Today we saw another example of an employee (of Viacom) protecting her rights as a tax whistleblower under the Sarbanes-Oxley (“SOX”) and Dodd-Frank Acts*. In a nutshell, retaliation against an employee of a company that is subject to these securities laws for whistleblowing is illegal. For this reason we have been including language in our submissions to clearly fall under the SOX anti-retaliation provisions since the founding of our whistleblower practice in 2007.
In Vannoy v. Celanese Corp., ALJ Case No. 2008-SOX-00064, ARB Case No. 09-118 (ALJ July 24, 2013), an administrative law judge ruled in favor of a whistleblower who was fired after turning over confidential company data to the IRS. As it relates to the tax whistleblowing that Vannoy did, the judge held that Disclosures to the IRS are Covered by SOX. The judge said that a whistleblower “engages in protected activity when he or she complains about a violation of any “rule or regulation of the Securities and Exchange Commission” when the “information or assistance is provided to . . . a Federal regulatory . . . agency.” 18 U.S.C.A § 1514A. The statutory language does not in any way narrow the definition of “federal regulatory . . . agency” to include exclusively the SEC or the Department of Labor. There is nothing in the statutory language that limits the agencies to which a complainant may report information in furtherance of enforcement of laws that fall within the SOX’s coverage. It would be incompatible with the congressional intent to promote disclosures of corporate misconduct to narrowly construe the statute in such a way that only reports to the SEC warrant its protection.”
Because the judge found that Celanese had retaliated against Vannoy by firing him for being an IRS whistleblower and for objecting to what he perceived was the company’s illegal tax avoidance, the court awarded Vannoy with relief under SOX including: 1) all his back pay from the time of termination with annual raises, 2) forward pay in the amount he would have earned if he was still employed, 3) full attorney’s fees and costs, and 4) an additional monetary award for the distress the taxpayer put him through. It is not public information whether or not the IRS also paid him as a whistleblower for the issue he reported.
Unfortunately some whistleblowers become targets of their employers when they internally blow the whistle on illegal tax positions taken by the company, which is what happened in the Vannoy case and is what is alleged in the Viacom case. It is this fear of retaliation that leads many whistleblowers to simply report the non-compliance to government agencies first, rather than pursuing the internal company channels. (Vannoy was an internal whistleblower first, then went to the IRS, whereas the whistleblower in the Viacom case appears to have only internally blown the whistle on the tax issue she believed was improper.) Unfortunately, it appears that only through the reporting of these violations of law to the IRS or applicable Federal regulatory agency that these whistleblowers are offered the anti-retaliation protections of SOX, but the Viacom case may test the extension of such protections under SOX to internal whistleblowers. In other words, is it fair that if you report to the IRS you are protected, but if you report to your boss you can get fired?
The moral of the story though is that it does not pay to retaliate against tax whistleblowers who have reported their issues to the IRS. Most companies already knew that retaliating against a whistleblower was a bad idea and that instances of known retaliation are very rare. We’ll keep an eye on the Viacom case and report back with developments.
*The Sarbanes-Oxley Act of 2002 as partially amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).