Court Awards $2.7M in Front Pay to Sarbanes-Oxley Whistleblower
Published by Eric A. Welter on October 25, 2016
A recent $2.7 million dollar front pay award reminds employers about the dangers of SOX whistleblower retaliation claims.
In 2008, Progenics Pharmaceuticals, Inc. fired a former chemist, Dr. Julio Perez, who accused the company of misleading its shareholders about clinical trial results. Dr. Perez alleged that Progenics sent a press release praising the results of second round trials of an anti-constipation drug called Relistor, even though a report that came out two months later which was much more critical of the drug’s effectiveness. Perez sent a memorandum to the company’s then-senior vice president, Thomas Boyd and, then-General Counsel (now CEO), Mark Baker, claiming Progenics had been withholding negative information regarding the trials. Perez claims Baker confronted Perez in a hostile manner, had his computer disabled, and terminated him the following day. Perez brought a whistleblower retaliation claim against Progenics under the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A, in the United States District Court for the Southern District of New York. The jury awarded Perez $1.6 million in back pay damages and on August 30, 2016, U.S. District Judge Loretta Preska awarded Perez over $2.7 million in front pay.
Congress passed the Sarbanes-Oxley Act (“SOX”) in 2002 following the Enron and Worldcom corporate fraud scandals. SOX requires publicly traded companies, and their subsidiaries, affiliates, private contractors and subcontractors, to make certain certifications regarding their finances. The law protects employees who call legal authorities or refuse to follow illegal orders. SOX offers whistleblower protection to employees who engage in protected activity, meaning providing information, causing information to be provided, or otherwise assisting in an investigation regarding a violation of SOX, a rule or regulation of the SEC, or any federal law relating to fraud on shareholders. To receive coverage, the whistleblower employee must report the information to a federal regulatory or law enforcement agency, a member or committee of Congress, a person with supervisory authority over the employee, or someone with authority to investigate or discover, or terminate the misconduct. The employee is not required to prove the underlying violation, but must have a “reasonable basis” to believe a violation may have occurred.
If an employee has engaged in protected activity, an employer may not take any adverse employment action against that employee on the basis of the employee’s protected activity. An adverse employment action is an action that materially impacts the value of the job, such as a termination, demotion, pay cut, denial of a promotion, denial of benefits, blacklisting, reassignment of work, transfer, denial of overtime, assignment of undesirable shifts, and reprimand. To avoid liability, the employer must show through clear and convincing evidence that it would have taken the same actions regardless of the employee’s protected activity.
A whistleblower who has experienced retaliation may seek remedies including back pay (including lost overtime), hiring, promotion, compensatory damages (such as emotional pain and suffering, personal humiliation, or reputational harm), abatement, attorneys’ fees, and court costs. SOX also provides for the remedy of reinstatement, which is a preferred remedy, but if reinstatement is not possible, front pay may be awarded as a replacement. Front pay may be awarded if reinstatement is not possible because of a medical condition causally related to the employer’s retaliation action (e.g. debilitating anxiety), manifest hostility between the parties, the claimants former position does not exist, or the employer is no longer in business. In the Perez case, Judge Preska determined that reinstatement was not realistic given the clear hostility between Baker and Perez and, therefore, awarded front pay.
Publically traded companies should be aware of the risk of Sarbanes-Oxley whistleblower retaliation claims, including the risk of front pay damages if reinstatement is not possible.
If an employee makes a complaint suggesting the company is violating SEC regulations, or any federal laws relating to fraud on shareholders, the company should fully investigate the complaint. The company should also ensure no adverse employment action is taken against the employee on the basis of the employee’s complaint.Topics: Financial Services, Fraud, Government Contracting, Healthcare, Hiring, Hospitality, Media & Entertainment, Performance Management & Termination, Retail, SOX, Technology, Transportation, Whistleblower, Whistleblower Protection, Whistleblowers, Whistleblowing and Retaliation