Which employee complaints are protected from retaliation under the Sarbanes-Oxley Act?

Since the SOX covers a lot of things, I thought it might be fun to put the post in Q&A format and make it as painful as possible. With sock puns, of course.

Everything the SOX Protects

SOX protects an employee who reasonably believes that fraud occurred and provides information about it or assists in an investigation. The fraud can involve mail fraud, wire fraud, radio or TV fraud, bank fraud, securities fraud, or commodities fraud, as defined in the United States Code.

SOX also protects someone who reasonably thinks a violation of the Securities Exchange Act, or any SEC rule or regulation, or any other federal law related to shareholder fraud was violated.

Also, the SOX protects an employee who provides information, testifies, or in any way assists a proceeding concerning an alleged violation of an SEC rule or regulation or law relating to shareholder fraud.

Does the SOX protect everything that comes up, then? Absolutely not. For the SOX to come into play, someone has to hear about whatever fraud is alleged, and it must be a federal regulator or law enforcement agency, Congress or a member, or a supervisor (or the supervisor’s agent).

You’re not allowed to retaliate against an employee because they report fraud to the Feds or the Congress or because they testify in a case. You didn’t need me to tell you that, did you? You do need to know that SOX also protects employees who tell the supervisor.

Internal Reporting

So what kinds of internal reporting does the SOX cover?

An employee who tipped off the audit committee that the company’s books were cooked.

An employee who told the HR vice president that the communications VP was diverting company money to herself. The court said that was protected conduct under SOX.

A Ph.D. chemist for a drug company, who told officers at the company that a press release on a new drug contradicted the results of the company’s clinical trials. The court said that’s the kind of shareholder fraud the SOX protects you for.

A SOX complainant whose concerns were about a shady method for bidding on a public contract. The company had talked about using the method, but hadn’t, and the court said that was protected activity under SOX.

An accountant who refused to sign off on certain company expenses as business expenses. SOX will protect you for this kind of stuff.

An advertising agency “Associate Media Director” who reported a vendor was overcharging the agency’s client by millions. The court said that’s protected activity under SOX.

A banker who notified the company that fellow commissioned bankers opened and closed customer accounts without consent and without the required ID check. That’s the sort of thing SOX protects you for doing, said the court.

This isn’t even close to an exhaustive catalog. But you can see, it’s not just number-crunchers who allege shareholder fraud that get SOX protection.

Don’t let anyone act against a fraud whistleblower, in any way. Or against someone refusing to do fraud. You should have been careful about that before SOX, of course, so nothing new there. Even without the SOX, a worker with a claim like this might have been able to bring an action for wrongful discharge in violation of public policy. The employee usually would have needed to be fired, though. SOX doesn’t just protect firings, either. It also bars any action like demotions, suspensions, harassment, threats, discrimination.

Limits on What SOX Protects

Now, what doesn’t the SOX protect?

Employees who reported suspected insider trading internally, but didn’t say much. They didn’t look into it, either, so the court threw out their SOX claims as too speculative.

An employee who grumbled about other workers openly talking stock prices, the company’s alleged waste, management speaking fees, and hiring an outside IT consultant. None of those practices was illegal or fraudulent, so the court dismissed the SOX claims.

A banker who complained about coworkers aggressively marketing bank services. That’s not protected activity under SOX, the court said, because aggressive sales is not illegal and isn’t fraud.

A fast food worker who complained that bosses left food out even after it expired. That’s wrong, of course, but not fraud under the SOX statute, so the court threw it out.

A worker who sent two rambling e-mails, alleging threats, a supposed relationship with a coworker, an FBI fraud probe at a car dealership that she said was “frivolous.” Her second e-mail asked the company to investigate possible illegal acts, but the court said nothing she described was fraud under the SOX statute.

A worker who complained of nuclear safety regulations being violated and safety records being altered. Yes, bad. Possibly illegal under other laws. But not fraud under SOX statute.

Both lists are just a tiny sample of how broad SOX can be. First, note that SOX isn’t just for worker-claims of shareholder fraud. The fraud doesn’t have to harm shareholders. Or affect share price.

Second, not every dishonest workplace act is fraud covered by the SOX. That is, expired food and falsified safety records are not the sort of thing that would be fraud under the SOX statute. But in some situations, at least in theory, a court could find those sorts of acts fraudulent.

That is even more reason for you to make sure you don’t screw around with anyone who tries to blow the whistle.

If you would like more examples of what SOX protects — and what it doesn’t — check out the Labor Department’s SOX Whistleblower web page. You can find procedures, administrative and court decisions. It’s a really good starting point.