Tenth Circuit Broadens Whistleblower Protection Under SOX

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In a recent decision, the United States Court of Appeals for the Tenth Circuit broadened the types of claims that may be recognized under the anti-retaliation provisions of the Sarbanes-Oxley Act. Lockheed Martin Corp. v. Brown, No. 11-9524 (10th Cir. Jun. 4, 2013). The case involved an employee who made internal ethics complaints to her employer, a defense contractor. The complaints involved allegations that a vice president of communications in the company had engaged in numerous unsavory activities, including sending sex toys to soldiers serving in Iraq, buying a computer for a soldier, and procuring hotel rooms in which to meet servicemen as they returned from deployment. Because these activities were paid for with company funds, the employee believed that they were unethical and illegal. The communications with the soldiers were facilitated through a "pen pal" program that the company maintained.

The company investigated the allegations and, as a result of that investigation, discontinued the pen-pal program. However, the executive at the center of the complaints was allowed to continue in her capacity as an executive, although in a different role. Shortly after the new vice president of operations, who had a good relationship with the alleged wrongdoer, took over, the complaining employee began experiencing setbacks at work. She lost her leadership position and even her office, and was forced to work out of a storage room. Finally, the complaining employee quit her job, and would soon argue that she was constructively discharged.

The employee filed a complaint with the Department of Labor under the anti-retaliation provisions of the Sarbanes-Oxley Act. She prevailed before an Administrative Law Judge as well as before the Administrative Review Board. On appeal to the Tenth Circuit, the employer maintained that the employee could not prevail under SOX because, although she believed that there was possible mail and wire fraud, she could not demonstrate that there was any fraud against shareholders. The employer relied on the provision in SOX that protects employees from retaliation from blowing the whistle on acts involving mail fraud, wire fraud, bank fraud, securities fraud, SEC rules, or "any provision of Federal law relating to fraud against shareholders." The employer maintained that this last clause of the statute means that any act of wrongdoing has to constitute fraud against shareholders in order to come under the law.

The Tenth Circuit disagreed. It held that because the statute already listed various federal laws, it would have been superfluous for Congress to have named all of those statutes if it meant to say that the underlying violations had to also involve shareholder fraud. It could simply have said "any provision of federal law related to shareholder fraud" as the source of the violation falling under the statute's protections. Therefore, employees who complain about mail fraud, for example, do not need to show fraud on shareholders as well.

This case is a wake-up call to employers that courts are giving a very broad meaning to the various anti-retaliation provisions that are enforced by the Department of Labor. The DOL administers the anti-retaliation provisions of numerous statutes in addition to SOX, including the new Affordable Care Act. Both the DOL and the courts are increasingly hostile to employer arguments that these statutes should be read narrowly. Employers are advised to review their anti-retaliation provisions and practices to ensure that they are in compliance with the ever-growing number of employee protections under various state and federal laws.

Topics:  Anti-Retaliation Provisions, Bank Fraud, Compliance, DOL, Ethics, Fraud, Sarbanes-Oxley, Whistleblowers, Wire Fraud

Published In: Civil Procedure Updates, Civil Rights Updates, Labor & Employment Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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