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Fourth Circuit Concludes Complaints Over Mandatory Arbitration Are Not Protected

    Client Alerts
  • June 27, 2019

The Sarbanes-Oxley Act (SOX) provides federal whistleblower protections against retaliation for employees of publicly held companies who complain about fraudulent activities. However, not all employee complaints are protected under SOX. In a recent decision, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) concluded that an employee’s contentions regarding mandatory arbitration requirements fall outside the law’s scope.

In Northrop Grumman Systems Corp. v. DOL, the employee filed an administrative SOX compliant following her termination as part of a reduction in force. She claimed that she complained to management about signing a conflict of interest form that she contended could be construed by employees to require mandatory arbitration of whistleblower retaliation claims (which would be prohibited under SOX). The U.S. Department of Labor agreed, and the employer appealed this administrative decision to the Fourth Circuit.

In its decision, the Fourth Circuit noted that SOX does not cover all employee complaints. The law only protects complaints relating to six specific types of alleged fraud that could materially impact shareholders. In this situation, complaints about imposing mandatory arbitration fall outside of any of those listed fraudulent actions, and the plaintiff’s claims had little relation to shareholder value. The court rejected DOL’s argument that SOX also protects employees who complain about measures perceived as interfering with their rights under the whistleblower law. Finally, the Fourth Circuit said that the conflict of interest form could not be reasonably construed as requiring arbitration of SOX claims, and that the employer’s mandatory arbitration agreement specifically excluded SOX claims from its coverage.

While employees enjoy broad whistleblower protections under federal law, not every complaint gives rise to the strong protections imposed by SOX.