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May 27

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Sox whistleblower protections again interpreted narrowly

The Ninth Circuit took a narrow reading of the whistleblower protections provided under Sarbanes-Oxley, and thereby eliminated the applicability of any whistleblower protection.  The would-be whistleblowers were two internal auditors at Boeing.  Both employees spoke to a newspaper reporter regarding their concerns.  The reporter included the employees’ information in an article entitled “Computer security faults put Boeing at risk”.    

The Appellate Court upheld the District Court’s dismissal of the claims of wrongful discharge claims based on protection as whistleblowers.  The Appellate Court did so based on a strict reading of the SOX whistleblower provisions as follows:    

SOX’s whistleblower provision, 18 U.S.C. § 1514A, protects employees of publicly-traded companies from discrimination in the terms and conditions of their employment when they take certain actions to report conduct that they reasonably believe constitutes certain types of fraud or securities violations. … The plaintiff must show that: (1) he engaged in protected activity or conduct; (2) his employer knew or suspected, actively or constructively, that he engaged in the protected activity; (3) he suffered an unfavorable personnel action; and (4) the circumstances were sufficient to raise an inference that the protected activity was a contributing factor in the unfavorable action….     

The issue in this case comes down to whether the plaintiffs’ disclosures to the Post-Intelligencer were protected under § 1514A(a)(1).  To answer that question, we turn to the statute’s language to determine whether it has a plain meaning. … Section 1514A(a)(1) provides that:    

Since a news reporter is not one of the three listed persons or groups, the plaintiffs’ claims were dismissed.    

  ‘…when the information or assistance is provided to or the investigation is conducted by—  

  A.    a Federal regulatory or law enforcement agency;    

  B.    any Member of Congress or any committee of Congress; or    

  C.    a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct).’”    

Interestingly, had the Appellate Court focused on their own recital of the case facts, there would have been the basis for concluding that a complaint had been made to their supervisors, which would have provided protection under Section (C) above.  Apparently, this position was properly advanced by plaintiffs.  Putting aside the details of the complaints, here is how the Ninth Circuit described the employees’ conduct before any mention was made to the press: 

 Tides and Neumann repeatedly complained to management about the practice of … They also expressed concerns about the integrity of …. Both auditors believed that the system permitted unauthorized users to …” 

 At both the Department of Labor and at courts, whistleblowers have generally not fared well.  We suspect that this is occurring because employers are wisely settling matters where the employees’ cases are strong.   

See this longer article for additional information regarding whid whistleblower case

SeeBest Practices in Whistleblower Systems for additional guidance on how to handle whistleblowers.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2011/05/sox-whistleblower-protections-again-interpreted-narrowly/

1 comment

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