Whistleblowing under Sarbanes-Oxley
The case of George Hernondez is a unique one under the whistleblower protection
provision of the Sarbanes-Oxley Act because it is the first documented case where
someone who sued under Section 806 of the Act was given the right to return to his job
after bringing a successful action. George has to make up his mind whether he wants to
return to work in light of the expected animosity for him by fellow employees.
George works in the controller’s office of Scarborough Faire Industries (SFI).
The company was close to terminating George, an employee who had been with SFI for
just over two years, because of well-documented performance problems and difficulties
getting along with his coworkers. The company had generated numerous memoranda
indicating that it would likely fire him in January 2011, after the holiday season.
In December 2010, George was given an assignment to assess the company’s
inflated levels of inventory over the preceding two years. He provided his preliminary
analysis on January 3, 2011, asserting that the company’s methods would lead to
erroneous inventory management reporting. The following business day, George was
discharged.
George filed a lawsuit under Section 806 of the Sarbanes-Oxley Act claiming to
have been fired as a direct result of his report that identified specific members of
management as responsible for erroneous inventory management. OSHA ruled in favor
of George and awarded him approximately $100,000 in back wages and legal expenses as
well as $10,000 for counseling charges incurred during the ordeal. It also ordered SFI to
reinstate George and to post the ruling in a conspicuous spot in the company’s office for
no less than 60 days. SFI is appealing the decision.
George was given two weeks notice by the company that he had to return to his
reinstated position or forfeit that right. George then asked for thirty days to complete the
counseling program he had started almost one year ago.
This case discusses the first documented whistleblower protection case under Section 806
of Sarbanes Oxley Act.
Ethical Issues
This case highlights a firms documenting for two years why an employee should be
discharged. The last assignment of the employee uncovered erroneous inventory
reporting. When the employee was fired, the employee sued for whistleblowing
protection under SOX. The ethical questions include can whistleblowing be cover for
inept employee, can reinstatement guarantee job for inept employee, can a forced
relationship without trust work?
Questions
1. Assuming the company’s statements about the impending firing of George in
January 2011, were correct and his performance evaluations were
unacceptable. Under the circumstances, should SFI been able to fire George?
Why or why not?
Performance evaluations are generally trusted by management but rarely by worker. A
jury of workers will see documentation created to support decision rather than a
2. Assume George had worked extra hard and very long hours to dig up dirt on
the company’s inventory management procedures, do you think he should be
able to sue under Section 806? Why or why not? Would your opinion
change if George had spent twice the time and exerted double the effort to
find the irregularity as compared with his work habits in general for SFI?
Suppose the firm worked extra long and extra hard to find George’s flaws to
document firing him? Question is not how hard it was to discover and prove the fraud
3. Would it surprise you to know that the vast majority of cases brought under
Section 806 since passage of Sarbanes-Oxley have gone in favor of the
employer? Why or why not? What do you think might explain this finding?
Most whistleblowers are partly motivated by malice and revenge. Nearly all workers
can document some sort of wrong doing by employer and vice versa; it is only a
4. If you were in George’s position, what factors would be of greatest concern to
you in deciding whether to return to work? Would you go back to SFI in two
weeks? In 30 days?
George should ask himself why punish yourself to punish the retaliators? Can he find
another equivalent job? Will he feel physically and emotionally safe where revenge or
