden to demonstrate a prima facie allegation that is enough to trigger the investigation.” But OSHA need not “resolve all possible conflicts in the evidence or make conclusive credibility determinations to find reasonable cause to believe that a violation occurred.” In practice, however, OSHA rules for SOX complainants only in the strongest cases, which is due in part to the burden that OSHA must bear to order preliminary reinstatement of a whistleblower.

What is the statute of limitations for a SOX whistleblower-retaliation case?

A SOX whistleblower must file a complaint within 180 days after they either experience or become aware of the unlawful retaliation. The clock starts ticking once “the discriminatory decision has been both made and communicated to the complainant.” A complaint is considered filed once the Department of Labor receives it. A complaint sent by mail, however, is considered filed on the date of its postmark.

Though a discrete retaliatory act “occurs” on the day it happens and the complaint must be filed within 180 days, retaliatory acts outside the statute of limitations period are actionable where there is an ongoing hostile work environment and at least one of the acts occurred within the 180-day statute of limitations.  

What level of detail is required in a SOX complaint?

A SOX complaint need not plead every element of the claim in detail, but it must provide “fair notice” of the claim, which entails a showing of: 1) some facts about the protected activity; 2) some facts about the adverse action; 3) an assertion of causation, and 4) a description of the relief or damages sought by the whistleblower.  

SOX whistleblower complaints require less detail than claims filed in federal court. In other words, a SOX whistleblower need not meet the plausibility pleading standard that applies to actions filed in federal court. But if the whistleblower anticipates removing the SOX claim to federal court, it may be advisable to file a detailed complaint. In particular, the complaint should plead every adverse action and each distinct category of protected activity.

Where can a whistleblower file a SOX retaliation complaint?

Whistleblowers must initially file their SOX retaliation claims with OSHA.

Do mandatory-arbitration agreements encompass SOX whistleblower claims?

No. SOX retaliation claims are categorically exempt from mandatory-arbitration agreements.

Can OSHA order reinstatement of a SOX whistleblower?

Yes, OSHA can issue a preliminary order of reinstatement, which is not stayed pending an appeal of OSHA’s findings.

Where are SOX whistleblower cases litigated?

SOX retaliation claims are litigated before the Department of Labor Office of Administrative Law Judges or in federal court. SOX provides a right to de novo review in federal court after a complaint has been pending before the DOL for more than 180 days without a final decision. “De novo” review essentially means that a SOX whistleblower has an unwavering right to start afresh in district court, and the presiding judge should not defer to OSHA’s findings or to the ALJ’s rulings.

Once OSHA completes its investigation, the whistleblower or the respondent (the former employer) may request a hearing before an ALJ at the Department of Labor.  The hearing before the ALJ is de novo, i.e., the ALJ does not defer to OSHA’s findings.  

How can a SOX whistleblower appeal an ALJ’s decision?

A SOX whistleblower can file a petition for review with the ARB within 10 days after the ALJ renders a decision. The petition must identify every part of the ALJ’s decision that the whistleblower seeks to challenge. The ARB will then decide whether to review the case. An ALJ’s decision becomes final after 10 days if no petition for review has been filed, or after 30 business days if the ARB has not issued an order accepting a timely filed petition for review. If the ARB accepts the case for review, the ALJ’s decision is inoperative, but a reinstatement order becomes effective while the appeal is pending.

The ARB reviews conclusions of law de novo and reviews the ALJ’s findings of facts under a substantial evidence standard. A finding is supported by “substantial evidence” if evidence in the record logically supports the finding, and the record as a whole does not countervail that evidence.

Note that the failure to appeal an ALJ decision can have a preclusive effect on other claims. For example, in Tice v. Bristol-Myers Squibb, the Third Circuit affirmed summary judgment for the employer, holding that a DOL ALJ’s determination that the employer had a legitimate reason for terminating SOX plaintiff Carol Tice’s employment should be accorded preclusive effect in related employment actions. Ms. Tice had initially filed a SOX retaliation claim with OSHA, alleging that her employment was terminated in violation of SOX because she opposed management’s direction to employees to falsify sales call reports. A DOL ALJ dismissed Ms. Tice’s claim, concluding that the employer demonstrated that it would have terminated Ms. Tice absent her disclosure because Ms. Tice herself falsified sales call reports. Ms. Tice did not appeal the ALJ’s order and subsequently brought a separate action against her former employer in federal court alleging age discrimination and gender discrimination. The summary judgment dismissal of Ms. Tice’s discrimination claims likely could have been avoided if Ms. Tice had appealed the DOL ALJ’s order.

If a SOX whistleblower prevails before the ALJ, can they appeal part of the ALJ’s decision?

Yes. The prevailing party before the ALJ can request ARB review within 10 days after the ALJ issues its decision if that party may later want to appeal a portion of that decision.

Where can a SOX whistleblower appeal an ARB decision?

A SOX whistleblower may, within 60 days of the ARB’s issuing its final decision, file a petition for review to the U.S. Court of Appeals in the circuit in which the alleged SOX violation occurred, or in the circuit in which the complainant resided on the date of the alleged violation.

SOX does not specify a standard of review for appeals to the federal courts of appeals. Under the Administrative Procedure Act, a court of appeals will uphold an ALJ’s findings of fact if supported by “substantial evidence.” The court reviews questions of law de novo, deferring to the ARB’s interpretation of statutes administered by the Department of Labor.

Can a SOX whistleblower bring a retaliation case in federal court?

Yes, though not initially. A SOX whistleblower case must first be filed with OSHA. One hundred and eighty days after filing, the whistleblower may remove the claim from DOL and file it in federal court.

SOX’s “kick-out” provision, which authorizes this type of removal, may allow whistleblowers to recover more than they could on SOX claims alone. That’s because, although SOX does not authorize punitive damages, a SOX plaintiff in federal court may add claims for which punitive damages can be recovered, such as a common-law claim of wrongful discharge in violation of public policy.

Is there a time limit for filing a SOX complaint in federal court after removing the claim from the Department of Labor?

Section 806 of SOX does not specify a time limit for filing a SOX complaint in district court after removal of the case from the Department of Labor by the complainant. Though a Kansas federal judge found that there is no time limitation for filing a removed SOX claim in federal court, the Fourth Circuit held that a SOX claim must be filed in federal court within four years after the complaint is removed from DOL.

Does the SOX Act authorize jury trials?

Yes. Section 806 of SOX, as amended by the Dodd-Frank Act, explicitly states that parties to SOX whistleblower actions are entitled to a trial by jury. And some SOX whistleblowers have obtained substantial recoveries after invoking their right to a jury trial.

Juries may award substantial compensatory damages even if a whistleblower has not suffered great economic loss.

One such whistleblower is Julio Perez, who recovered nearly $5 million in a SOX whistleblower retaliation case that he tried before a jury. Dr. Perez, a former senior manager of pharmaceutical chemistry for Progenics Pharmaceuticals Inc., developed a medication with his Progenics colleagues and representatives from another pharmaceutical company. During the drug’s clinical trials, Dr. Perez saw a confidential memo that contradicted the pharmaceutical companies’ public statements about the drug.

Dr. Perez reported to Progenics executives that he believed the company was committing fraud against its shareholders by making public representations about the drug that were inconsistent with the clinical-trial results. Later the same day, after Dr. Perez was locked out of Progenics’ computer system, the company’s CFO tracked him down to ask how he had obtained the confidential memo. Dr. Perez asked for time to discuss the issue with his lawyer, and the CFO assented. The next morning, however, the company’s CFO and general counsel met with Dr. Perez and fired him on the spot for misappropriating the confidential memo.

Dr. Perez then filed a SOX retaliation claim with OSHA. Progenics claimed that it terminated Dr. Perez’s employment because he refused to explain how he obtained the confidential memo. Dr. Perez argued that he received the document via interoffice mail, that the memo was widely distributed within the partner pharmaceutical company, and that his position generally granted him access to clinical-trial results.

OSHA did not substantiate his complaint and he removed his claim to federal court.  After years of contentious litigation, the case went to trial, and the jury awarded Dr. Perez $1.6 million in compensatory damages. The court’s award of back pay and front pay resulted in a total recovery of close to $5 million. Corporate Counsel published a story describing Dr. Perez’s seven-year ordeal, entitled How to Help a Whistleblower.

Another SOX whistleblower, Catherine Zulfer, also received a substantial award from a jury in March 2014. Ms. Zulfer was an accounting executive for Playboy Inc., her employer of more than three decades. Ms. Zulfer suspected that something was amiss when the company’s new CFO repeatedly instructed her to set aside $1 million for executive bonuses that had not been approved by the board of directors. Seeing no legitimate basis for discretionary bonuses on a year that Playboy suffered substantial losses, Ms. Zulfer suspected that the CFO and CEO were attempting to embezzle the money. So she refused to carry out the CFO’s orders, believing that it would be dishonest to shareholders and violate generally accepted accounting principles. Ms. Zulfer also reported her concerns to the company’s general counsel and outside SEC counsel.

Immediately thereafter, the Playboy CFO retaliated by ostracizing Ms. Zulfer, excluding her from meetings, forcing her to take on additional duties, and eventually terminating her employment. After a short trial, a federal jury in California awarded Ms. Zulfer $6 million in damages and ruled that she was also entitled to punitive damages. Ms. Zulfer and Playboy reached a settlement before a determination of punitive damages was made.

Finally, whistleblowers Shawn and Lena Van Asdale won substantial damages at trial and the Ninth Circuit affirmed the award. The Van Asdales, a married couple, both served as in-house counsel at International Game Technology (“IGT”), a position they continued to hold after the company merged with a rival game company, Anchor Gaming. Following the merger, the Van Asdales discovered that Anchor had withheld material information about its value, causing IGT to commit shareholder fraud by paying more than market value to acquire Anchor. The Van Asdales reported their concerns to their boss, who had served as Anchor’s general counsel prior to the merger. Both Van Asdales were fired shortly thereafter.

The Van Asdales filed a SOX claim, alleging that they had been terminated in retaliation for disclosing shareholder fraud related to IGT’s merger with Anchor. A federal jury in Nevada eventually awarded the Van Asdales $2.2 million in compensatory damages and $2.4 million in attorney’s fees. The Ninth Circuit affirmed the award.

What is the scope of discovery in a SOX whistleblower case?

SOX whistleblowers are generally able to take broad discovery to prove their claims. Requests for discovery are permitted unless the information sought has “no possible bearings on a party’s claims or defenses.”

Do formal rules of evidence apply in SOX whistleblower trials at the Department of Labor?

Formal rules of evidence do not apply in SOX whistleblower cases litigated before a DOL ALJ. Evidentiary rules substantially similar to the Federal Rules of Evidence, however, apply. The Office of ALJ, within the Department of Labor, has adopted those rules to ensure that the most probative evidence is produced. Evidence that is immaterial, irrelevant, or unduly repetitious may be excluded.

Does Section 806 of SOX preempt other claims or remedies?

No. Section 806 of SOX specifically provides that “[n]othing in this section shall be deemed to diminish the rights, privileges, or remedies of any employee under any Federal or State law, or under any collective bargaining agreement.” A whistleblower who is fired for refusing to commit an illegal act could bring both a SOX claim and a common-law wrongful discharge claim. Bringing the latter claim could potentially result in an award of punitive damages. But note that in some states, where there is an adequate statutory remedy to vindicate the public policy objectives, the employee can pursue a retaliation action only through the statute.

To learn more about SOX whistleblower law, download the new eBook Sarbanes-Oxley Whistleblower Law: Robust Protection for Corporate Whistleblowers.

_{[1] Clarification of the Investigative Standard for OSHA Whistleblower Investigations (Apr. 20, 2015)}

_{[2] 18 U.S.C. §1514A(b)(2)(D).}

_{[3] 29 CFR § 1980.103(d).}

_{[4] Johnson v. The Wellpoint Companies, Inc., ARB No. 11-035, ALJ No. 2010-SOX-38 (ARB Feb. 25, 2013).}

_{[5] Sylvester v. Parexel Int’l. LLC, ARB No. 07-123, ALJ Nos. 2007-SOX-39 & 42 (ARB May 25, 2011).}

_{[6] Stone v. Instrumentation Lab. Co., 591 F.3d 239 (4th Cir. 2009).}

_{[7] 29 C.F.R. § 1980.110(a).}  

_{[8] 29 CFR § 1980.110(b).}

_{[9] 29 CFR § 1980.110(b).}

_{[10] Clark v. Hamilton Hauling, LLC, ARB No. 13-023, ALJ No. 2011-STA-7, at 4-5 (ARB May 29, 2014).}

_{[11] Bobreski v. J. Givoo Consultants, Inc., ARB No. 13-001, ALJ No. 2008-ERA-3, at 13-14 (ARB Aug. 29, 2014).}

_{[12] Tice, 325 F. App’x 114 (3d Cir. 2009).} 

_{[13] 18 U.S.C. § 1514A(b)(1)(B).}

_{[14] Jones v. Southpeak Interactive Corp., 777 F.3d 658 (4th Cir. 2015).}

_{[15] 18 U.S.C. 1514A(b)(2)(E).}

_{[16] See Perez v. Progenics Pharm., Inc., 965 F. Supp. 2d 353, 359 (S.D.N.Y. 2013).}

_{[17] Zulfer v. Playboy Enters. Inc., JVR No. 1405010041, 2014 WL 1891246 (C.D. Cal. Mar. 5, 2014).}

_{[18] Van Asdale v. Int’l Game Tech., 549 F. App’x 611, 614 (9th Cir. Sept. 27, 2013).}

_{[19] Leznik v. Nektar Therapeutics, Inc., 2006-SOX-93 (ALJ Feb. 9, 2007).}

_{[20] See 29 CFR § 18.101 et seq.}  

_{[21] 29 CFR § 1980.107(d).} 

_{[22] Leznik v. Nektar Therapeutics, Inc., 2006-SOX-93 (ALJ Feb. 9, 2007).}

_{[23] 18 U.S.C. § 1514A(d).}