Johnson, Sylvester, Funke, oh my!: The ARB Paves the Way for Greater SOX Whistleblower Protection

Earlier this year, The Network reported on some changes made to the Sarbanes-Oxley (SOX) whistleblower provisions by the enactment of the Dodd-Frank bill. In recent months, the Administrative Review Board (ARB) – the appeals board for decision issued by Administrative Law Judges in the Department of Labor – has made monumental transformations to existing case law regarding whistleblower retaliation claims. The alterations the ARB has made are a clear departure from previous SOX whistleblower case law and revitalized whistleblowing as a public service deserving of protection.

Under 18 U.S.C. § 1514A, it is illegal for any public company subject to SOX to discharge employees, contractors, subcontractors or agents for informing certain entities about certain enumerated SOX violations. If an employee suspects that retaliatory acts were taken against them for their role in reporting a SOX violation, the employee must file a complaint with the Occupational Safety and Health Administration (OSHA) within 180 days of the retaliatory act – increased from 90 days by Section 922(b) of the Dodd-Frank Act. After OSHA conducts an investigation, it issues an initial decision. If either party disputes OSHA’s decision, that party may appeal to the Department of Labor Office of Administrative Law Judges. There, the purported whistleblower must establish a prima facie case for SOX protection. In order to establish a prima facie case, the claimant must prove (1) he or she engaged in SOX protected activity, (2) the respondent took unfavorable employment actions against complainant, and (3) the protected activity was a contributing factor to the adverse action.

Under previous ARB case law, the complainant in a whistleblower case needed to show “a sufficiently definitive and specific relationship [between the claimants protected activity and] any of the listed categories of fraud or securities violations under 18 U.S.C. § 1514A (a)(1).” However, in a grand departure from this long-standing doctrine the ARB in Sylvester v. Parexel International LLC eliminated the requirement and instead stated that the focus of the inquiry should be on the employee’s “reasonable belief” of a violation. Furthermore, the ARB explicitly stated that employees need not wait for a violation to actually occur before making a report; so long as the employee has sufficiently many facts to form a reasonable belief that a violation will occur, any report he or she makes may constitute a protected activity.In previous decisions, claimants reporting prospective violations were not treated kindly and rarely succeeded in their claims. Finally, the Board stated that SOX whistleblowers are not subject to the heightened pleading standard set for in Iqbal v. Ashcroft.

Following on the heels of Sylvester, the ARB reaffirmed its holding regarding the reasonable belief standard in Funke v. Federal Express Corp., the Board held that § 1514A covers reports made regarding third-party fraud and that the reported conduct does not necessarily have to relate to fraud against shareholders.

These cases along with Johnson v. Siemens Building Technologies, Inc., which held that Dodd-Frank Section 929A covers subsidiaries of SOX covered companies, shows the Board’s distinct trend toward bringing the SOX whistleblower protections in line with Congress’s intent “[t]o protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law, and for other purposes.” Preamble to Pub. L. No. 107-205, 116 Stat. 745.However, these decisions are subject to further scrutiny at the Circuit level, so the final “whistle” has not blown yet.

Michael Perez Johnson, Sylvester, Funke, oh my!: The ARB Paves the Way for Greater SOX Whistleblower Protection, Berkeley Bus L.J.. Network (August 12, 2011),