09/26/2011 05:12 pm ET | Updated Nov 26, 2011

An Overview of Dismissed SOX Whistleblowers' Complaints

A recent Department of Labor news release stated that a financial institution was ordered to reinstate a fired employee and pay him $930,000 for violating the whistle-blower protection provisions of the Sarbanes-Oxley Act (SOX). It may appear to the casual reader that redress for violations is certain and profitable. However, a Department of Labor determination is subject to multiple appeals. Many commentators have discussed whether SOX whistle-blowers are sufficiently protected from retaliation.

The Occupational Safety and Health Administration (OSHA), part of the Department of Labor, enforces 21 federal statutes that protect employees from "adverse" employment action for whistle-blowing. One is the Sarbanes-Oxley Act's protections found in Title 18 U.S.C. Section 1514A. In summary, this provision protects employees or contractors of publicly traded companies who report information concerning specified financial violations to their supervisors or designated external entities. A person asserting adverse employment action has 180 days to file a complaint with the Secretary of Labor. In the appeals process, a decision by OSHA may be appealed to an Administrative Law Judge, then to an Administrative Review Board and ultimately to the federal courts.

While one cannot easily determine how many whistle-blower complaints are resolved without the filing of a formal complaint, it is possible to track complaints that are filed. The typical end of the appeals process is a United States Court of Appeals. These courts rarely reinstate a whistle-blower complaint that has been dismissed at some appellate level. In part this is because no new testimony is heard and the facts have already been established. It is also apparent that appellate courts strictly apply the procedural and statutory requirements of SOX.

Looking solely at reported federal Court of Appeals decisions for the past two years, these courts upheld a lower tribunal's dismissal of Sarbanes-Oxley Act whistle-blower complaints if the employer had a legitimate and lawful reason for the adverse employment action separate from the alleged retaliation. A dismissal was also upheld if SOX statutory or procedural requirements were not met. The complaint dismissals upheld in this two year survey were specifically based upon the following allowable reasons:

  • Deterioration in job performance.
  • Failure to meet detailed work standards.
  • Resignation prior to the asserted adverse action.
  • Failure to meet procedural deadlines (two cases).
  • The organization is not covered by the act.
  • The employment contract required arbitration.
  • The employee lacked a reasonable belief that the activities complained of were unlawful.
  • The complaint did not involve "protected activity."
  • The employee would have been terminated regardless of the protected activity (verbally abusive, lying, creating a negative work environment).
  • The employee did not have a subjective belief that the activity was fraudulent or illegal.
  • Leaks to newspaper in violation of company policies were not protected.
  • Belligerent demeanor and refusal to accept feedback
  • Violation of firm's revenue recognition policies coupled with an abrasive management style.
The territory of the U.S. Court of Appeals for the Second Circuit includes New York, Connecticut, and Vermont. In a 2009 decision, this court stated that under the Sarbanes-Oxley Act an employee initially must show (a prima facie case) that: "(1) she engaged in a protected activity or conduct; (2) the employer knew or suspected... that she engaged in the protected activity; (3) she suffered an unfavorable personnel action"; and (4) circumstances infer that the protected activity contributed to the unfavorable action. In 2010 the Second Circuit emphasized that asserted protected activity must "definitely and specifically" relate to the categories stated in the statute.

Potential SOX whistle-blowers at a minimum need to clearly meet the substantive and procedural statutory requirements, meet all employment expectations, and interact appropriately with coworkers. Failure to do these things will result in a retaliation complaint being dismissed when the complaint is challenged by his or her employer. Employers need clearly communicated and uniformly enforce personnel rules. This function should be separated from investigations of internal whistle-blowing complaints. Once a complaint is made to the Department of Labor, the employer, like the employee, must meet all substantive and procedural statutory requirements.