Watershed SOX Case Strengthens Protection for Whistleblowers

Law calls only for “reasonable belief” of violation

In what law firms and academic blogs are calling a watershed case, the U.S. Department of Labor’s Administrative Review Board (ARB) has significantly expanded whistleblower protection under the 2002 Sarbanes-Oxley Act (SOX) following a case involving pharmaceutical research company Parexel International.

In the wake of unreported fraud that toppled major corporations including Enron and Tyco, SOX, in part, granted protection for whistleblowers in cases of shareholder and securities fraud in publicly held companies.

In the Parexel case, two employees claimed they were terminated after reporting their belief that the company breached the U.S. Food and Drug Administration’s Good Clinical Practices and used erroneous information to falsify data during the clinical testing of a drug.

The ARB decision rewrote existing law by finding that:

• One need only express a “reasonable belief” of a SOX violation to engage in protected activity
• The protected activity need not describe an actual violation of law
• SOX complaints do not have to relate to fraud against shareholders
• A SOX complaint need not establish criminal fraud to prevail on a retaliation claim

“All [previous] decisions that required protected activity to ‘definitively and specifically’ implicate a violation of law are now out of date,” said Richard Renner, legal director of the National Whistleblowers Center in Washington, D.C.

To read the decision, click here.