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High Court Ruling May Erode Whistle-Blower Protections

July 1, 2006
Related Topics: Finance/Taxes, Miscellaneous Legal Issues, Featured Article
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A recent U.S. Supreme Court decision limiting free-speech protections for government workers could have a significant impact on the private sector, according to employment law experts.

    In Garcetti v. Ceballos, the court ruled that the First Amendment does not shield a Los Angeles prosecutor from being disciplined for a memo he wrote to a supervisor in the course of performing his official duties.

    "When public employees make statements pursuant to their official duties, the employees are not speaking as citizens for First Amendment purposes, and the Constitution does not insulate their communications from employer discipline," Justice Anthony M. Kennedy wrote for a 5-4 majority.

    Employees of private companies have no protection for workplace speech under the Constitution. But they do enjoy various "extraconstitutional" protections, including those that Congress enacted in 2002 as part of the Sarbanes-Oxley Act. And it’s here, experts say, that Garcetti v. Ceballos could have an impact.

    The decision is "significant additional precedent for a narrower view of the protections provided under Sarbanes-Oxley and other whistle-blower statutes applicable to private employers," the law firm of Gibson, Dunn & Crutcher says in an article on its Web site.


"When public employees make statements pursuant to their official duties, the employees are not speaking as citizens for First Amendment purposes, and the Constitution does not insulate their communications from employer discipline,"
--Justice Anthony M. Kennedy
wrote for a 5-4 majority.

    Sarbanes-Oxley, designed to attack the excesses of the Enron era, protects employees of a publicly traded company who report financial misconduct from adverse employment action related to their reporting activity.

    On its face, the language of the statute appears clear, says employment law attorney Daniel P. Westman of Morrison & Foerster in McLean, Virginia. But courts and the Department of Labor have been trying to figure out how it applies to "categories of employees who are paid to uncover things that are wrong and report them to management."

    "There’s really no uniform view" of the protection afforded to internal auditors, for example, Westman says. If the protection is broadly construed, employers fear they won’t be able to effectively manage such employees.

    As Gibson, Dunn & Crutcher says, management "would be constrained in its ability to make legitimate performance and management decisions regarding employees in sensitive finance and accounting positions."

    But employers’ attorneys believe Garcetti v. Ceballos’ limitation of protected conduct supports a narrow interpretation of Sarbanes-Oxley protections. "Employees in jobs that routinely require them to find something wrong have to do something more than simply perform their job to prove they were engaged in protected conduct," Westman says.


First Amendment should protect "an employee commenting on subjects in the course of duties" if "he speaks on a matter of unusual importance," such as official dishonesty.
--Justice David H. Souter,
dissenting from the majority

    For the internal auditor, he adds, reporting concerns to the company’s audit committee or externally to the Securities and Exchange Commission would qualify as "extraordinary" conduct that is protected.

    Dissenting from the majority in Garcetti v. Ceballos, Justice David H. Souter said the First Amendment should protect "an employee commenting on subjects in the course of duties" if "he speaks on a matter of unusual importance," such as official dishonesty.

    According to attorney Ira G. Rosenstein of Orrick, Herrington & Sutcliffe in New York, the dissent could give ammunition to plaintiffs in Sarbanes-Oxley cases. Administrative law judges, he notes, have found employees are protected when they allege violations of the act, whatever the context of their speech may be.

    The Garcetti ruling is "certainly not dispositive on the [whistle-blower protection] issue," Rosenstein says, noting that public employee speech and private employee speech are inherently different areas of law.

Workforce Management, June 26, 2006, p. 14 -- Subscribe Now!

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