Court Dismisses SOX Case for Arbitration

The following blog post was authored by Richard Renner, the Legal Director for the National Whistleblower Center. Click Here to view Richard’s Bio


A federal appeals court in New York has held that an employer’s mandatory arbitration agreement prohibits employees from seeking jury trials in Sarbanes-Oxley cases. On October 2, 2008, the Second Circuit Court of Appeals affirmed the dismissal of Linda Guyden’s suit against Aetna.

In 2004, Aetna hired Guyden to be its Director of Internal Audit. Guyden promptly recognized that her department was “ineffective, demoralized, and without independence or objectivity.” She believed that Aetna was in violation of 17 C.F.R. § 229.308(a)(3), a SOX rule that requires corporate officers to certify that the company’s internal controls are “effective.” She reported her concern to senior management, and asked for additional resources for her department. Within a few months, she had worked the issue through Aetna’s CFO and CEO. A week after meeting the CEO, Guyden received a reduced performance evaluation. She succeeded in getting the company to hire an outside auditor, but management withheld the report from the company’s Audit Committee. Ten days before the next Audit Committee meeting, Aetna fired Guyden and barred her from the Audit Committee meeting.

Guyden filed a written complaint with OSHA within 90 days of her discharge, claiming that Aetna’s discharge of her violated SOX’s employee protection, 18 U.S.C. § 1514A. After OSHA failed to rule on her complaint within 180 days, Guyden filed a federal lawsuit against Aetna and asked for a jury trial.

Aetna moved to dismiss the complaint and compel arbitration based on an arbitration agreement that Guyden had signed. Aetna’s form application for employment said that if Guyden were “offered employment [at Aetna], a condition of the offer and [her] acceptance [was] that [she] agree[d] to use Aetna’s mandatory/binding arbitration program rather than the courts to resolve employment-related legal disputes.” Guyden also signed other documents providing for mandatory arbitration of any claims she might later have against Aetna.

Aetna’s arbitration agreement limited each side to just one deposition, plus depositions of any expert witnesses, unless the arbitrator found additional depositions were necessary. It required both sides to keep the entire process, and the final decision, confidential. It also required that the arbitrator issue only a "brief summary" of the arbitrator’s opinion.

Guyden argued that mandatory arbitration is contrary to the public policy of SOX’s employee protection, and that this particular arbitration agreement would prevent her from vindicating her statutory rights. The federal district court disagreed and dismissed Guyden’s case.

The court of appeals held that the Federal Arbitration Act (“FAA”) encourages arbitration, and that the Supreme Court has enforced arbitration agreements that cover statutory rights. The court said that for the whistleblower provision, SOX’s primary purpose, "is to provide a private remedy for the aggrieved employee, not to publicize alleged corporate misconduct." The court also noticed that both Houses of Congress rejected versions of SOX that would have prohibited mandatory arbitration of whistleblower claims.

Helpfully, the court also held that a whistleblower need not show that the corporate defendant committed fraud to prevail in her retaliation claim under § 1514A. The statute only requires the employee to prove that she “reasonably believe[d]” that the defendant’s conduct violated federal law. 18 U.S.C. § 1514A(a)(1). The court, however, held that Guyden’s concerns about the confidentiality clause, “rest on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants” and consequently are “far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes.” Quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30 (1991). The court did so even though it assumed that public litigation of SOX whistleblower claims would create a positive incentive for potential whistleblowers to come forward.

The National Employment Lawyers Association (NELA) has prepared a fact sheet on mandatory arbitration of employment claims. It is available at:

The NELA fact sheet explains how arbitration agreements are written by company lawyers in a way that favors the company. Costs for the employee can be high. Since arbitrators know that their future business depends on a company’s approval, employees often feel that they are biased in favor of the company. And the public never gets to learn about corporate misconduct exposed during the arbitration process.

That is why civil rights groups support the Arbitration Fairness Act, H.R. 3010 and S. 1782. These groups include NELA, the Lawyers’ Committee for Civil Rights Under Law and the Leadership Conference on Civil Rights. Testimony in support of this bill is at:

Rep Hank Johnson sponsored the bill. It has 103 co-sponsors and was favorably reported by the House Judiciary Committee, Commercial and Administrative Law Subcommittee on July 15, 2008.


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