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Requiring Employees to Discover Source of Alleged Fraud Does Not Violate Sarbanes-Oxley

    Client Alerts
  • October 06, 2023

The Sarbanes-Oxley Act (SOX) protects employees of public corporations who report alleged financial misconduct from retaliation by their employers. Last week, the Eleventh Circuit Court of Appeals concluded that an employee’s failure to explain the discrepancies that formed the basis of his SOX complaint did not constitute prohibited retaliation by the employer.

In Ronnie v. Office Depot LLC, the plaintiff was a financial analyst who reported to his supervisor potential accounting errors that could lead to a misstatement of revenues. The supervisor responded by directing the analyst to investigate and discover the source of the discrepancies before making changes in the data set used. When the plaintiff was unable to discover the reasons for the discrepancies, he was warned and eventually terminated based on performance. Prior to the termination decision, he reported to the defendant’s human resources department his belief that he was being retaliated against for making the initial report.

The Eleventh Circuit affirmed dismissal of the lawsuit. The court interpreted SOX to require the plaintiff to show a reasonable belief that the alleged misconduct violated SOX’s financial fraud provisions. In this case, looking at the totality of the circumstances, the court concluded that there was no reasonable belief of financial fraud by the defendant. Requiring the employee who reported the issues to find the source of the discrepancies does not indicate an attempt by the company to bury the complaint. The plaintiff’s claim that the internal investigation was meant to delay correcting the financial issues was mere speculation.

Employers that receive complaints of financial or other legal misconduct should carefully review and investigate those claims. However, involving the whistleblower in this review, if part of his or her job duties, does not constitute retaliation under SOX.

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