Third Circuit Rules on Extent of Whistleblower Protection Under Sarbanes-Oxley

The Sarbanes–Oxley Act of 2002 (SOX) regulates a wide range of activities by publicly traded companies. Section 806 of SOX, 18 U.S.C. § 1514A, protects whistleblowers against retaliation for reporting suspected legal violations. It allows employees to file a complaint with the U.S. Department of Labor (DOL), potentially followed by a lawsuit in federal district court. The DOL’s Administrative Review Board (ARB) has held that a whistleblower need only have a “reasonable belief” that a legal violation has occurred to engage in “protected activity” under § 806 of SOX. Sylvester v. Parexel Int’l, ARB Case No. 07-123 (ARB, May 25, 2011). The Third Circuit Court of Appeals, whose jurisdiction includes New Jersey, recently ruled on the question of “reasonable belief” in an SOX whistleblower claim, which could have an impact on New Jersey whistleblowers. Westawski v. Merck & Co. Inc., No. 16-4075, slip op. (3d Cir., Jun. 27, 2018).Legal News Gavel

The whistleblower protection provisions of § 806 apply to companies that have securities registered under the Securities Exchange Act of 1934, or that are required to file reports under that statute. Employees who report suspected fraud, wire fraud, bank fraud, or securities fraud, or who cooperate in an investigation of one of these alleged offenses, are entitled to protection. 18 U.S.C. § 1514A(a), citing 18 U.S.C. §§ 1341, 1343, 1344, and 1348. An employee must file a complaint with the DOL. If the DOL has not issued a ruling within 180 days, the employee can usually file a complaint in federal court. Available damages include reinstatement, back pay, court costs, and attorney’s fees.

The statute requires that the whistleblower “reasonably believes” that their employer has violated one or more of the enumerated federal fraud statutes. Id. at § 1514A(a)(1). The ARB has interpreted this requirement as having two parts:  (1) the employee has “a subjective belief that the complained-of conduct constitutes a violation of relevant law”; and (2) “the belief is objectively reasonable.” Sylvester at 14. As long as the employee’s belief is both subjectively and objectively reasonable, the ARB held, their actions are protected even if no legal violations actually occurred.

The plaintiff in Westawski worked as a “research analyst,” overseeing a medical study for a grocery store chain and its health insurance administrator. Westawski at 2. Her employer, the defendant, retained an outside firm to conduct market research as part of the study. The plaintiff reportedly complained to her employer that the market research firm had only been hired “because one of its scientists had close relationships with…executives” from the insurance administrator. Id. An investigation by the defendant “found no violation of its internal policies.” Id. The plaintiff requested a transfer within the company and was later terminated as part of “a company-wide restructuring.” Id. at 3. She alleged that this was retaliation in violation of SOX § 806.

The district court dismissed the lawsuit, finding that the plaintiff had not alleged that the defendant had committed any of the types of fraud identified in § 806. The Third Circuit affirmed this ruling. Regardless of her subjective belief, the court held that the plaintiff “must still have an objectively reasonable belief of a violation of one of the listed federal laws.” Id. at 4, quoting Wiest v. Lynch, 710 F. 3d 121, 132 (3d Cir. 2013).

The Resnick Law Group’s whistleblower lawyers represent job applicants, employees, and former employees in claims under state and federal laws in New Jersey and New York. Contact us at 973-781-1204, at 646-867-7997, or online today to schedule a confidential consultation with a member of our team.

More Blog Posts:

New Jersey Whistleblower Lawsuit Alleges Retaliation by Auto Maker, The New Jersey Employment Law Firm Blog, May 15, 2018

Supreme Court Rules that Dodd-Frank Whistleblower Protections Do Not Apply to Internal Reporting, The New Jersey Employment Law Firm Blog, March 29, 2018

New Jersey Whistleblower Lawsuit Not Preempted by Federal Law, State Supreme Court Rules, The New Jersey Employment Law Firm Blog, January 26, 2018

 

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