Watershed SOX Case Strengthens Whistleblower Protections

In what is being called 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.

The Parexel case involved two employees who 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

Experts agree the decision is a significant departure from previous SOX interpretations. All those decisions that required protected activity to ‘definitively and specifically’ implicate a violation of law are now out of date, says the National Whistleblower Center in Washington, D.C.

To read the decision, go to www.oalj.dol.gov/PUBLIC/ARB/DECISIONS/ARB_DECISIONS/SOX/07_123.SOXP.PDF.