Sarbanes-Oxley Whistleblower Retaliation

The Sarbanes-Oxley Act of 2002 was passed after the eruption of major corporate and accounting scandals, such as those involving Enron, WorldCom, and Arthur Anderson, which cost investors billions of dollars, including the loss of pension and retirement benefits for thousands of Americans. The goal of this legislation was to address corporate fraud, specifically in the areas of financial accounting and corporate governance. It has met with fierce resistance from corporations and their advocates, but provides important protections for investors and employees.

Section 806 (also referred to as section 1514A) of the Sarbanes-Oxley Act (SOX) is essentially the first federal law to meaningfully provide whistleblower protection for employees who report certain types of financial fraud and then suffer retaliation in the workplace. The legislative intent was to both encourage reporting and eradicate the corporate culture of silence that tended to conceal fraud.

SOX prohibits an employer from discharging, demoting, suspending, harassing or otherwise discriminating against an employee who engages in protected whistleblowing activity.

SOX whistleblower retaliation cases typically follow an analytic framework where the employee must show that he or she:

1. Engaged in a protected activity under the statute;
2. Suffered an adverse action; and
3. His or her protected activity was a contributing factor to the adverse action.

Importantly, in SOX whistleblower retaliation cases, the claimant need not show that the protected activity was the only reason for the adverse action, but rather that it was a contributing factor. In other words, the protected activity has to be one of the reasons for the adverse action, but not the only reason. Moreover, in some cases, the mere fact that the employee was terminated a short while after complaining of fraud can make for strong evidence of unlawful retaliation.

In the past, the SOX anti-retaliation law was more narrowly interpreted by courts. For instance, many courts held that it only covered direct employees of publicly-traded companies. However, the law has since been interpreted by the United States Supreme Court to also cover employees of independent contractors who do work for public companies. This has greatly expanded the number of employees who have the benefit of this important law.

Corporate defendants contend that covered fraud is only that which is conducted at the direction of, or for the benefit of, the publicly-traded company. This interpretation would also severely narrow the scope of whistleblowing activity covered under SOX. But it has been rejected by courts.

Further, there is no threshold for the size or amount of the fraud—that is, there is no requirement that the fraud must total a certain amount. In fact, a close reading of the SOX anti-retaliation law does not mention anything about the size of the corporate fraud.

If you are a New York resident, or were employed at a company located in New York, and have suffered retaliation for engaging in SOX whistleblowing activity, you can contact Attorney Eric Dinnocenzo at (212) 933-1675 for a free consultation.