WHISTLEBLOWER PROTECTIONS UNDER THE SARBANES-OXLEY ACT: A PRIMER AND A CRITIQUE

Fordham Journal of Corporate & Financial Law, 2007 by Watnick, Valerie

Sarbanes-Oxley impacts state law by disallowing adverse action against an employee where the employee's protected activity contributed to the decision to act adversely.152 In this manner, Sarbanes-Oxley adds another illegal reason to the list for firing the at-will employee in all state jurisdictions.153 Likewise, the employer would be forced to state some other reason for its adverse action, although almost any reason could be deemed legitimate by a reviewing tribunal.154 And of course, employees in all states continue to benefit from state employment laws that do not contradict or contravene the intent or language of the Sarbanes-Oxley Act.155 Many of these state whistleblower laws are, however, narrowly drawn or offer little protection for those blowing the whistle on securities fraud.156

In New York, for example, the state whistleblower statute only protects employees from retaliation when the employee reports a violation that specifically affects the public health.157 Employees are otherwise left largely unprotected under the state's common law,158 while employers are heavily protected by the common law doctrine of at will employment.159 For example, the New York State Court of Appeals reaffirmed its longstanding commitment not to imply obligations into the employer/employee relationship absent some authority to do so from the legislature in Murphy v. American Home Products.160 In Murphy, the Court refused to recognize the tort of "abusive discharge" in the employee at will relationship161 and refused to even imply an obligation of good faith into the relationship.162

Similarly, an employee physician brought a claim in New York state court against her employer for wrongful discharge after she refused to share other employees' confidential medical information with the employer in Horn v. New York Times.l63 The Court refused to find that the contract had implied terms where doing so would not further the underlying agreement of the parties.l64 The court held that the physician employee was really engaged in a managerial role, charged with determining whether employees' injuries were work-related.165 Any medical care that she actually gave, the court reasoned, was ancillary to the managerial role she played.166 The court thus held that not disclosing patient confidences was not central to her role as an employee, and implying the obligation of confidentiality would not be in "furtherance" of the employer/employee relationship.167 Absent legislative change, the court in Horn refused to imply such an obligation into the contract.168 Horn thus illustrates a situation where New York's highest court allowed an employer to legally dismiss the plaintiff, an atwill employee, even though the employer's conduct appeared to be unethical and the employee appeared to be acting properly.169

In contrast, under New Jersey law, at-will employees receive greater protection against adverse actions when they are acting specifically to serve the public good. A New Jersey court noted that New Jersey's whistleblower statute protected an employee who blew the whistle about his employer's use of unlicensed workers in Donofry v. Autotote Systems, Ine(TM) Other New Jersey courts, however, have noted that where an employee acts merely in his own interests and only indirectly serves the public good, he will not be protected by New Jersey's whistleblower statue and will be subject to the vagaries and lesser protections of New Jersey state common law.171