The whistleblower retaliation protections of the Sarbanes-Oxley Act do not apply to employees who work overseas for a foreign subsidiary of a U.S.-based corporation, the U.S. Court of Appeals for the District of Columbia Circuit ruled December 23, 2022.
The SOX Act is designed to encourage employees of publicly traded companies to disclose corporate fraud by protecting them from retaliation by their employers.
In Garvey v. Morgan Stanley, an employee of a Morgan Stanley foreign subsidiary told his superiors that company employees allegedly engaged in insider trading, market manipulation, and tax fraud. The employee eventually quit his job and filed a complaint with OSHA, claiming retaliation by Morgan Stanley.
The D.C. Circuit ruled that SOX does not allow a cause of action based on retaliation against a person who works outside the U.S. It explained that there could be a domestic application of the statute if the relevant conduct occurred in the U.S. However, the court said that Morgan Stanley’s alleged involvement in decisions about Garvey’s employment at Morgan Stanley Asia Limited is insufficient to create a domestic application because allegations of general corporate activity—like decisionmaking—do not suffice to establish a domestic application.