Court knocks SOX off contractors’ retaliation claim, p. 2

On Behalf of | Apr 17, 2012 | Whistle-blower Claims

We are continuing our discussion of a case involving contract workers and the Sarbanes-Oxley Act of 2002. In a work-for-hire situation, an employee may often feel that he is serving two masters. In some circumstances, that is true. In others, however, the fact that the employee works for the agency and not the company (our terms from our April 12 post) is enormously important.

The court in this case had to determine how SOX applied in two contract workers’ whistle-blower retaliation claims. The tricky part was that the contractors reported the financial services company they’d been assigned to (a public company), not the agency that they worked for (a private company). They had both discovered financial reporting irregularities in the mutual funds they managed for the company.

The district judge was not sure if his interpretation of the law was correct. He turned to the 1st U.S. Circuit Court of Appeals for help. In situations like this, the appeals court can provide a legal opinion that will guide the district court’s decision. The appeals court is not deciding the case; it is only answering a question about the applicable law.

In this case, the question was, “Does the [SOX] whistleblower protection … apply to an employee of a contractor or subcontractor of a public company?” The answer was no.

It was not, however, a unanimous no. Two of the three judges looked at the language of the law and decided that the statute specifically applied to “employees of publicly traded companies.” They also pointed out that the parts of the law that applied to private companies very specifically stated they applied only to private companies.

So, because the agency was the employer of record for the two contractors, SOX would not protect them. Their retaliation claims — they had both been fired — were not supported by the law.

Commentators say there is one more angle to consider. If the contractors could prove that the publicly-held company told their agency to discharge them, the SOX claim could survive. It isn’t clear that the two men will pursue any additional claims.


Alan Olson practices employment law throughout the United States from his offices in New Berlin, Wisconsin. Attorney Olson may be contacted at [email protected] with questions about the information posted here or for advice on SOX retaliation claims.

Source: HR and Employment Law News, “Whistleblowing: Which Employees Are Covered by SOX?” April 2, 2012


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