Whistleblower Protection Laws

Sarbanes-Oxley

Section 806 of the Sarbanes-Oxley Act protects whistleblowers at covered employers who report to their supervisor or the government conduct that they reasonably believe constitutes wire fraud, mail fraud, bank fraud, securities fraud, or a violation of any rule or regulation of the SEC, or any provision of Federal law relating to fraud against shareholders.

Some SOX whistleblowers have obtained substantial recoveries, including jury verdicts of $11M and $5M in SOX whistleblower retaliation cases. Leading SOX whistleblower lawyer Jason Zuckerman has established favorable precedent construing SOX and has obtained more than ten settlements in SOX matters in excess of $1 million, two of which were above $4 million.

To succeed in a Sarbanes-Oxley retaliation claim, the whistleblower must show by a preponderance of the evidence that

1. she had engaged in protected whistleblowing activity;
2. the company was aware of her protected activity;
3. she suffered an unfavorable personnel action; and
4. her protected activity was a “contributing factor” in the unfavorable action.

“Contributing factor” causation is a light burden that can be met by showing that protected activities tended to affect in any way the decision to take the adverse action.

Once the whistleblower makes that showing, the company can avoid liability only by proving by clear and convincing evidence that it would have taken the same adverse action even in the absence of the protected activity.

A helpful guide to SOX titled Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers elaborates on protections afforded whistleblowers under the law.

Protected Whistleblowing Under the Sarbanes-Oxley Act

The Sarbanes-Oxley whistleblower law protects corporate whistleblowers for providing information about securities fraud, shareholder fraud, bank fraud, a violation of any SEC rule or regulation, mail fraud, or wire fraud. The Department of Labor has construed SOX whistleblowing broadly, holding that:

• [ Disclosing a potential violation] is protected, i.e., an employee who reasonably believes that a securities violation is imminent will be protected by SOX if he or she reports the violation before it actually occurs.
• An employee’s mistaken belief in a violation of law can be objectively reasonable. The reasonable person standard recognizes that many employees are unlikely to be trained to recognize legally actionable conduct by their employers. To satisfy the objective component of the “reasonable belief” standard, the employee must prove that a reasonable person in the same factual circumstances with the same training and experience would believe that the employer violated securities laws.
• To be protected under SOX, the employee’s report need not “definitively and specifically” relate to one of the listed categories of fraud or securities violations in Section 806 of SOX. The focus is “on the plaintiff’s state of mind rather than on the defendant’s conduct.” Guyden v. Aetna, Inc., 544 F.3d 376, 384 (2d Cir. 2008).

Prohibited Whistleblower Retaliation Under Sarbanes-Oxley

The whistleblower protection provision of the Sarbanes-Oxley Act prohibits a broad range of retaliatory adverse employment actions, including discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Recently a federal court of appeals held that merely outing or disclosing the identity of a whistleblower is actionable retaliation under SOX.

Proving Sarbanes-Oxley Whistleblower Retaliation

To prevail under SOX’s whistleblower provision, an employee must prove by a preponderance of the evidence that

• they engaged in protected activity;
• the employer knew that they engaged in the protected activity;
• they suffered an unfavorable personnel action; and
• the protected activity was a contributing factor in the unfavorable action.

A contributing factor is any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision. Causation can be inferred from timing alone where an adverse employment action follows on the heels of protected activity. The decision-maker’s knowledge of the protected activity and close temporal proximity will suffice to prove causation in some cases.

Once the employee proves the elements of a Sarbanes-Oxley whistleblower retaliation claim by a preponderance of the evidence, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same unfavorable personnel action in the absence of the complainant’s protected behavior or conduct.

Recent SOX Whistleblower Recoveries

There is no cap on special damages under SOX, and some state whistleblower protection laws enable whistleblowers to recover punitive damages. Recently [ccountants-whistleblowers/ corporate whistleblowers have obtained substantial recoveries] in SOX whistleblower cases:

• Jury Awards Former Bio-Rad Counsel $11Min Sarbanes-Oxley Whistleblower Case
• Jury Awards Six Million Dollars to Whistleblower in Sarbanes-Oxley Case
• Sarbanes-Oxley Whistleblower Recovers Nearly $5 Million
• JP Morgan SOX Whistleblower Wins $1.13M at Trial
• UBS Whistleblower Prevails at Trial in SOX Whistleblower Case

Remedies in Whistleblower Retaliation Cases

Whistleblower retaliation can exact a serious toll, including lost pay and benefits, reputational harm, and emotional distress. Indeed, whistleblower retaliation can derail a career and deprive the whistleblower of millions of dollars in lost future earnings.

Whistleblowers should be rewarded for doing the right thing, but all too often they suffer retaliation and find themselves marginalized and ostracized. Federal and state whistleblower laws provide several remedies to compensate whistleblowers that have suffered retaliation, including:

• back pay (lost wages and benefits);
• emotional distress damages;
• damages for reputational harm;
• reinstatement or front pay in lieu thereof;
• lost future earnings; and
• punitive damages.

Click here for examples of substantial verdicts and settlements in whistleblower retaliation cases. Recently, the Pennsylvania Supreme Court affirmed an award of approximately $3.2 million in a whistleblower protection case.