SOX Issues (Part I)

As we continue with our videos on retaliation, we turn our attention to SOX today, and why Plaintiff’s lawyers are so interested in SOX’s Administrative Review Board (“ARB”).

But, it’s best to begin at the beginning, and that is an explanation of SOX. You can find a good summary of this topic in Mark’s paper.

SOX Section 806, protects employees from retaliation when they engage in the following activities:

(1) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by—

(A) a Federal regulatory or law enforcement agency;
(B) any Member of Congress or any committee of Congress; or
(C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or
(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.

18 U.S.C. § 1514A(a).

29 C.F.R. § 1980.104(b)(1) sets out the prima facie elements of a SOX whistleblower claim:

(i) the employee engaged in a protected activity or conduct; (ii) the [employer] knew or suspected, actually or constructively, that the employee engaged in the protected activity; (iii) the employee suffered an unfavorable personnel action; and (iv) the circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the unfavorable action.

Id.; see also Harp v. Charter Comm., Inc., 558 F.3d 722, 723 (7th Cir. 2009) (same); Gale v. U.S. Dept. of Labor, 384 Fed. Appx. 926, 929 (11th Cir. 2010) (same); Coppinger–Martin v. Solis, 627 F.3d 745, 750 (9th Cir. 2010) (same); Mozingo v. South Financial Group, Inc., 520 F. Supp. 2d 733, 740 (D.S.C. 2007) (same).

SOX does not follow the familiar Title VII McDonnell Douglas burden-shifting framework. Rather, in a SOX retaliation case:

[A]n employee bears the initial burden of making a prima facie showing of retaliatory discrimination; the burden then shifts to the employer to rebut the employee’s prima facie case by demonstrating by clear and convincing evidence that the employer would have taken the same personnel action in the absence of the protected activity.

Welch v. Chao, 536 F.3d 269, 275 (4th Cir. 2008), cert. denied, 129 S. Ct. 1985 (2009); see also 18 U.S.C. § 1514A(b) (“An action brought under paragraph (1)(B) shall be governed by the legal burdens of proof set forth in section 42121(b) of title 49, United States Code.”); 49 U.S.C. § 42121(b)(ii) (“[N]o investigation otherwise required under subparagraph (A) shall be conducted if the employer demonstrates, by clear and convincing evidence, that the employer would have taken the same unfavorable personnel action in the absence of that behavior.”); see also Livingston v. Wyeth, Inc., 520 F.3d 344, 352–53 (4th Cir. 2008) (setting out SOX affirmative defense standard).

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