Mandatory arbitration is OK under Sarbanes-Oxley Act

A woman who sued her employer under the Sarbanes-Oxley Act (SOX) cannot maintain this whistleblower claim in court because she signed an arbitration agreement, the Court of Appeals held in a case of first impression in this Circuit.

The case is Guyden v. Aetna, decided on October 2. Under SOX, public companies cannot fire any employee who in good faith blows the whistle on a violation of federal securities law. When Guyden got her position, she signed an agreement to arbitrate any employment-related disputes. Agreements like this keep claims out of court, and most employees never think twice about signing away these rights when they start a new job. But these agreements can come back to haunt the employee when she needs to bring a lawsuit. It haunted Guyden, who was fired after blowing the whistle on securities irregularities.

Under the Federal Arbitration Act, arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” As the Supreme Court noted in Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983), this law embodies the “liberal federal policy favoring arbitration agreements” and “establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”

Guyden's way out of this is case law holding that, when statutory claims are involved, a party can prevent enforcement of the arbitration agreement only by showing that “Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue.” She argues that the arbitration agreement is not enforceable because her claim has a public purpose; it's not just a private lawsuit. This is so, she argues, because plaintiffs bringing a SOX whistleblower claim are acting as private attorneys general, and the litigation helps the public learn about a corporation’s fraudulent conduct.

The Second Circuit disagrees, noting that it rejected a similar argument in 1998 under a different law, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which had a similar objective as the SOX law. Moreover, SOX primarily aims to provide a private remedy for the aggrieved employee, not to publicize alleged corporate misconduct. And, the employee does not even have to show the allegations of corporate misconduct are true, only that she believed in good faith that they were true. As the Court of Appeals sees it, SOX is like most other employment statutes that provide for a private remedy. Claims in court may be waived in favor of arbitration.