The Hazards of SOX Whistleblower Claims

Two recent Court of Appeals cases highlight potential pitfalls in whistleblower claims brought under Section 806 of the Sarbanes-Oxley Act of 2002 (SOX), 18 U.S.C. §1514A. In Bechtel v. Administrative Review Board, 2013 WL 791334 (2d Cir. March 5, 2013), the U.S. Court of Appeals for the Second Circuit clarified the burdens of proof and elements of whistleblower claims in administrative proceedings, affirming an administrative dismissal of a claim despite the ALJ’s use of an incorrect legal standard. In Wiest v. Lynch, 2013 WL 1111784 (3d Cir. March 19, 2013), a federal court action, the U.S. Court of Appeals for the Third Circuit addressed whether the plaintiff had engaged in "protected activity." The majority, over a vigorous dissent, reversed the district court’s dismissal of a whistleblower claim, finding the claimed protected activity met the prima facie pleading standard. The Wiest case highlights the uncertainties created for employers by the SOX whistleblower provision and the need for employers to carefully document termination decisions, particularly where an employee has taken any action that could be construed to constitute "whistleblowing."

Section 806 of SOX makes it unlawful for publicly traded companies to discharge, demote, or otherwise discriminate against an employee because of any lawful act done by the employee to provide information or assist in an investigation "regarding any conduct which the employee reasonably believes constitutes a violation of" specified laws and regulations relating to fraud against shareholders. 18 U.S.C. §1514A(a)(1). A whistleblower retaliation claim may be brought before the Secretary of Labor or, if the Secretary does not act within 180 days, in federal district court. In either, the legal burdens of proof are governed by 49 U.S.C. §42121(b) (another whistleblower statute concerning air safety issues). 18 U.S.C. §1514A(b)(1), (2). That statute provides that a complaint shall be dismissed unless the complainant "makes a prima facie showing that any [protected behavior] was a contributing factor in the unfavorable personnel action alleged"; but even if that prima facie showing is made, the employer may defeat the claim if it "demonstrates by clear and convincing evidence that [it] would have taken the same unfavorable personnel action in the absence of [the protected] behavior." 49 U.S.C. §42121(b)(2)(B)(i), (iv).