Revisiting 'Protected Activity' Under SOX And Dodd-Frank - The Collapse Of The 'Definitive And Specific' Standard

Our Whistleblower Team continues to monitor the legal standard for pleading and establishing "protected activity" under the Sarbanes-Oxley Act ("SOX") and the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). As we have previously reported, most federal courts have adopted the United States Department of Labor's Administrative Review Board's ("Board") 2011 loosening of the definition of "protected activity" covered by SOX in Sylvester v. Parexel Int'l LLC, ARB No. 07-123, ALJ Nos. 2007-SOX-039, -042 (ARB May 23, 2011), which abrogated its prior decision in Platone v. FLYi, Inc., ARB Case No. 04-154 (ARB Sept. 29, 2006) establishing the requirement that whistleblowing activity must "specifically and definitively" relate to the listed categories of fraud or securities violations.

The Sarbanes-Oxley Act makes it illegal for publicly traded companies to retaliate against employees who report suspected fraud, or who assist in fraud investigations or enforcement proceedings. 18 U.S.C. § 1514A. In 2010, Dodd-Frank created a private right of action allowing employees who believe they have been victims of retaliation under Section 1514A to file suit directly in federal court. 15 U.S.C. §§ 78u-6(h)(1)(A)(iii) and (B)(i). Thus, in those Circuits that have allowed for standing under Dodd-Frank beyond those that report suspected activity to the SEC, the pleading and evidentiary requirements for Section 1514A apply equally to Dodd-Frank retaliation claims. Employees alleging a violation of Section 1514A must establish a prima facie case that (1) they engaged in protected activity; (2) their employer knew or suspected, either actually or constructively, that they engaged in the protected activity; (3) they suffered an unfavorable personnel or employment action; and (4) the protected activity was a contributing factor in the unfavorable action. Thus, what conduct constitutes "protected activity" remains a watershed issue in most cases.

Legal Standard for "Protected Activity" Under Section 1514A

To proceed on a SOX or Dodd-Frank retaliation claim, plaintiffs must first plead (and eventually demonstrate) that they engaged in "protected activity." As defined in SOX, "protected activity" includes "any lawful act done by the employee" to provide information to a supervisor or the Securities and Exchange Commission regarding:

any conduct which the employee reasonably believes constitutes a violation of Section 1341, 1343, 1344, or 1348...