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New Jersey Employment and Civil Rights Attorney Discusses "Expansion of Sarbanes-Oxley Protection"

Or..."Court darns hole in SOX"

The Sarbanes-Oxley Act (SOX, for short) is a federal statute that, ironically, New Jersey employment practitioners don't often use or run across. Here's why.

The Sarbanes-Oxley Whistleblower Protection Act is a federal statute, which means that it applies in all 50 states and in all U.S. territories. Obviously, many states don't go to the same lengths to protect workers that New Jersey does, and so most states don't have an anti-whistleblower retaliation law like we do.

Consequently, when someone blows the whistle on fraud, illegality, financial impropriety, etc., in a financial institution, the statute of first resort in New Jersey tends to be The Conscientious Employee Protection Act, or CEPA. This statute, New Jersey employment lawyers are very familiar with. It provides better damages than SOX, it keeps us out of federal court (where employment lawyers definitely don't want to be if they can avoid it), etc.

On the other hand, sometimes, SOX is your only option, because you're dealing with a federal employee within the State of New Jersey, or you're dealing with someone who perhaps both worked both in and outside of New Jersey (so you're not sure about choice of law, etc.). Sometimes, heh heh, you've just got to put on SOX.

I know that was lame; had to do it.

Now, traditionally, SOX typically protected a certain classification of folks from retaliation for whistle blowing, but recently, the United States Supreme Court expanded that protection. It sort of shocked me, because if you read about the United States Supreme Court in my other blogs, you know I don't hold the conservative majority in high regard. I feel that they lean over backwards to help corporate America, to restrict individual liberties, to hurt plaintiffs of all shapes and sizes, and to preserve the corporate, conservative, status quo. But even a broken clock is right twice a day, right?

Thus: on Tuesday, March 4, 2014, the Supreme Court significantly expanded legal protection for corporate whistleblowers. Of course the majority was divided, because it always is. The case was Lawson v. FMR, LLC. The court found that SOX (passed in 2002) covers private companies and contractors that work with publicly-traded companies. Heretofore, the definition of who was protected was restricted to employees of publicly traded companies. The expansion now covers private companies and contractors that work with them. This is a pretty huge expansion, because as Justice Ruth Bader Ginsburg wrote for the majority, most public mutual fund companies "have no employees, instead relying on private contractors and advisors for their operations."

Had this expansion not occurred, as the Justice observed, the effect would have been to protect the entire mutual fund sector from SOX anti-retaliation lawsuits. That's a hole big enough to drive a planet through. To continue with that restriction would have gutted the purposes of SOX and invited, in the Justice's words, another "Enron debacle." Since the industry manages just shy of fifteen trillion dollars in funds for ninety four million investors, this expansion makes sense.

Now, this is a good thing; if SOX is to accomplish its intended purpose, protecting as many whistleblowers as possible makes sense. What's also interesting to me is that we can tell this is a good decision because the reaction from the defense bar - the attorneys that would protect these companies - isn't so much to denigrate the decision or to argue that it's an "unreasonable" expansion, but rather, to suggest that companies just need to develop protective techniques to make sure they don't violate the law.

I've often found as an employment rights practitioner that the people that don't break the law tend not to get sued, and the people who play fast and loose with the law, and who act cute about breaking the law, tend to suffer. That's as it should be. An expansion of the law to cover potential wrong doing doesn't spell doom for any sector of the economy unless you're planning some wrong doing. What do you have to worry about if you're the good guys?

This was a good decision. I thought it fair play to mention, since I'm otherwise so critical of the Supreme Court.

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