A US Department of Labor Administrative Review Board (ARB) expanded the rights of plaintiffs under the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (SarBox) in Klopfenstein v. PCC Flow Technologies Holdings, Inc. and Allen Parrot, ARB No. 04-149, ALJ No. 04-SOX-11 (ARB May 31, 2006).
The case involved accounting irregularities in in-transit inventory balances, which raised revenue recognition issues. Klopfenstein, a Vice President of Operations, filed a SarBox complaint after being terminated for reporting the accounting discrepancies.
To prevail, the plaintiff had to prove unfavorable personnel action, protected activity from whistleblowing, knowledge of the protected activity by the respondent, and whether the protected activity was a contributing factor to the termination (causation).
The case held that employees of non-public subsidiaries of public companies may be entitled to SarBox whistleblower protection. Employees of a private subsidiary may be agents of a public parent, exposing such employees to SarBox liabilily. Whisleblower protection covered not only fraud but incompetence that could affect the accuracy of financial statements.
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