If you get fired for blowing the whistle on your public employer to the press, the Whistleblower provisions of the Sarbanes-Oxley Act (“SOX”) will not protect you from retaliation by your employer. So says the 9th Circuit Court of Appeals in its recent ruling Tides v The Boeing Company case number 2:08-cv-0161-JCC. See the opinion at http://www.ca9.uscourts.gov/datastore/opinions/2011/05/03/10-35238.pdf
Nicholas Tides and Matthew Neumann were auditors hired by Boeing to work in its IT Sarbanes-Oxley Audit Group. This group was staffed with a mix of Boeing employees and outside contractors. Tides and Neumann do not paint a rosy picture of the work environment at the time. There were fears the external auditor – who attested to, and reported on, Boeing’s assessments of its internal controls – might declare a “material weakness” in the company’s internal controls. Boeing management, they alleged, pressured the internal auditors to rate the internal controls as “effective.”
A reporter with the Seattle Post-Intelligencer was researching for an upcoming article on Boeing’s SOX compliance. This reporter attempted to contact both Tides and Neumann. Boeing had a policy in place which restricted release of company information to the news media. Employees contacted by the news media were instructed to refer the inquiries to the communications department and prohibited the release of company info absent prior review by that department. Evidently this reporter was not going to take no for an answer. She eventually showed up at Neumann’s home and convinced him to share some thoughts re Boeing’s compliance with SOX. Shortly thereafter, Tides contacted the reporter. In addition to speaking with her, Tides also forwarded a series of emails and Boeing documents related to his employment with in the IT SOX Audit Group. On July 17, 2007 the Post-Intelligencer published the article, “Computer security faults put Boeing at risk.” See the article at http://www.seattlepi.com/default/article/Computer-security-faults-put-Boeing-at-risk-1363700.php.
Not surprisingly, Boeing did not react well to the article’s publication. Tides and Neumann were both identified as the leaks and were initially suspended. Eventually they were terminated. Each of their terminations was based on the following:
It has been determined that you created an unacceptable liability for the Company. Specifically, you violated PRO-2227, Information Protection, by disclosing Boeing information to non-Boeing persons without following appropriate procedures, obtaining necessary approvals and putting in place appropriate safeguards. In addition, you violated PRO-3439 by not referring inquiries from the news media to Communications, and by releasing information without approval in accordance with the requirements of said PRO. Your actions are aggravated by the fact that the information had an adverse effect on the Company’s reputation and its relations with its employees, customers, shareholders, suppliers and other important constituents, causing significant liability. The Company deems your behavior in this incident as unacceptable and in violation of its expectations as defined in PRO-1909.
Of course, Tides and Neumann did what any recently terminated employee does – they sought the advice of legal counsel. After receiving right to proceed letters from OSHA (the agency delegated responsibility for receiving and investigating whistleblower complaints) both instituted actions in Federal Court claiming they had been terminated in violation of 18 U.S.C §1514A(a)(1) for reporting violations of SOX and other securities laws. After the lower court granted Boeing’s Motion for Summary Judgment, Tides and Neumann appealed.
Whistleblower Provisions under SOX:
§ 1514A. Civil action to protect against retaliation in fraud cases
(a) Whistleblower Protection for Employees of Publicly Traded Companies.— No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee—
(1)to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, 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); or
(2)to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.
Analysis:
Section 1514A claims are governed by a burden-shifting framework. First, the plaintiff is required to establish a prima facie case of retaliatory discrimination. Once the prima facie case is established, the burden shifts to the defendant to demonstrate “by clear and convincing evidence that it would have taken the same adverse employment action in the absence of the plaintiff’s protected activity.”
In order to make out its prima facie case of retaliatory discrimination he must show: (1) he engaged in a protected activity or conduct; (2) the employer knew, or suspected, actually 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 outcome. See 29 C.F.R § 1980.104(b)(1). The issue here is whether Tides and/or Neumann’s releasing Boeing information to the news media was a protected activity or conduct to satisfy the first prong of the prima facie case. In short – no.
By its express terms, §1514A(a)(1) protects disclosures made to (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). The Seattle Post-Intelligencer does not seem to fall under any of those three umbrellas. Plaintiffs argued that such communications should be protected because “reports to the media may eventually ‘cause information to be provided’” to one of the three specified recipients. The Court was having none of that. They compared the restrictive language of §1514A(a)(1) with the language of the Whistleblower Protection Act, 5 U.S.C. §2302, which protects “any disclosure” of specified information. By not including such expansive language, Congress implicitly meant to limit SOX whistleblower protections to the three recipients. Although the Court based its holding on the plain language of the Statute, it took the unnecessary stop of reviewing the legislative history of §1514A so that the justices “can sleep well knowing that it reinforces our conclusion above.”
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