Employers: Watch Out for Whistleblower Claims Under Sarbanes-Oxley and Dodd-Frank
In a recent Eighth Circuit case, Beacom v. Oracle America, Inc., plaintiff Vincent Beacom, one of Oracle’s vice presidents of sales, sued his employer alleging he was fired in violation of the Sarbanes-Oxley and the Dodd-Frank Wall Street Reform and Consumer Protection Acts (Dodd-Frank) for voicing concerns that the company’s new method for projecting quarterly sales revenues was flawed and led to higher projections. After the company over projected its sales revenues for several quarters, Beacom began challenging his superior who had implemented the new method, and eventually reported his concern to an HR representative. It was his belief that the inaccurate projections set the wrong expectation for shareholders and contributed to a decline in value of Oracle stock. Several months after meeting with the HR representative, Beacom was fired for poor performance and insubordination.
The Sarbanes-Oxley Act, in part, prohibits publicly traded companies from retaliating against their employees for engaging in certain protected conduct, specifically, disclosing violations of various federal laws and regulations. Under the whistleblower statute, 18 U.S.C. § 1514A, an employee must have a reasonable belief that a violation has taken place, and he or she must disclose the violation to a federal agency, congress, or supervisor or other employee with investigative authority, before his or her conduct is considered protected. The exact federal laws and regulations an employee must reasonably believe have been violated are (1) provisions prohibiting mail, wire or bank fraud; (2) the rules or regulations of the SEC; or (3) any provision of federal law relating to fraud against shareholders.
On appeal, the court was faced with deciding when an employee may be considered to have a reasonable belief that his or her employer committed one of the applicable fraud or securities violations. How a court makes that determination is particularly important because, if an employee discloses conduct he or she believes is a violation, and yet that employee’s belief is an unreasonable one, then his or her employer may take adverse employment action against the employee without incurring civil liability under the whistleblower statute.
Prior to 2011, the Department of Labor’s Administrative Review Board (ARB) required that for an employee’s disclosure of a violation to be considered protected conduct, it had to “definitively and specifically” relate to one of the statutes or rules listed in the whistleblower statute. In 2011, the ARB changed its position and adopted a new less stringent standard which only requires an employee to establish that he or she reasonably believed a fraud or securities violation occurred and that a reasonable person in the same factual circumstances, with the same training and experience, would have had the same belief. The Eighth Circuit, in Beacom, following several other federal courts of appeals, adopted the ARB’s new standard which makes it more likely that an employee’s disclosure will be considered protected conduct.
To what extent does this new reasonableness standard impact employers? Even though the employer in Beacom prevailed, the case has broadened the scope of protection afforded to whistleblowers under the Sarbanes-Oxley Act. Employers can expect to find themselves more often defending retaliation claims under Sarbanes-Oxley. Now, even when an employee is mistaken that a violation has occurred, adverse action against the employee on grounds such as insubordination may expose an employer to liability, depending on the level of training and experience of the employee. In short, Beacom re-instills an employer’s need for effective, internal policies and procedures allowing for the disclosure of possible fraud and securities violations.
Finally, as the title of this article suggests, Beacom also provides whistleblowers greater protection under the Dodd-Frank Act. That is because Dodd-Frank’s whistleblower statute, 15 U.S.C. § 78u-6, prohibits retaliating against employees for engaging in conduct protected under Sarbanes-Oxley.
*Editorial assistance provided by Jack Easterly