August 22, 2017

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Sarbanes Oxley Whistleblower Protection Law at 15 Years: Strong Protection for Corporate Whistleblowers

In the wake of Enron and other corporate scandals that wiped out retirement savings and left millions unemployed, Congress enacted the Sarbanes-Oxley Act (SOX), which contains a robust whistleblower protection provision.  The whistleblower provision is intended to combat a “corporate code of silence,” which “discourage[d] employees from reporting fraudulent behavior not only to the proper authorities, such as the Federal Bureau of Investigation and the SEC, but even internally.”  Congress sought to empower whistleblowers to serve as an effective early warning system and help prevent corporate scandals.

Congressional hearings about the Enron scandal probed why such a massive fraud was not detected earlier.  The testimony and documents revealed that when employees of Enron and its accounting firm, Arthur Andersen, attempted to report corporate misconduct, they faced retaliation, including discharge.  And essentially no legal protection existed for whistleblowers, such as Sherron Watkins, who tried to stop the fraud.

Fifteen years after Congress enacted SOX, internal whistleblowers remain the best source of fraud detection.  But corporate whistleblowers continue to suffer retaliation, and, therefore, widespread fear of retaliation persists.  A survey performed by the Ethics Resource Center found that nearly half of employees observe misconduct each year, and one in five employees who reports misconduct perceives retaliation for doing so.

SOX provides robust protection to corporate whistleblowers, and indeed some SOX whistleblowers have achieved substantial recoveries.  Earlier this year, a former in-house counsel at a biotechnology company recovered $11 million in a SOX whistleblower retaliation case alleging that the company fired him for disclosing violations of the Foreign Corrupt Practices Act.

On the fifteenth anniversary of SOX, we released a free guide to the SOX whistleblower protection law: “Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.”  The guide summarizes SOX whistleblower protections and offers concrete tips for corporate whistleblowers based on lessons learned during years of litigating SOX whistleblower cases.

The goal of the guide is to arm corporate whistleblowers with the knowledge to effectively combat whistleblower retaliation, avoid the pitfalls that can weaken a SOX whistleblower case, and formulate an effective strategy to obtain the maximum recovery.

The SOX whistleblower guide addresses the following topics:

WHISTLEBLOWERS PROTECTED BY THE SARBANES-OXLEY ACT

  • Who is protected under SOX’s whistleblower-protection provision

ELEMENTS OF A SOX WHISTLEBLOWER RETALIATION CLAIM

  • Can a whistleblower sue an individual under SOX?

PROTECTED WHISTLEBLOWING

  • Is a SOX whistleblower required to prove shareholder fraud?

  • Does SOX protect whistleblowing about potential violations of federal securities laws?

  • Are SOX whistleblowers required to show that their disclosures relate “definitively and specifically” to a federal securities law?

  • Does SOX-protected conduct require a showing of materiality?

  • What are some types of proof to show that a disclosure is objectively reasonable?

  • Are disclosures made in the course of performing one’s job duties protected?

  • Is a whistleblower’s motive for engaging in protected activity relevant in a whistleblower-protection case?

  • Does SOX protect disclosures about fraud on the government or gross mismanagement of a federal contract or grant?

  • Are disclosures about consumer financial fraud protected under SOX?

  • Is there some variation in how courts interpret the scope of SOX protected whistleblowing?

KNOWLEDGE OF PROTECTED CONDUCT

  • Must a whistleblower prove that the individual who made the final decision to take the adverse action has personal knowledge of the whistleblower’s protected activity?

PROHIBITED WHISTLEBLOWER RETALIATION UNDER SOX

  • What acts of retaliation are prohibited by the SOX whistleblower-protection provision?

  • Is constructive discharge a prohibited act of retaliation under SOX?

  • Does SOX prohibit employers from “outing” confidential whistleblowers?

  • Does SOX prohibit post-termination retaliation?

  • Is retaliation that occurred outside of the statute-of-limitations period relevant evidence of retaliation?

PROVING SOX WHISTLEBLOWER RETALIATION (CAUSATION)

  • What is a whistleblower’s burden to prove retaliation under SOX?

  • In a mixed-motive case (where there is evidence of both a lawful and unlawful motive for the adverse action), does the evidence of a legitimate justification for the adverse action negate the whistleblower’s evidence that whistleblowing partially influenced the decision to take the adverse action?

  • Is a SOX whistleblower required to prove that the employer’s justification for the adverse action is false (otherwise known as pretext)?

  • Is a SOX whistleblower required to prove that the employer had a retaliatory motive?

  • Is close temporal proximity sufficient to establish causation?

  • Does subjecting an employee to heightened scrutiny evidence retaliation?

EMPLOYER AFFIRMATIVE DEFENSE

  • What is the employer’s evidentiary burden in a SOX whistleblower-retaliation case?

DAMAGES

  • What damages can a whistleblower recover under SOX?

  • If reinstatement is not feasible, can a judge award front pay in lieu of reinstatement?

  • Does SOX authorize an award of punitive damages?

LITIGATING SOX WHISTLEBLOWER CLAIMS

  • Who administers the whistleblower-protection provision of SOX?

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

  • What level of detail is required in a SOX complaint?

  • Where can a whistleblower file a SOX retaliation complaint?

  • Do mandatory arbitration agreements encompass SOX whistleblower claims?

  • Can OSHA order reinstatement of a SOX whistleblower?

  • Where are SOX whistleblower cases litigated?

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

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

  • Where can a SOX whistleblower appeal an ARB decision?

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

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

  • Does the SOX Act authorize jury trials?

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

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

  • Does Section 806 of SOX preempt other claims or remedies?

© 2017 Zuckerman Law

TRENDING LEGAL ANALYSIS


About this Author

Jason Zuckerman, Whistleblower Litigation Attorney, Washington DC  Law Firm
Principal

Jason Zuckerman is Principal of Zuckerman Law and litigates whistleblower retaliation, wrongful discharge, non-compete, and other employment-related claims.  Zuckerman serves as Plaintiff Co-Chair of the Whistleblower Subcommittee of the ABA Labor and Employment Section’s Employee Rights and Responsibilities Committee, and in 2012, the Secretary of Labor appointed Zuckerman to serve on the Whistleblower Protection Advisory Committee. 

Prior to founding Zuckerman Law, Zuckerman served as Senior Legal Advisor to the Special Counsel at the U.S...

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