ARB Ruling Takes Broad View of Scope of Protected Activity Under SOX


In the latest sign that the Department of Labor (DOL) is taking a harder line against employers defending whistleblower claims under the Sarbanes-Oxley Act (SOX), the DOL’s Administrative Review Board (ARB) recently ruled in Sylvester et al. v. Parexel International LLC, ARB No. 07-123 (May 25, 2011), that (1) SOX complaints filed with the Occupational Safety and Health Administration (OSHA) are not subject to the pleading standards under Twombly and Iqbal; (2) SOX-protected conduct is not limited to complaints relating to fraud against shareholders; (3) the reported misconduct need not “definitely and specifically” relate to one of the laws enumerated under SOX Section 806—a reasonable belief of a violation is sufficient; and (4) a complainant can engage in protected activity under SOX Section 806 even if he or she fails to allege, prove, or approximate the specific elements of fraud, such as materiality, scienter, reliance, economic loss, or loss causation.

ARB Announces Standards Applicable to SOX-Protected Activity

Parexel is a publicly traded company that tests drugs for pharmaceutical companies and other clients. Complainant Sylvester was a Case Report Forms Department Manager who was responsible for the accurate reporting of clinical study data pursuant to the FDA’s Good Clinical Practice standards. Complainant Neuschafer was a Clinical Research Nurse responsible for reporting accurate clinical data. The complainants alleged that one or both of them had reported two instances of the false reporting of clinical data to a manager and a supervisor, but that nothing was done about their complaints. They also alleged that Parexel declined to investigate the alleged conduct because doing so would have adversely affected its profits from the clinical studies, thus adversely impacting the value of its stock. Finally, they alleged that to the best of their knowledge, the false data had never been corrected and was reported as accurate by Parexel in communication through the U.S. mail and by wire communications such as the Internet. The complainants alleged that they were subject to adverse employment decisions after these reports, including but not limited to termination of employment.

The complainants filed SOX whistleblower claims with OSHA. OSHA dismissed both complaints. On appeal, the Administrative Law Judge (ALJ) granted Parexel’s motion to dismiss the SOX complaints on the grounds that the complainants failed to adequately plead activity protected under SOX Section 806.

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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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