Whistleblower Law Blog

The Employment Law Group® Law Firm Establishes New Precedent Under SOX

Department of Labor Administrative Law Judge William Dorsey has denied summary judgment in a SOX case brought by a former in-house attorney who was terminated for blowing the whistle on violations of SEC rules. Judge Dorsey’s order resolves several significant substantive and procedural issues under SOX, including:

  •  The Duty Speech Doctrine Does Not Apply to SOX. The employer argued that the complainant could not have engaged in protected conduct because she was merely doing her job an in-house attorney, and therefore her disclosures cannot be protected unless she acted outside her role as in-house counsel. Applying well-established DOL precedent, Judge Dorsey unequivocally rejected this argument, holding that an employee whose own job duties encompass reporting illegal conduct may obtain whistleblower relief. Judge Dorsey noted: “The SOX Act and the Secretary’s implementing regulations specifically protect reports employees make to their supervisors. Nektar cannot invent exceptions to those federal protections.” The employer also argued that the Supreme Court’s duty speech doctrine set forth in Garcetti v. Ceballos, 126 S. Ct. 1951 (2006) applies to SOX and therefore employees must step outside their official duties to be protected. Judge Dorsey held that Garcetti is inapposite as it “involved no whistleblower protection statute [and] it dealt with public employees who claimed their termination,” whereas a SOX action “is a statutory claim a private employee filed . . . . [and has] nothing to do with the reach of First Amendment.”

  • Protected Conduct is Not Limited to Disclosures of Shareholder Fraud. While some ALJs have erroneously held that protected conduct under SOX is limited to disclosures about shareholder fraud, Judge Dorsey, applying the plain meaning of SOX and the ARB’s decision in Klopfenstein v. PCC Flow Technologies Holdings, ARB No. 04-149, ALJ No. 2004-SOX-11 (ARB May 31, 2006), held that “allegations of fraud are not the sole means for whistleblowers to secure SOX protections.” In particular, Judge Dorsey held that disclosures about violations of SEC-mandated internal controls can constitute protected conduct.

  • The Cat’s Paw Doctrine Applies to SOX. The employer claimed that the decision-maker was an officer who has joined the company shortly before the complainant was terminated and knew nothing about her protected conduct. Judge Dorsey rejected the employer’s effort to pin the decision on a clean slate, holding that the “clean slate” relied heavily upon the input of a supervisor who knew of the complainant’s protected conduct. Acomplainant may hold an employer liable for discrimination without proof that the individual who made the final decision to terminate her knew of her protected activity. The employee need only make a protected disclosure to an individual with supervisory authority over her. 18 U.S.C. § 1514A(a)(1)(C). Once an employee’s supervisor has actual knowledge of the protected activity, that knowledge is attributed to the ultimate decision-maker.

  •  Individual Liability Does Not Require a Showing of Malice. While more than 800 SOX retaliation claims have been filed, very few opinions address the standard for individual liability. Judge Dorsey held that individual liability under SOX can be established absent a showing of actual malice. Instead, “[a]n individual’s liability is assessed in same manner that the corporate employer’s liability is assessed. Individual liability must be predicated on retaliatory intent that contributed to the decision to take an unfavorable personnel action; it need not be the sole factor that motivated the named individual.”

  •  Formal Rules of Evidence Do Not Apply to SOX Claims. Judge Dorsey also clarified the standard of admissibility at the summary decision stage. In this action, the employer filed 506 pages of objections to the complainant’s statement of material facts, contending that the materials submitted by the complainant were not properly authenticated and contained hearsay. Judge Dorsey rejected the employer’s attempt to strictly construe the rules of evidence at the summary judgment stage, noting that formal rules of evidence do not apply to SOX claims. Moreover, as “[w]histleblower discrimination claims commonly turn on inferences drawn from circumstantial evidence,” the adjudication of such claims requires full presentation of a broad range of evidence that may prove, or disprove, retaliatory animas and its contribution to the adverse action taken. Judge Dorsey also held that discovery documents and depositions need not be authenticated on personal knowledge when submitted in opposition to a motion for summary decision.


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