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Practical Tips for Avoiding SOX Whistle-Blower Liability

By Mark Robertson and Ryan Rutledge


The Sarbanes-Oxley Act (SOX) creates a federal cause of action in favor of employees who allege that their employers retaliated against them for reporting violations of federal securities laws. In other words, if a publicly traded company terminates an employee for complaining that the company was defrauding its shareholders, the fired employee can sue. Below are five practical tips for practitioners to assess the viability of a potential claim.


  • Timing is everything. The statute of limitations on a SOX whistle-blower claim is 90 days. That is a much smaller window than employees usually get to bring a wrongful termination lawsuit. Plaintiffs’ lawyers inexperienced with SOX whistle-blower claims—a group that still includes most plaintiffs’ lawyers—may not be familiar with the unusually short statute of limitations. If the employee does not move fast enough, his or her SOX whistle-blower lawsuit likely will be dismissed as time-barred. Levi v. Anheuser Busch Cos., Inc., 2007-SOX-00055 (Sept. 17, 2007).
  • There is no such thing as “silent” whistle-blowing. In many types of employment disputes, a creative plaintiff’s attorney can use events that may have been innocuous at the time to create a plausible basis for a claim. In SOX cases, however, that may not be enough. “The relevant inquiry is not what [employees] have alleged or argued in their complaints, but what [employees] actually communicated to [the employer] prior to their respective terminations as alleged in their pleadings.” In other words, an employee cannot sue for whistle-blowing unless he or she actually blows the whistle. Galinsky v. Bank of America Corp., 2007-SOX-00076 (ALJ, Oct. 12, 2007).
  • SOX is not a general retaliation statute. In order to constitute “protected activity” under SOX, an employee must “definitively and specifically” allege shareholder fraud or a violation of one of the enumerated statutes. A complaint about potential violations of “federal laws and regulations” is not enough. Nor is it enough for an employee to allege that a company’s violations of other laws could lead to penalties and fines, which could have an effect on shareholders. If the employee makes ambiguous complaints or alleges violations of other laws (such as anti-discrimination or worker safety laws), the employer may be able to obtain dismissal of the SOX whistle-blower lawsuit on the basis that the employee did not engage in a protected activity. Portes v. Wyeth Pharmaceuticals, Inc., 2007 WL 2363356 (S.D.N.Y. Aug. 20, 2007); Sylvester v. Parexel International, LLC, 2007-SOX-00039 and 0042 (ALJ, Aug. 31, 2007).
  • Unreasonable complaints are not protected. In order to constitute “protected activity” under SOX, an employee’s complaints about shareholder fraud must be reasonable (both subjectively and objectively). If the employee lacked any basis for making a complaint, the complaint is not protected. Moreover, employees will be held to the standard of a reasonable person with like training and experience. For example, an accountant’s allegations of shareholder fraud are protected only if they were reasonable “from the perspective of an accounting expert.” If a reasonable person with similar sophistication would not have believed shareholder fraud had occurred, the employer may be able to obtain dismissal of the SOX whistle-blower lawsuit. Allen v. Administrative Review Board, 514 F.3d 468 (4th Cir. 2008); Welch v. Cardinal Bankshares Corp., ARB Case No. 05-064, 2003-SOX-00015 (ARB, May 31, 2007).
  • Location, location, location. Even companies unfamiliar with the whistle-blower provisions of SOX likely are already familiar with its anti-business effects. Oppressive domestic laws give companies many reasons to list their stock on a foreign exchange or relocate overseas, and SOX gives them one more. If an employee is fired for protesting shareholder fraud in a foreign country, a SOX whistle-blower lawsuit likely will be dismissed for lack of jurisdiction. Ahluwalia v. Abb, Inc., 2007-SOX-00044 (ALJ, Sept. 24, 2007); Ede v. The Swatch Group, Ltd., ARB No. 05-053, ALJ Nos. 2004-SOX-00068 and 00069 (ARB June 27, 2007); Carnero v. Boston Scientific Corp., 433 F.3d 1 (1st Cir. 2006).

Mark Robertson is with O’Melveny & Myers LLP’s New York, New York office and Ryan Rutledge is with O’Melveny & Myers LLP’s Newport Beach, California office.

This information has been modified from its original format in Employment and Labor Relations Law newsletter, Vol. 6, No. 3 (Spring 2008).

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