Enacted in 2002 in reaction to the Enron accounting scandal, the Sarbanes-Oxley Act (commonly known as SOX) prohibits publicly-traded companies from retaliating against employees who “blow the whistle” on violations of federal securities laws that protect against shareholder fraud and other corporate misconduct or financial wrongdoing.  

Last month, the U.S. Court of Appeals for the region that includes North Carolina ruled that a publicly-traded pharmaceutical company’s former employee failed to show he was entitled to those protections for whistleblowers under SOX.

The plaintiff was a training director at a North Carolina manufacturing plant operated by the company during a time when it was required to comply with an FDA-mandated program to train employees in good manufacturing practices.  The training program had been imposed on the company after the FDA cited it for deficiencies at plants in other states.

The plaintiff alleged he had complained to management about the company’s inability to meet a deadline for complying with the FDA training program, and claimed that management threatened to fire him if he kept complaining.  The plaintiff contended his conduct was protected under SOX because he believed the company’s potential misrepresentation of the training program’s progress would violate federal securities law.  He claimed he was wrongly fired for trying to expose the company’s efforts to conceal deficiencies in the training program from the FDA. 

However, the federal appeals court found that the plaintiff failed to show the company misrepresented or concealed anything.  The court also found there was no evidence that the company failed to comply with the FDA’s requirements for the training program or made any attempt to mislead shareholders.  Thus, the court held that the plaintiff had no basis for a reasonable belief that the company was violating federal securities laws and was only “speculating” about violations.  

The federal appeals court concluded that the company fired the plaintiff for misconduct unrelated to his claims of corporate wrongdoing.  According to the court, the company discharged the plaintiff in response to complaints from employees that he used abusive language and engaged in unprofessional behavior, and because he threatened to have police remove a company executive who “crashed” a holiday party the plaintiff was hosting for his staff.

This court ruling is one of the first tests of the scope of the Sarbanes-Oxley Act in a federal appeals court.  It may forecast that courts will not allow SOX’s “whistleblower retaliation” provisions to cover garden-variety wrongful discharge claims, but instead will be disinclined to expand those provisions beyond those whom Congress intended to protect, namely, workers subjected to retaliation for blowing the whistle on violations of federal securities laws.