SARBANES-OXLEY (SOX) USED TO PROTECT WHISTLE-BLOWING EMPLOYEES

Employee lawyers in states other than California have actively used the Sarbanes-Oxley (SOX) Act of 2002 to protect whistleblowers. SOX has a whistleblower protection clause for employees of publicly traded companies, 18 U.S.C. 1513(e), 1514(A)(a). In California, SOX can be used as a basis for one’s wrongful termination cause of action, or California Labor Code Section 1102.5 cause of action. These two legal theories do not have to be filed in Federal Court, an employee does not have to exhaust administrative remedies under those two theories, and it is clear they can obtain emotional distress and punitive damages.

Nonetheless, it is important to understand how SOX works. SOX whistleblowers are defined as employees who provide evidence of fraud, cause information of fraud to be provided, assist in an investigation regarding any conduct that the employee reasonably believes constitutes a violation of mail fraud, wire fraud, bank fraud, securities fraud, or any rule or regulation of the Securities and Exchange Commission. In brief, SOX protects both internal and external whistleblowers.

SOX’s whistleblower protections also extend to employees of a subsidiary of a publicly traded company. The act probably does not apply to employees working abroad for a foreign subsidiary.

Like most whistleblower protection laws, SOX requires the employee to prove they engaged in protected activity, the employer knew of the protected activity, and the employee suffered an unfavorable personnel action. If the employee satisfies his burden of establishing a prima facie case under SOX, the employer must prove by clear and convincing evidence it would have taken the same adverse action absent the protected activity. The evidentiary standard of clear and convincing evidence is a more difficult than the general civil standard of preponderance of the evidence. It is the standard immediately under the criminal beyond a reasonable doubt. SOX is a powerful whistleblower protection law for employees of publicly traded companies. This same standard exists in California Labor Code Section 1102.5 which is a whistle blower protection statute.

SOX complaints must be initially filed with OSHA. It is recommended that a SOX complaint be detailed. The complaint to OSHA should include all of the relevant dates, the acts and omissions that constitute violations of securities law. OSHA has a Whistleblower Protection Program website for this purpose. OSHA plans to soon only accept electronic complaints.

SOX complaints must be filed within 180 days of the alleged discriminatory personnel decision. This is substantially shorter than most statutes of limitation.

After a SOX complaint has sat at OSHA for 180 days, an employee may then file a regular lawsuit about the SOX violations in Federal Court.

The remedies under SOX include back pay with interest, reasonable costs and attorney fees. Punitive damages are not available. The law is not well settled on whether SOX allows for the recovery of emotional damages, but some low level federal cases in various districts outside of California have allowed emotional distress.

Please contact my law firm if you have any questions about California employee rights, whistle blowing, or believe you were a SOX whistleblower.