Sarbanes-Oxley Whistleblower retaliation

The Sarbanes-Oxley Act of 2002 (SOX) encourages the disclosure of corporate fraud by protecting employees of publicly traded companies or their subsidiaries who report illegal activities. To ensure SOX whistleblowers are adequately protected, Section 806 of the Act authorizes the U.S. Department of Labor to adjudicate whistleblower complaints against employers who retaliate and further authorizes the Department of Justice to criminally charge those responsible for the retaliation.

What kinds of whistleblowing activities are protected under SOX?

Which employees are protected under Section 806 of SOX?

Which retaliatory acts does SOX prohibit? 

Is it a crime to retaliate against a SOX whistleblower?

What can a prevailing whistleblower recover? 

What must a whistleblower prove for his or her SOX claim to prevail?

Are SOX whistleblower retaliation claims subject to mandatory arbitration?

What procedures govern SOX whistleblower retaliation actions?

What should I do if I’ve uncovered a SOX violation? 

What is The Employment Law Group® law firm’s experience with litigating SOX whistleblower retaliation claims?

Which articles has The Employment Law Group® law firm published regarding the Sarbanes-Oxley Act and other whistleblower laws?

What kinds of whistleblowing activities are protected under SOX?  Back to top.

Under Section 806 of SOX, an employee engages in protected conduct by providing information that he or she reasonably believes is a violation of

·         federal mail, wire, bank, or securities fraud;

·         federal law relating to fraud against shareholders; OR

·         any rule or regulation of the Securities and Exchange Commission (SEC).

Specific examples include:

·         reporting an employer's nondisclosure of accurate financial statements to potential investors;

·         reporting an employer's improper entries on financial statements;

·         exposing senior management's alteration of delinquency reports;

·         reporting an employer's use of an unregistered broker to solicit investors in exchange for a commission; and

·         raising concerns about a supervisor's practice of backdating letters of credit.

Which employees are protected under Section 806 of SOX?  Back to top.

Section 806 of SOX extends its protection to any whistleblower who is an officer, employee, contractor, subcontractor, or agent of:

·         a publicly traded company,

·         a subsidiary of a publicly traded company, OR

·         a nationally recognized statistical ratings organizations (NRSROs).

Which retaliatory acts does SOX prohibit?  Back to top.

Section 806 prohibits employers from taking adverse employment actions against SOX whistleblowers, including:

·         termination, discharge, or firing;

·         demotion;

·         suspension;

·         threats, harassment, or other intimidation;

·         failing to hire or promote; OR

·         any discriminatory action that would negatively impact the terms and conditions of the whistleblower's employment.

Is it a crime to retaliate against a SOX whistleblower?  Back to top.

Yes.  Section 1107 of SOX makes it a crime for a person to knowingly retaliate against a whistleblower for disclosing truthful information to a law enforcement officer regarding an alleged federal offense.   The U.S. Department of Justice enforces this provision of SOX.

What can a prevailing whistleblower recover?  Back to top.

A prevailing SOX whistleblower will be made whole by being returned to the same position he or she would have been absent the retaliation.  In particular, SOX authorizes:

·         reinstatement,

·         back pay for lost wages,

·         front pay for future lost wages,

·         compensatory damages, AND

·         litigation costs and attorney fees.

What must a whistleblower prove for his or her SOX claim to prevail?  Back to top.

A whistleblower must prove the following:

·         He or she engaged in protected conduct;

·         The employer had knowledge of the protected conduct;

·         The employer took an adverse employment action against him; AND

·         The protected conduct was a contributing factor in the employer's decision to take the adverse employment action.

Are SOX whistleblower retaliation claims subject to mandatory arbitration?  Back to top

No.  The employee’s right to file a whistleblower retaliation complaint under Section 806 cannot be waived as a condition of employment or by a mandatory arbitration agreement.

What procedures govern SOX whistleblower retaliation actions?  Back to top

The employee may file a complaint with the Department of Labor (DOL) within 180 days of the the employee becoming aware of the retaliatory action.  If the Department of Labor does not reach a final decision within 180 days of receiving the complaint, the employee can bring a de novo action in district court where the employee may request a jury trial. 

What should I do if I’ve uncovered a SOX violation?  Back to top

If you have uncovered a SOX violation or feel that you have been the subject of retaliation because of your protected disclosure, contact The Employment Law Group® law firm at 1-888-603-0983 or inquiry@employmentlawgroup.com.  

What is The Employment Law Group® law firm’s experience with litigating SOX whistleblower retaliation claims?  Back to top

The attorneys at The Employment Law Group® law firm have substantial experience representing employees in Sarbanes-Oxley whistleblower proceedings before the Department of Labor (DOL) and have helped establish precedent on several key aspects of the Sarbanes-Oxley Act (SOX).  For example, in Kalkunte v. DVI Financial Services, Inc., the DOL’s Administrative Review Board affirmed, for what appears to be the first time, an Administrative Law Judge’s opinion in favor of a SOX plaintiff.  This decision is significant because it clarifies several key issues under the Act’s whistleblower provisions, including: (1) that a privately-held company acting as a contractor, subcontractor, or agent of a publicly traded company can be liable for violating the whistleblower provisions under SOX; (2) that a reasonable but mistaken belief is protected under SOX; (3) that a SOX plaintiff can prevail by showing merely that her protected conduct was a contributing factor in the employer’s decision to take an adverse action; and (4) that special damages under SOX includes compensatory damages, i.e. damages for impairment of reputation, personal humiliation, mental anguish and other non-economic harms resulting from retaliation.

In Stone v. Instrumentation Laboratory Co., The Employment Law Group® law firm established precedent in a case before the Fourth Circuit which held that: (1) SOX whistleblowers have a right to de novo review in federal court at any time after a case has been pending before the DOL for 180 days and before a final judgment; and (2) that the Administrative Review Board’s dismissal of a case due to removal to federal court does not render an ALJ decision a “final judgment” for purposes of collateral estoppel. Judge Davis stated that “[t]he plain language of § 1514(b)(1)(B) unambiguously establishes a Sarbanes-Oxley whistleblower complainant’s right to de novo review in federal district court. . . .”

In Leznik v. Nektar Therapeutics, Inc., The Employment Law Group® law firm established precedent on several significant substantive and procedural issues under SOX, including the following: (1) whistleblower relief is available for employees whose normal duties include reporting illegal conduct; (2) protected conduct is not limited to disclosures of shareholder fraud and instead includes disclosures about reasonably perceived violations of SEC rules; (3) individual liability does not require a showing of malice; and (4) formal rules of evidence do not apply to SOX claims.

In Feldman v. Law Enforcement Associates Corp., The Employment Law Group® law firm established another SOX precedent in which the court held employers are prohibited from retaliating against SOX whistleblowers who report fraud or violations committed by third parties. Employers may not fire, demote, threaten, or otherwise discriminate against a whistleblower in an attempt to dissuade or prevent the whistleblower from reporting violations committed by the employer's important business contacts and clients.

Which articles has The Employment Law Group® law firm published regarding the Sarbanes-Oxley Act and other whistleblower laws?  Back to top

The Employment Law Group® law firm has written extensively about the whistleblower provisions of the Sarbanes-Oxley Act for a number of publications, including:

"Whistleblower Provisions Of The Dodd-Frank Act,"  Law360 (July 20, 2010).

"DOL ARB Decision Reinvigorates Sarbanes-Oxley Whistleblower Protection," 7 Workplace L. Rep. (BNA) No. 475 (April 3, 2009).

"Win for Whistleblowers," National Law Journal (September 8, 2008)

"Sarbanes-Oxley Act Whistleblower Retaliation Provision," Avvo (September 2008)

"The Umpires Strike Back", Legal Times (June 2008)

"2008 Annual Update on the Whistleblower Provisions of the Sarbanes-Oxley Act of 2002," American Bar Association Section of Labor and Employment Law Subcommittee on the Sarbanes-Oxley Act of 2002 (February 2008).

"Seven Questions For Sarbanes-Oxley Whistleblowers To Ask," The Practical Lawyer (October 2007)

"SOX's Whistleblower Provision–Promise Unfulfilled," Securities Litigation Reporter Vol. 4, Issue 7 (July/August 2007).

"Six Steps to Limiting Sarbanes-Oxley Whistleblower Liability," IT Business Edge (January 16, 2007).

"2007 Annual Update on the Whistleblower Provisions of the Sarbanes-Oxley Act of 2002," American Bar Association Section of Labor and Employment Law Subcommittee on the Sarbanes-Oxley Act of 2002 (February 2007).

"2006 Annual Update on the Whistleblower Provisions of the Sarbanes-Oxley Act of 2002," American Bar Association Section of Labor and Employment Law Subcommittee on the Sarbanes-Oxley Act of 2002 (February 2006).

"2005 Annual Update on the Whistleblower Provisions of the Sarbanes-Oxley Act of 2002," American Bar Association Section of Labor and Employment Law Subcommittee on the Sarbanes-Oxley Act of 2002 (January 2005).

"Whistleblower Protections in the Nonprofit Sector," Nonprofit Risk Management Center (September 2005).

 "Complying with Sarbanes-Oxley's Document Destruction Provisions," Association Management (July 2004).

"Whistleblower Protection Programs for Associations," Association Management (June 2004).

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