Implications for New York Employers: Sarbanes-Oxley Whistleblower Protections Examined by Second Circuit

On March 1, 2024, the Second Circuit affirmed the judgment of the Southern District of New York in Brian La Belle v. Barclays Capital Inc, No. 23-448 (2d Cir. 2024).

Case Background

In this case, the Southern District of New York granted defendant Barclay Capital Inc ("Barclays") motion for summary judgment on plaintiff's retaliation claim brought under Section 806 of the Sarbanes-Oxley Act of 2002 (which is codified at 18 U.S.C. §1514A).

The Southern District held that Plaintiff failed to establish a retaliation claim under the Sarbanes-Oxley Act because Barclays's alleged violation of its own Mandatory Block Leave Program ("MBL") did not amount to a violation of an SEC rule or regulation.

In plaintiff's appeal, he argued that the Southern District's judgment should be reversed because his retaliation claims constitute protected activity, which led to Barclays taking an adverse employment action against him.

Case Facts

Plaintiff, a former executive at Barclays, was terminated after he reported Barclays violated its own MBL Program. The MBL required that certain individuals "take ten consecutive business days per year out of the office and without access to Barclays' systems."

The theory behind the MBL was "to help the firm detect traders who are secretly conducting unauthorized activity while under Barclays' umbrella, and potentially at its expense, by restricting their access to firm resources for a continuous period of ten days. This prevents wrongdoers from covering their tracks during that time, increasing the likelihood that their illicit activity will be discovered."

Legal Analysis

The majority of plaintiff's claims revolve around his MBL claim. In order to establish a prima facie Sarbanes-Oxley whistleblower retaliation claim, a plaintiff must demonstrate that:

(1) he engaged in a protected activity;

(2) the employer knew that he engaged in a protected activity;

(3) he suffered an unfavorable personnel action; and

(4) the protected activity was a contributing factor in the unfavorable action.

Further, a plaintiff's activity is considered "protected" under the first prong if he:

(i) provides information;

(ii) regarding conduct that he reasonably believed constituted a violation of 18 U.S.C.§§ 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission (SEC), or any Federal law provision relating to fraud against shareholders;

(iii) to a federal agency, Congress, or a person with supervisory authority over the plaintiff.

Whether a belief is "reasonable" contains both subjective and objective components. This means a plaintiff must show not only that he reasonably believed that the reported conduct violated an enumerated provision of the statute but also a plaintiff must allege facts indicating that the conduct violated an actual enumerated provision of 18 U.S.C §1514A(a)(1).

Case Decision

Here, plaintiff alleged that he satisfied the first element of a prima facie retaliation case because he "reasonably believed" MBL was a law, rule, or regulation covered by the Sarbanes-Oxley Act. The Southern District held that despite plaintiff's subjective belief, MBL was not a legal requirement but rather an internal Barclays policy.

MBL was meant to protect Barclays from wrongdoing by its own employees. Therefore, plaintiff failed to allege any facts indicating that Barclays alleged conduct "implicated any of the enumerated provisions in [18 U.S.C §]1514A."

The Second Circuit affirmed the Southern District's judgment. The Second Circuit found that although plaintiff claimed:

"he subjectively believed that MBL was a regulatory requirement and that he was reporting violations of an SEC rule or regulation, such a belief was not objectively reasonable insofar as MBL is not a legal requirement and is therefore 'wholly untethered' from the enumerated provisions in section 1514A."

Takeaway for New York Employers

While this decision is a positive outcome for employers sued under the Sarbanes-Oxley Act, New York employers should be aware that the state has its own whistleblowing provision, Labor Law §740, which provides expansive protections to whistleblowing employees.