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

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

For example, in Bechtel v. Competitive Technologies, Inc., it appears that the complainant had been doing at least a reasonably good job prior to the time when he engaged in a "protected activity."135 With regard to reporting requirements, complainant "raised issues that he believed needed to be disclosed to the SEC" as well as the "need to report potential litigation, [and] the need to disclose a change the in compensation plan" and the appropriateness of some of Respondent's representations.136 Nonetheless, even after OSHA had ordered that complainant Bechtel be reinstated137 and even in the face of recent positive commendations by the employer,138 the ALJ did not find in complainant BechteFs favor at a hearing.139 While the ALJ found that Bechtel's reporting activities did contribute to his discharge,140 the Respondent was able to put forth "clear and convincing evidence" of a reason for discharge wholly unrelated to the protected activity.141 Because respondent was able to point to financial reasons for complainant's termination-something most any employer might legitimately claim-complainant was unable to prove that respondent's legitimate reasons were pretextual. 142 This was so even though Mr. Bechtel received a bonus, shares of stock, and positive performance analysis just prior to his termination.143

In the meantime, Bechtel had already applied to the United States District Court for the District of Connecticut for enforcement of the investigator's preliminary order of reinstatement made before the ALJ hearing.144 Ultimately, the Second Circuit determined that because the order of reinstatement was not a "final order," the court lacked jurisdiction to enforce it.145

Bechtel illustrates again the extreme difficulty a Sarbanes-Oxley complainant has in proving his case at a hearing where he is an employee at will, and where any reason for his discharge can be viewed as a legitimate one.146 Additionally in Bechtel, the Second Circuit struck a mighty blow to the Sarbanes-Oxley whistleblower protections in refusing to enforce the preliminary reinstatement order,147 further discouraging would be whistleblowers from reporting what they know.

III. THE INTERPLAY BETWEEN SARBANES-OXLEY AND EXISTING STATE LAW: NEW YORK, NEW JERSEY, AND TEXAS COMPARED

Although Congress sought to improve protections for whistleblowers with Sarbanes-Oxley,148 most employees involved in whistleblower proceedings will be "at-will" employees. It is this state law "at-will" underpinning that creates the biggest overall obstacle for whistleblowers under Sarbanes-Oxley and the biggest impediment to successful implementation of the legislatively stated goal - that of encouraging employees to openly report evidence of corporate fraud.149

At its most extreme, the doctrine of at-will employment generally provides that an employee with no set period of employment may be discharged at any time for any reason except a discriminatory reason.150 In other words, an employee in a state that is less protective of employees may properly be dismissed for "wearing a red shirt."151 The difficulty for the employee thus comes in trying to prove that the real reason for the adverse action was discrimination or retaliation, rather than "the red shirt"-as even the "red shirt" is generally enough reason to fire an at-will employee.