Source: https://www.employmentlawgroup.com/in-the-news/articles/soxs-whistleblower-provision-promise-unfulfilled/
Timestamp: 2019-04-26 01:46:47+00:00

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various federal and state whistleblower protection laws.
Five years after its enactment, Section 806 has failed to live up to its promise. Indeed, a recent empirical study found that the Department of Labor (“DOL”) has strictly construed, and in some cases misapplied, Section 806, and that less than 5% of whistleblowers prevailed in Section 806 claims before DOL.3 In addition, the Department of Labor’s Administrative Review Board (“ARB”) recently judicially amended Section 806 by imposing a standard for protected conduct that is contrary to the plain meaning and intent of the statute. Despite these developments, however, Section 806 can potentially provide strong protection to whistleblowers, and it has sensitized employers to the importance of encouraging employees to report financial misconduct and taking prompt remedial action to correct accounting fraud or securities law violations. This article discusses how the elements of a Section 806 claim have been interpreted, focusing primarily on the scope of protected conduct.
reporting earlier and perhaps thereby deter financial fraud or minimize its adverse effects.”14 Limiting protected conduct under SOX to actual shareholder fraud would limit the opportunity for companies and shareholders to learn about financial fraud before it is too late.
The DOL’s ARB has taken a highly formalistic approach to analyzing whether an employee’s disclosure is protected under SOX. In Platone v.
In sum, employers should not assume that federal courts will apply the ARB’s heightened standard for protected conduct, and instead should assume that employees can engage in protected conduct without citing securities law chapter and verse.
reasonable belief: “Because the analysis for determining whether an employee reasonably believes a practice is unlawful is an objective one, the issue may be resolved as a matter of law. “24 The decision was surprising for at least three reasons.
First, limiting protected disclosures to unequivocal, actual violations of securities laws patently undermines the basic purpose of Section 806, which is to provide an early ‘warning of fraud or internal control deficiencies that could result in shareholder fraud, before shareholders have been harmed. As an AL] noted in Getman v. Southwest Securities,25 requiring a SOX complainant to prove an actual violation of law “would require that a whistleblower allow the violation to occur before reporting it. This would defeat the intent of the Act and the whistleblower law in general, which is to prevent the carrying Ollt of the underlying crime.” Similarly, the AL] in Morefield v.
Second, the ARB’s construction of “reasonable belief” is contrary to Congressional intent in that the legislative history of Section 806 specifically states that the reasonableness test “is intended to include all good faith and reasonable reporting of fraud, and there should be no presumption that reporting is otherwise, absent specific evidence.”28 Moreover, when Congress chose to include the terms “reasonable belief” in Section 806, it presumably had in mind well-established DOL precedent under analogous whistleblower protection statutes holding that “reasonable belief” is a mixed question of law and fact, and broadly construing “reasonable belief.” By redefining “reasonable belief,” the ARB has substantially narrowed the scope of protected conduct under SOX.
any analysis of the actual SEC internal accounting rules that implement Section 404 of SOX and Section 13 of the Securities Exchange Act of 1934.
analysis. The ARB’s Welch decision will likely result in ALJs dismissing SOX claims on summary judgment based on an “I know it when I see it” analysis of whether the complainant’s alleged protected disclosure sufficiently states an actual violation of an SEC rule.
accuracy and reliability of corporate disclosures.
1 See 18 U.s,C § 1S14A. In addition, Congress criminalized retaliation by any person or organization against an individual who has provided truthful information to law enforcement officers concerning the commission of any federal offense, 18 U.s,C § 1513(e).
3 Richard Moberly, Unfulfilled Expectations: An Empirical Analysis of Why 5arbanes-Oxley Whistleblowers Rarely Win, William & Mary Law Review, Vol. 49, Fall 2007, However, many SOX ciaims are settled early on because companies often wish to avoid broad discovery about flawed accounting practices or inaccurate financial reporting.
7 Jayaraj, 2003-S0X-32 at 16-17.
15 Platone v FLYi, Inc., ARB No, 04-154, AU No. 2003-50X-27, at 17 (ARB Sept, 29, 2006).
16 Id, No, 04-154 at 17.
company who took such reasonable action to try to protect investors and the market”).
23 Welch, 2003-S0X-1S (AU Jan. 28, 2004).
24 Welch, ARB No. OS-064 at 10 (citing Jordan v. Alternative Resources Corp., 4S8 f.3d 332, 339, 98 Fair Empl. Prac. Cas. (BNA) 1400, 88 Empl. Prac. Dec. (CCH) P 4247S (4th Cir. 2006), cert. denied, 127 S. Ct. 2036,167 L. Ed. 2d 804 (U.S. 2007)).
25 Getman v. Southwest Securities, Inc., 2003-S0X-8, at 13 n.8 (DOL Feb. 2, 2004), reversed on other grounds, ARB No. 04-059 (ARB July 29, 2005).
26 Morefield v. Exelon Services, Inc., 2004-S0X-2 at 5 (AU Jan. 28, 2004).
28 Legislative History of Title VIII of HR 2673: The Sarbanes-Oxley Act of 2002, Congo Rec. S7418, S7420 (dally ed. July 26, 2002), available at 2002 WL 32054527, citing Passaic Valley Sewerage Com’rs V. U.S. Dept. of Labor, 992 F.2d 474, 8I.E.R. Cas. (BNA) 647, 125 Lab. Cas. (CCH) P 10698, 23 Envtl. L. Rep. 21125 (3d Cir. 1993) (setting forth a broad definition of “good faith” protected disclosures under analogous whistleblower protection statutes).
29 Smith V. Corning Inc., No. 06-CV-6516 CJS (W.D.N.Y. July 9, 2007).
under SOX. Welch, ARB No. 05-064 at 11.
31 Mahony v. KeySpan Corp., 2007 WL 80S813 at *6 (ED. N.Y. 2007).
32 Piatone, ARB No. 04-154 at 15.
33 According to the ARB, a reference in the preamble of SOX to “protectling] investors” must mean that Congress did not intend to protect from retaliation employee who blow the whistle on mail fraud or wire fraud. See Platone, ARB No. 04-154 at 15. As Congress chose to specifically include mail fraud and wire in the categories of protected disclosures in Section 806, it must have assumed that disclosures about mail fraud or wire fraud protect investors. Narrowing the scope of protected conduct based on a vague statement in a preamble does not effectuate Congress’ intent Id. at n. 107.
34 Reyna V. Conagra Foods, Inc., 2007 WL 1704577 at *15 (M.D. Ga. 2007).
36 18 U.s.c. § 1514A(a).
37 Hirst “- Southeast Air/ines, Inc., ARB Nos. 04-116, 04-160, AU No. 2003-AIR-47(ARB Jan. 31, 2007).
38 Hirst, ARB Nos. 04-116, at 10-11, quoting Burlington Northern and Santa Fe Ry. Co. “White, 126 S. Ct. 2405, 2409, 165 L. Ed. 2d 345, 98 Fair Empl. Prac. Cas. (BNA) 385, 87 Empl. Prac. Dec. (CCH) P42394 (U.S. 2006).
39 49 U.s.C.A. § 42121 (a)-(b)(2)(B) (ili)-(lv); Tay/or V. Wells Fargo Bank, NA, ARB No. 05-062, AU No. 2004-S0X-43, at 4 (ARB June 28, 2007).
40 Halloum v. Intel Corp., 2003-S0X-7 (AU Mar. 4, 2004) (quoting Marano v. Department of Justice, 2 F.3d 1137, 1140, 8 I.E.R. Cas. (BNA) 1368 (Fed. Cir. 1993)).
41 Bechtel Constr. CO. V. Sec’y of Labor, 50 F. 3d 926, 934 (11th Cir. 1995); Collins, 334 F. Supp 2d at 1379.
42 29 CF.R. § 1980.104(c).
43 Paliavl Gogoi, The Trouble With Business Ethics, Business Week, June 22, 2007.
44 148 Congo Rec. S7418, 7420 (daily ed. July 26,2002).

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