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Tenth Circuit Gives Another Win to Sarbanes-Oxley Whistleblowers

June 5th, 2013 · No Comments

Another federal appeals court has supported the U.S. Department of Labor in its move toward a more employee-friendly reading of the Sarbanes-Oxley Act (SOX), holding that the law protects whistleblowers who flag any SOX-related wrongdoing — not just fraud against shareholders.

The U.S. Court of Appeals for the Tenth Circuit flatly rejected the shareholder limitation in Lockheed Martin Corp. v. Brown, calling such an interpretation “incorrect.” And even if SOX were ambiguous, the court added, it still would defer to an identical reading by Labor Department’s Administrative Review Board (ARB).

The ARB enforces the whistleblower provisions of SOX, a law that sets strict accountability standards for financial behavior by public companies and, under Section 806, protects workers against retaliation for blowing the whistle on a number of specific violations.

By declining to hold the Obama administration to narrower SOX interpretations made under President George W. Bush, the Tenth Circuit echoed Wiest v. Lynch, a recent Third Circuit decision that also granted so-called Chevron deference to the ARB’s new direction.

Taken together, the decisions show strong appellate-level support for the ARB’s landmark ruling in Sylvester v. Parexel, the employee-friendly logic of which informs both cases.

In Lockheed, the Tenth Circuit gave the ARB complete backing:

  • Although it didn’t rule on the issue, the court indicated that SOX can protect employees even if they fail to cite the exact rules their employer may have broken — the main issue in Wiest.
  • The court said the standard for finding retaliation under SOX — whether an employee’s report of wrongdoing contributed to later action against that employee — is “broad and forgiving,” and held that it may be satisfied simply by noting the proximity of events in time.
  • The court also ruled that SOX retaliation may be established via a “cat’s paw” theory, where the person who acts against an employee doesn’t know of any whistleblower activity—but is “poisoned” by a subordinate who does. Here the Tenth Circuit cited the U.S. Supreme Court’s 2011 endorsement of cat’s-paw liability in Staub v. Proctor Hospital, but noted that the SOX standard of causation was considerably more lax than in Staub.

The allegations in Lockheed were sordid.

Andrea Brown, a former communications director for Lockheed Martin in Colorado Springs, Colo., had reported unseemly behavior by her then-boss Wendy Owen. In a complaint for which she was promised anonymity, Ms. Brown reported her concern that Ms. Owen was using Lockheed funds to support her sexual relationships with several soldiers in a company-sponsored pen pal program—and that the costs were being passed along to the U.S. government.

Among other things, Ms. Brown cited Ms. Owen’s purchase of expensive lodging, limousine rides, sex toys, and a laptop computer.

Within days of Ms. Brown’s complaint, Lockheed shut down the pen pal program. Ms. Owen changed roles, but did not lose her title. Later, under pressure from Ms. Owen, Ms. Brown admitted a role in the whistleblowing—and began to suffer at the hands of executives who were advised by her former boss.

First, she got a lower performance evaluation than ever before. Then she lost her title and her supervision of four employees; was told to work in an office that doubled as a storage room for canned food donations; and was barred from attending a conference at which she was supposed to receive an award.

Finally Ms. Brown arrived at work to find someone else working in her office; her then-boss said she would be moved a cubicle. When she protested that her position entitled her to an office, he responded that he was removing her from leadership status at Lockheed.

Ms. Brown had a breakdown, took medical leave, and later quit Lockheed via a notice of forced termination. She filed a SOX retaliation complaint with the Occupational Safety and Health Administration (OSHA) at the Labor Department, ultimately resulting in the case before the Tenth Circuit.

OSHA had ruled against Ms. Brown, but higher Labor Department tribunals, including the ARB, awarded her back pay, medical expenses, reinstatement at Lockheed, and $75,000 in damages for her anguish and humiliation.

The Tenth Circuit affirmed those judgments in its opinion, but sent the case back to the ARB to reconsider whether Ms. Brown’s reinstatement is practical—and whether amounts need to be rejiggered.

Tags: Department of Labor ARB · Retaliation · Sarbanes-Oxley · Whistleblower Protection