Critical New Court Decision Limits Sarbanes-Oxley Claims

In a significant victory for the employer in a decision under the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (SOX), the United States District Court for the Eastern District of Pennsylvania has dismissed for the moment a lawsuit brought against Tyco Electronics by a former accounts payable employee. In Wiest v. Lynch, Case No. 2:10-cv-03288-GP (July 21, 2011), the court made clear that an employee who attempts to sue his employer under SOX's anti-retaliation provision, 18 U.S.C. § 1514A, must allege significantly more than merely "that wrongdoing has occurred." Rather, the employee must allege that his or her communication to the employer "definitively and specifically" related to one of the statutes or rules listed in SOX and conveyed "an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and risked loss."

Factual Background

Plaintiff worked for 31 years in his employer's accounts payable department. He consistently received high ratings, especially in the areas of "integrity" and "ethics and values." In fact, in 2008, he received a bonus for "his significant achievements and continuing focus on 'doing the right thing.'" Plaintiff alleged, however, that his situation changed for the worse after he refused to process certain expenses for company events in the Bahamas and Las Vegas because he believed they were improper, did not meet the company's standards, violated regulations issued by the Securities and Exchange Commission and tax regulations, and raised ethical concerns. Ultimately, the company's tax department undertook the additional review he requested and determined that one of the events had been improperly classified as business expenses. Consequently, the company treated the costs of that event as "award income" to the persons who attended the event while grossing up their bonuses to cover the additional income tax due. The company's tax department determined that the second event had been properly treated as a business expense. In addition, plaintiff refused to process expenses incurred at a third event because it was unclear to him whether a certain company officer had personally approved the expenses.

Plaintiff also alleged that he expressed concerns about other company expenses and suspected that company managers were frustrated by his challenges of these expenses. He claimed that, as a result, he was told that the company's human resources department was...