The expansive reach of laws protecting whistleblowers keeps many employers guessing as to the line between protected whistleblowing and unprotected employee misconduct. In Villanueva v. U.S. Department of Labor, the Fifth Circuit narrowed the scope of whistleblower protections under the Sarbanes-Oxley Act (“SOX”), holding SOX only protects whistleblowers reporting violations of U.S. federal law. The Fifth Circuit has avoided the question of whether the Sarbanes-Oxley Act protects whistleblowers outside the United States or can apply to overseas conduct.

The case is centered around a Colombian national employed by a Colombian subsidiary of Core Laboratories, a publicly-traded company - that is, until he was passed over for a pay raise and ultimately terminated for refusing to certify the company’s tax receipts, claiming the company’s transactions violated Colombian tax law. After three unsuccessful administrative reviews, Villanueva finally filed suit in federal court. 

The Fifth Circuit Court of Appeals found that Villanueva had not engaged in SOX protected activity. Specifically, the Court emphasized that Section 808 of SOX only prohibits retaliation when the employee reports conduct that they reasonably belief violated one of six enumerated categories of U.S. law, including U.S. federal statutes governing mail, wire, bank and securities fraud, fraud against shareholders, and Securities Exchange Commission rules and regulations. However, because Villanueva failed to demonstrate that he engaged in protected activity, having only pleaded his reasonable belief Colombian tax law violations, the court found it “unnecessary” to address whether SOX could be applied extraterritorially.       

While the Court’s decision here is a welcome development for employers, you should remain vigilant in investigating and documenting all internal whistleblower complaints – even those involving foreign subsidiaries or alleged violations of foreign law.