On July 13, 2022, the United States Court of Appeals for the First Circuit ruled that the whistleblower protections contained in Section 806 of the Sarbanes-Oxley Act (SOX) do not apply to employees who report potential violations of the Foreign Corrupt Practices Act (FCPA). The ruling in Baker v. Smith & Wesson, Inc., 40 F.4th 43 (1st Cir. 2022) is the second recent decision narrowing the important whistleblower protections of the Act, coming on the heels of a recent Award in the 9th Circuit. While these decisions are significant and will likely generate further litigation as whistleblowers seek to avoid the impact, the practical effects for future whistleblower cases are likely to be limited as there may be workarounds. Regardless, we would not expect any change in the need for companies to maintain robust compliance programs that incentivize internal reporting by employees.
Whistleblower protections are central to the suite of SOX oversight reforms, encouraging and protecting individual reports of potentially fraudulent conduct. SOX contains a number of whistleblower protections. For example, Section 301 of the Act sets out requirements for internal procedures employers must use to receive and process whistleblower complaints regarding accounting or auditing matters. Section 1107 criminalizes any retaliatory actions where a whistleblower has provided "truthful information" concerning the commission of a Federal offense to a law...
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