Fourth Circuit Says Employee Suing Under SOX Could Not Show Complaints Contributed to Termination Decision


The Sarbanes-Oxley Act (“SOX”) prohibits publically-traded companies from retaliating against employees for complaining about issues that could affect the shareholders of the company. On Monday, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) concluded that complaining about corporate affairs is not enough if the employee cannot show that such complaints were related to the employer’s adverse action.
In Feldman v. Law Enforcement Associates Corp., the plaintiff was the company president who had a series of conflicts with its outside directors who were alleged to represent the interests of its majority shareholder. The plaintiff reported a number of alleged export, fraud and insider trading violations to government agencies. He was terminated by the board based on an unauthorized relocation of the company twenty months after his most significant complaints.
The Fourth Circuit affirmed dismissal of the complaint on summary judgment. The court noted that under SOX, the plaintiff has a relatively light burden of proof. He must show by a preponderance of the evidence that the protected activities affected his termination in some way. However in this case, the plaintiff was unable to meet even this reduced burden. In addition to the temporal disparity between the complaint and termination, the plaintiff admitted that he had antagonized the outside directors by criticizing them to minority shareholders considering litigation against the company. Another executive had joined in his complaint to the government but was not removed by the board, further calling into question the motivation behind the termination decision.
In the end, plaintiffs alleging SOX violations must show that the protected complaints were at least a contributing factor to the adverse employment decision. While this burden is low, it is a required part of the plaintiff’s prima facie case.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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