SOX Protections Extended to Post-Employment Activities

The Sarbanes-Oxley Act (SOX) provides protections from retaliation to employees who engage in protected activity under the Act even after they are terminated, according to a ruling issued last month by the U.S. District Court for the Southern District of New York in Kshetrapal v. Dish Network, LLC, et al.  The case was brought by Tarun Kshetrapal, who was employed by Dish Network from March 2007 to November 2008 as the Associate Director of South Asian Marketing.  Kshetrapal was terminated after objecting to and raising concerns about fraudulent invoicing engaged in by a marketing agency that his supervisor retained for Dish Network.  Kshetrapal alleged that his supervisor disregarded his complaints because she was receiving bribes from the marketing agency.  Although an internal investigation ultimately substantiated Kshetrapal’s allegations and his supervisor was terminated, Kshetrapl alleged that he was nevertheless forced to resign shortly thereafter.

Kshetrapal’s lawsuit, however, turns not on what happened while he was working for Dish Network, but what occurred after his resignation.  A month after he resigned, Kshetrapal was deposed during a breach of contract lawsuit brought by the marketing agency against Dish Network and testified regarding the misconduct he witnessed.  The following fall, the music streaming service that Kshetrapal joined following his resignation lost its contract with Dish Network due to Kshetrapal’s employment at their company.  Months later, in June 2010, Kshetrapal’s offer for a position at another company was rescinded after a Dish Network executive conveyed to the company that it did not want Kshetrapal to be hired.  Finally, in March 2011, Kshetrapal’s employer once again failed to secure a contract with Dish Network due to his employment at the company.

Kshetrapal filed suit against Dish Network, alleging retaliation under SOX and the Dodd-Frank Act, as well as various tort claims.  In considering Kshetrapal’s SOX claim, the court faced the question of whether testimony in a deposition following termination constituted protected activity for the purposes of the retaliation protections provided by SOX.  Because SOX protections extend only to “employees,” the question turned on the definition of “employee” under SOX, and whether or not that term includes former employees of a company.

The court held that former employees are entitled to SOX protections.  The court based its holding on three main grounds: (1) the statute provides in one provision that an “employee” who succeeds in proving his or her retaliation case is entitled to reinstatement, and a current employee could not be reinstated; (2) the Department of Labor’s implementing regulations and the agency’s Administrative Review Board have both provided that the term “employee” includes both present and former employees; and (3) the public policy underlying SOX supports broadly construing the statute.  Accordingly, the court denied the defendants’ motion to dismiss Kshetrapal’s SOX retaliation claim and allowed it to move forward to discovery.

Kshetrapal’s Dodd-Frank Act retaliation claim was not successful, however.  The claim was limited in large part due to Kshetrapal’s concession that Dodd-Frank does not apply retroactively, and thus only prohibits adverse actions taken against him following the passage of the Act in July 2010.  Moreover, the claim sought only injunctive and declaratory relief; in other words, Kshetrapal sought an order forcing the defendant to cease its continuing harassment perpetrated after the Dodd-Frank Act’s effective date.  The court found that the whistleblower protection provision of the statute does not provide for injunctive and declaratory relief in any circumstances and therefore dismissed Kshetrapal’s claim of retaliation under the Dodd-Frank Act.

Debra S. Katz, a partner at the whistleblower law firm of Katz, Marshall & Banks, said that the court’s decision in Kshetrapal is an important one.  According to Ms. Katz, “The Southern District of New York plays a crucial role in developing the jurisprudence that affects financial whistleblowers.  When the District Court in the SDNY broadly construes SOX, it provides protection for tens of thousands of potential whistleblowers and, by doing so, strengthens the foundation of our country’s financial system.”