SOX whistleblower provision survives Supreme Court decision

Today the Supreme Court, by a 5-4 vote, held that one provision of the Sarbanes-Oxley Act (SOX) is unconstitutional. However, it also held that this one provision is “severable” so that the other provisions of SOX, including the whistleblower protection, are still in force. The case is Free Enterprise Fund v. Public Company Accounting Oversight Board, No. 08-861 (June 28, 2010). The unconstitutional provision of SOX limited the president’s power to remove members of the Public Company Accounting Oversight Board.

The Court’s majority relied on this sentence from Article II of the Constitution: The executive Power shall be vested in a President of the United States of America. The majority held that allowing only the Securities and Exchange Commission (SEC) to remove members of the Public Company Accounting Oversight Board “stripped” the President of the power to hold the Board members accountable.

Still, the majority held that “the unconstitutional tenure provisions are severable from the remainder of the statute.” The decision explains as follows:

The Sarbanes-Oxley Act remains “‘fully operative as a law’” with these tenure restrictions excised. New York [v. United States], 505 U. S. [144], at 186 (quoting Alaska Airlines, Inc. v. Brock, 480 U. S. 678, 684 (1987)). We therefore must sustain its remaining provisions “[u]nless it is evident that the Legislature would not have enacted those provisions . . . independently of that which is [invalid].” Ibid. (internal quotation marks omitted). Though this inquiry can sometimes be “elusive,” [INS v.] Chadha, 462 U. S. [919], at 932 [(1983)], the answer here seems clear: The remaining provisions are not “incapable of functioning independently,” Alaska Airlines, 480 U. S., at 684, and nothing in the statute’s text or historical context makes it “evident” that Congress, faced with the limitations imposed by the Constitution, would have preferred no Board at all to a Board whose members are removable at will. Ibid.; see also Ayotte [v. Planned Parenthood of Northern New Eng., 546 U. S. 320], supra, at 330 [(2006)].

Justice Breyer said that SOX does not significantly interfere with the President’s “executive Power.” He adds, “the Court’s contrary holding threatens to disrupt severely the fair and efficient administration of the laws.” He notes that the Constitution also gives to Congress the power to enact statutes “necessary and proper” to carry out its enumerated authority. The Framers made clear two centuries ago that it would be “unwise” to deprive Congress of the flexibility to respond to future “exigencies.” He notes that hundreds of other federal officials have their jobs protected by statutory limitations on the power to remove them. He listed them in Appendices A and B to his opinion. He explained that there may be others because he listed only the members of the Senior Executive Service (SES) who are high-ranking officials serving below the Presidential appointees who can be removed only “for cause.” These are also the officials who have opposed the provisions of the Whistleblower Protection Enhancement Act (WPEA) that would allow federal employees to have jury trials for their retaliation claims. Justice Breyer also criticized the majority for allowing private individuals whose only standing is based on being regulated by the agency to challenge the statute’s limitation on the President’s power of removal. Justice Breyer argues that this is a significant expansion of standing. I note that it is an expansion of standing for business interests, and expansion the Court has been more reluctant to extend for environmentalists.

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