Sarbanes Oxley Act

A nearly unanimous Congress enacted, and President Bush signed into law, the Sarbanes-Oxley Act of 2002 (“SOX”) in response to high-profile accounting and corporate management scandals at Enron, WorldCom, Tyco International, and other publicly-held companies at the turn of the millennium. Intended to rein in reckless accounting methods, SOX established strong protections for workers who reported fraud within any company traded on an American stock market.

While SOX did not, as the False Claims Act had done, and Dodd-Frank would later do, provide financial incentives to encourage whistleblowing, it did establish robust protections for employees whistleblowers who report conduct amounting to a fraud committed against a company’s shareholders. Under the Act, whistleblowers who suffer retaliation are entitled to reinstatement, back pay with interest, and “compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.”

These protections apply regardless of where the whistleblower reports the fraud in question; that is, employees enjoy SOX retaliation protections if the complaint is delivered to a federal regulatory or law enforcement agency, to a member of Congress, or to the employing company itself. Additionally, employers and/or supervisors who retaliate against whistleblowers face stiff criminal penalties – creating yet another disincentive to retaliation that should steel the resolve of employees considering reporting fraud.

An employee who files a SOX retaliation action will likely be expected to show that:

  1. He or she engaged in protected activity or conduct;
  2. the employer knew that the employee was engaging, or had engaged in, this protected activity;
  3. he or she suffered an unfavorable personnel action; and
  4. his or her participation in the protected activity or conduct contributed to the unfavorable personnel action.

Additionally, the courts have clarified that employees are “protected” under SOX for reporting any of the following six categories of misconduct:

  1. Mail fraud (under 18 U.S.C. § 1341)
  2. Wire fraud (§ 1343)
  3. bank fraud (§ 1344)
  4. securities fraud (§ 1348)
  5. any rule or regulation of the U.S. Securities and Exchange Commission (“SEC”); and
  6. any other provision of federal law relating to fraud committed against shareholders.

For more information on whistleblower protections under the Sarbanes-Oxley Act, or to discuss a potential matter involving retaliation against an employee, please contact Adam Zapala at (650) 697-6000.

Key Contacts