Supreme Court Ruling Could Affect SOX Whistleblower Provisions

A recent U.S. Supreme Court ruling regarding a public sector whistle blower has got employment practice attorneys fretting about how the courts will interpret the Sarbanes Oxley (SOX) accounting reform law’s provisions for whistleblowers in the private sector.


In a switch from previous court rulings favorable to people who let the public know about workplace wrongdoing and inefficiency, the Supreme Court in Garcetti v. Ceballos held that statements made by public employees in the course of performing their job duties are not protected by the First Amendment (freedom of speech) and may be the basis for discipline by their employer.

The Supreme Court ruling is “a significant additional precedent for a narrower view of the protections provided under Sarbanes-Oxley and other whistleblower statutes applicable to private employers,” the Los Angeles-based international law firm Gibson, Dunn & Crutcher (GDC) said on its Web site, after the nation’s highest court handed down its decision.

Sarbanes-Oxley protects employees who disclose to a supervisor what they reasonably believe to be violations of federal laws relating to fraud against shareholders, but it does not specify whether the reporting is protected if it is a normal part of the employee’s job. In the Ceballos case, the Supreme Court specified that activity that is part of the whistle blower’s job functions is not constitutionally protected.

“A similar issue regarding the degree of protection afforded whistleblowers can arise under the Sarbanes-Oxley Act,” according to GCD. The law firm theorized that if the courts interpret SOX as a protection for whistleblower employees, regardless of whether their actions are part of their job responsibilities, employers would be “constrained in performance/management decisions on employees whose work responsibilities specifically include fraud monitoring.” If SOX’s protections are not determined to extend that broadly, employers may not be so constrained.

“Such a rule would be particularly troubling in the context of Sarbanes-Oxley, which was enacted for the specific purpose of enhancing the competence and accountability of internal corporate controls,” the law firm said. It cited internal auditors making statements about a company’s financial practices as an example of potential whistle-blowing done as part of a specific job function and not protected by law under the Ceballos ruling.

Michael W. Fox, an employment practices specialist and shareholder in Ogletree & Deakins, a Texas-based international law firm, said that the Ceballos ruling should bolster similar rulings under various whistleblower statutes that employees who make complaints in the course of their regular duties are not in fact whistleblowers, but merely "doing their job."

In the case the high court ruled on, Richard Ceballos, a prosecutor for the Los Angeles County District Attorney’s office, prepared, as part of his job, a memorandum recommending dismissal of a case he was handling, and when his superiors overruled the recommendation, he informed the case’s opposing counsel of his concern that a sheriff’s deputy lied on a search warrant affidavit. .Ceballos claimed that he was denied First and Fourteenth amendments protection when his superiors demoted him because he had passed the memo to the other side and testified at an evidence suppression hearing related to the case.

The 9th U.S. Circuit of Appeals in Los Angeles decided that Ceballos’s freedom of speech was violated, but on appeal the Supreme Court reversed, holding that public employees speaking pursuant to their official duties do not speak as citizens for First Amendment purposes. The First Amendment would have protected Ceballos if the retaliation occurred because he made information about the case known in a newspaper or other such public forum.

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