Third Circuit Adopts New Broader Standard For Defining Protected Activity For Whistleblowers

The roller coaster continues for how to define protected activity under the Sarbanes Oxley Act (SOX). In a recent decision that signifies a major setback for employers, the United States Court of Appeals for the Third Circuit became the first Court of Appeals to adopt the Department of Labor's Administrative Review Board's (ARB) 2011 decision in Sylvester v. Parexel, L.L.C., a decision that dramatically broadened the scope of protected activity under SOX.

Background

Prior to Sylvester, the ARB followed the standard set forth in Platone v. FLYi, Inc. Platone held that in order to engage in "protected activity" under SOX, a whistleblower bears a heavy burden by describing conduct that "definitively and specifically" relates to one of the six categories of unlawful acts set forth in the statute. However, the ARB abandoned the Platone standard in its May 2011 decision in Sylvester. The ARB held that would-be whistleblowers claiming retaliation need not identify fraud with specificity to be engaged in protected activity but may engage in protected activity simply by making general complaints.

While the Sylvester decision significantly expanded the scope of protected activity under SOX, it had nevertheless not been adopted by the federal courts. In fact, recent decisions in the Sixth Circuit1 and in the Southern District of New York2 have held the "definitively and specifically" standard still applies. Now, the Third Circuit in Wiest v. Tyco Elec. Corp.3 has become the first federal court to adopt the broader standard of "protected activity" announced in Sylvester.

In Wiest, accountant Jeffrey Wiest brought an action under SOX against his employer, Tyco, alleging he was terminated in retaliation for reporting alleged violations of company policy and sound accounting practices. In 2008, Wiest refused to process a payment request and sent an email to his supervisor expressing his belief that the costs for a particular event were inappropriately charged entirely as advertising. Tyco proceeded with the event and, in response to Wiest's suggestions, made changes to the way the expenses were treated. Wiest continued to raise similar concerns regarding other expense submissions and accounting issues. Wiest alleged that Tyco became frustrated with his persistence in following proper accounting procedures and as a result, began to investigate him for incorrectly reporting a particular receipt, having a relationship with a co-worker, and making...