Whistleblower Retaliation Involving the Sarbanes-Oxley Act (SOX)

Whistleblower Retaliation Involving the Sarbanes-Oxley Act (SOX)Whistleblowing is gaining recognition as an essential way to help ensure the transparency and integrity of public companies. However, encouraging insiders to disclose information about corporate wrongdoing would be extremely challenging to obtain without offering informants legal protection for doing so, since whistleblowers often face harsh reprisals for coming forward. Here’s an example:

In 2021, a former vice president with JP Morgan filed a federal lawsuit alleging that her previous employer fired her in retaliation for whistleblower complaints of inaccurate record-keeping she made that were protected under the Sarbanes-Oxley Act (SOX). In response to the assertions, JP Morgan allegedly took the following actions against the employee:

  • Withdrew substantial job responsibilities
  • Gave a negative (and inaccurate) performance review
  • Excluded her from meetings
  • Issued a written warning alleging unprofessional behavior and poor job performance
  • Ultimately terminated her employment
  • Later refused to confirm her employment with a prospective employer

The Sarbanes-Oxley Act (SOX) was enacted in 2002 due to several corporate scandals—including those concerning Enron, WorldCom, and Tyco International—which undermined investor confidence in U.S. financial markets. SOX was enacted to improve corporate governance, financial transparency, and the integrity of financial reporting, and established various regulations intended to strengthen corporate accountability and prevent fraudulent activities.

What protections does SOX provide?

SOX protects employees who engage in various activities, including providing information or assisting in investigations regarding any conduct that the employee reasonably believes constitutes fraud, shareholder fraud, or violations of SEC rules. One of the critical provisions of SOX is Section 806, which addresses whistleblower protection. Here’s an overview of SOX in relation to whistleblower protection:

  • Section 806 of SOX specifically focuses on whistleblower protection for employees of publicly traded companies.
  • The whistleblower protections under Section 806 apply to employees of publicly traded companies, including their subsidiaries and affiliates.
  • SOX encourages internal reporting of suspected misconduct within the company before external reporting to regulatory bodies. However, it also protects those who choose to report directly to regulatory agencies.
  • Under Section 806, employees of public companies who face retaliation related to mail, wire, bank, or securities fraud have the right to bring a civil lawsuit.
  • SOX prohibits employers from retaliating against employees who blow the whistle on potential wrongdoing. Retaliation can take various forms, including termination, demotion, harassment, or other adverse employment actions.
  • Employees who believe they have faced retaliation for whistleblowing under SOX can file a complaint with the Occupational Safety and Health Administration (OSHA) within a specific timeframe.
  • If OSHA finds merit in a whistleblower complaint, remedies may include reinstatement, back pay, compensatory damages, and attorney’s fees.

Whistleblower protections under SOX are crucial for promoting a culture of corporate accountability and encouraging employees to come forward with information about potential financial misconduct without fear of retaliation.

What is whistleblower retaliation?

Whistleblower retaliation is adverse action taken by employers against individuals who report or disclose information about illegal, unethical, or fraudulent activities within an organization. Retaliation can take on many forms, including:

  • Termination: The unjustified firing or dismissal of an employee in response to their whistleblowing actions. Example: An employee reports financial misconduct in a company and is subsequently terminated without valid cause soon afterward.
  • Demotion: Lowering the rank, status, or responsibilities of an employee in response to their whistleblowing activities. Example: An employee reporting safety violations within an organization is demoted from a managerial role to a lesser position.
  • Harassment: Creating a hostile work environment by exposing employees to unwanted and harmful behaviors in response to whistleblowing. Example: An employee is subjected to persistent bullying, verbal attacks, or exclusion by colleagues after reporting accounting wrongdoing.
  • Intimidation: Using threats or intimidation tactics to discourage or prevent an employee from bringing a whistleblower complaint. Example: An employer threatens an employee with severe consequences—legal action or reputational harm—if they report fraudulent activities.
  • Blacklisting: Preventing a whistleblower from finding employment in their industry by spreading negative information about them. Example: A former employee who reported unethical practices is subsequently excluded from job opportunities within an industry due to unfavorable references.
  • Negative performance reviews: Providing unjustified poor performance reviews or ratings in retaliation for whistleblowing. Example: An employee who reported regulatory violations receives significantly lower performance ratings following a history of positive evaluations.
  • Change in duties or assignments: Reassigning employees to less desirable tasks or projects in response to their whistleblowing activities. Example: A whistleblower is removed from high-profile projects and assigned routine tasks as a way of retaliation.
  • Isolation: Socially isolating a whistleblower within the workplace by making them feel excluded from team activities or decision-making processes. Example: Colleagues intentionally exclude a whistleblower from meetings and social events after learning that they reported fraudulent practices.

To win a SOX retaliation claim, a whistleblower must offer evidence to prove that:

  • They made a protected disclosure under Section 806.
  • Their employer knew they made the protected disclosure.
  • They suffered unfavorable personnel retaliation as a result of engaging in the protected activity.
  • The protected activity was a contributing factor in the unfavorable retaliation of the employer.

If the whistleblower can prove these elements by a preponderance of the evidence, the employer must prove by clear and convincing evidence that it would have taken the same adverse action even if the employee had not engaged in the protected activity.

Employers often react negatively when their misconduct or fraudulent activities are disclosed, and some retaliate against the whistleblowers who come forward. However, laws like the Sarbanes-Oxley Act protect employees from retaliation due to complaints about wrongdoing. The whistleblower attorneys at Buckley Bala Wilson Mew LLP move quickly in response to employer retaliation to protect our client’s rights and seek damages for their losses.

Are you a whistleblower facing employer retaliation? Call us at our Atlanta office or complete our contact form to schedule your initial consultation today. We proudly serve clients throughout Georgia, including those in Athens, Augusta, Columbus, Gainesville, Macon, Marietta, and Savannah.

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