Supreme Court’s Decision That Statements Made in the Course of Official Job Duties Are Not Protected Has Implications for Sarbanes-Oxley Whistleblower Cases

May 31, 2006

The Supreme Court’s decision yesterday regarding the First Amendment rights of government employee “whistleblowers” may also have important implications for whistleblower litigation involving private employers, including litigation under the whistleblower protection provision of the Sarbanes-Oxley Act. 

In Garcetti v. Ceballos, the Supreme Court ruled 5-4 that statements made by public employees in the course of performing their official job duties are not protected by the First Amendment and may be the basis for discipline by the employer. In that case, Ceballos, a member of the Los Angeles County District Attorney’s office, prepared as part of his job duties a memorandum recommending dismissal of a case. Although his recommendation was overruled, Ceballos informed defense counsel of his concerns regarding certain prosecution evidence and ultimately was called as a witness for the defense in an evidence suppression hearing. Claiming that his superiors retaliated against him on the basis of his statements evaluating the case, Ceballos brought suit, alleging violation of the First and Fourteenth Amendments. 

Reversing a Ninth Circuit ruling that statements by Ceballos regarding the prosecution’s case were protected under the First Amendment, the Supreme Court held that public employees speaking pursuant to their official duties do not speak as citizens for First Amendment purposes, and therefore the Constitution does not insulate them from employer discipline for such speech. The Court explained that without a significant degree of control over its employees’ words and actions, a government employer cannot efficiently provide public services. The Court expressed concern that a contrary rule would result in extensive and intrusive “judicial oversight of communications between and among government employees and their superiors in the course of official business.”

A similar issue regarding the degree of protection afforded whistleblowers can arise under the Sarbanes-Oxley Act. Among other things, Sarbanes-Oxley protects employees who disclose to a supervisor what they reasonably believe to be a violation of any provision of federal law relating to fraud against shareholders. It remains unclear, however, whether such reporting is protected if it is a normal part of the employee’s job. For example, should statements regarding a company’s financial practices made by an internal auditor in the course of performing her normal job duties be treated as protected whistleblower activity under Sarbanes-Oxley? If such statements are treated as protected regardless of whether the employee specifically identified her concern as related to legal compliance or otherwise went beyond performing her regular job duties, the private employer – like the public employer in Ceballos – would be constrained in its ability to make legitimate performance and management decisions regarding employees in sensitive finance and accounting positions. Such a rule would be particularly troubling in the context of Sarbanes-Oxley, which was enacted for the specific purpose of enhancing the competence and accountability of internal corporate controls.

Under the federal Whistleblower Protection Act and other federal statutes protecting employee reporting, the courts have addressed this concern by providing that employees do not engage in protected activity when they merely fulfill the fiduciary duties required by their job, and do not take additional steps to voice their concerns. See, e.g., Sasse v. Department of Justice, 409 F.3d 773 (6th Cir. 2005), and Huffman v. Office of Personnel Management, 263 F.3d 1341 (Fed. Cir. 2001). Although legislation has been introduced in Congress to expand the protections afforded private employees under such decisions, enactment of a legislative response appears unlikely in the near future. Accordingly, the Supreme Court’s decision in Ceballos is significant additional precedent for a narrower view of the protections provided under Sarbanes-Oxley and other whistleblower statutes applicable to private employers.   

With its combined expertise in labor and employment matters and securities law, Gibson, Dunn & Crutcher is uniquely positioned to represent corporations and audit committees in Sarbanes-Oxley whistleblower matters. The firm has tried numerous whistleblower cases before the Department of Labor, and has considerable experience representing corporations and audit committees in connection with Sarbanes-Oxley "whistleblower" matters, including internal investigations; representations in federal court and Labor Department investigations; and representations before Labor Department administrative law judges and the Department’s Administrative Review Board. In handling these matters, we are mindful of the importance of seriously examining the whistleblower allegations while also providing a thorough representation to our client, be it the company or the audit committee. We are able to bring to bear the expertise of our nationally-respected Securities Litigation practice group to ensure that implications under the securities laws – as well as the employment-related aspects – are fully appreciated and addressed. For more information on our Labor and Employment practice, please contact Deborah Clarke  at 213-229-7000, Eugene Scalia at 202-955-8500, or Karl Nelson at 214-698-3203.

© 2006 Gibson, Dunn & Crutcher LLP

The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.