Retaliation Sarbanes-Oxley Whistleblower

Guyden sued the employer, asserting a whistleblower claim under the Sarbanes-Oxley Act (SOX). The trial court dismissed, based on the parties’ arbitration agreement. The 2nd Circuit affirmed.

We need not determine what our decision would be under those circumstances, however, because this Agreement gives the arbitrator the power to order additional discovery upon a showing by Guyden that such discovery is necessary to enable her to present her claim. The
FAA also provides the arbitrator with further authority to compel the production of evidence and
witnesses at a pre-merits hearing. Guyden thus has both a contractual and a statutory basis for further discovery should it prove necessary for her claim. Although Guyden asserts that she will be unable to make the showing of necessity the arbitrator will require, her challenge assumes that, in violation of her contractual and statutory rights, an arbitrator will deny her needed discovery. Guyden has introduced no evidence that her fears are well-founded, however, and we must enforce the Agreement unless and until the record proves otherwise.

The court held that SOX claims are subject to arbitration. The court rejected Guyden’s argument that there exists an “inherent conflict” between SOX’s underlying purpose (the public dissemination of information about a corporate employer’s fraudulent activities) and arbitration. The court observed that “[t]ellingly … both Houses of Congress, acting separately, rejected versions of SOX that would have prohibited mandatory arbitration of whistleblower claims.” Guyden made a similar argument regarding a confidentiality clause in the arbitration agreement, but the court rejected that as well. With respect to that conclusion, the court stated “[w]e agree … with the Fifth Circuit’s observation that confidentiality clauses are so common in the arbitration context that Guyden’s ‘attack on the confidentiality provision is, in part, an attack on the character of arbitration itself.'”

The Second Circuit’s decision in Guyden v. Aetna

Whistleblower Claims under Sarbanes-Oxley Subject to Arbitration

Whistleblowers bringing claims under the Sarbanes-Oxley Act (SOX) must contend with another hurdle in getting such claims before a judge or jury. In Guyden v. Aetna, the Second Circuit affirmed the lower court’s ruling that Sarbanes-Oxley claims are subject to arbitration.

In that case, Linda Guyden worked as Aetna’s Director of Internal Audit. At numerous points throughout her employment, Guyden allegedly expressed concerns over Aetna’s Internal Audit Department, describing it as “ineffective, demoralized, and without independence or objectivity.” Guyden allegedly raised her concerns with senior management and advocated the need for an outside audit. Eventually, Aetna agreed to an outside audit to review its internal controls. According to Guyden, however, senior management delayed the release of the outside auditor’s report. Aetna terminated Guyden’s employment shortly before she was scheduled to meet with the company’s Audit Committee and review the outside report.

Guyden filed her lawsuit for wrongful termination pursuant to Section 1514A of SOX, which prohibits public companies from “discharg[ing] . . . an employee . . . because of any lawful act done by the employee . . . to provide information . . . regarding any conduct which the employee reasonably believes constitutes a violation of [federal securities law], when the information or assistance is provided to . . . a person with supervisory authority over the employee . . ..” In response, Aetna requested that the court dismiss the complaint and compel arbitration based on an arbitration agreement that Guyden had executed.

The trial court agreed and the Second Circuit affirmed the lower court’s decision, stating:

The primary purpose of the statute is to provide a private remedy for the aggrieved employee, not to publicize alleged corporate misconduct. Although Guyden correctly points out that the broad purpose of the Sarbanes-Oxley Act is to strengthen the integrity of capital markets, the whistleblower provision in particular fills a far narrower gap in the law–it protects employees when they take lawful acts to disclose information or otherwise assist in detecting and stopping actions which they reasonably believe to be fraudulent.

The Second Circuit further noted the legislative history surrounding the passage of the Sarbanes-Oxley Act:

Tellingly, and further undermining Guyden’s argument that the public purpose of SOX should preclude arbitration, both Houses of Congress, acting separately, rejected versions of SOX that would have prohibited mandatory arbitration of whistleblower claims.

Although her claim is not lost, arbitration in general favors employers over employees. The Second Circuit’s ruling presents yet another sobering lesson for employees: If you have any doubt about the implications of a document that your employer requests you to sign, run it by an employment lawyer first.