Tenth Circuit Adopts A Broad View Of What Constitutes Protected Activity Under Sarbanes-Oxley

In a recent decision,1 the Tenth Circuit approved the Department Of Labor Administrative Review Board's broad view that Sarbanes-Oxley protects employees of publicly traded companies who blow the whistle on numerous types of fraud, even if that fraud in no way relates to shareholders. The opinion also takes an expansive view of what constitutes an “adverse action” under Sarbanes-Oxley.

Sarbanes-Oxley Whistleblower Complaints - a Refresher

Section 806 of Sarbanes-Oxley prohibits retaliation against employees of public traded companies who report certain types of fraud:

No [publicly traded] company . . . , or any officer [or] employee . . . 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 . . . [18 U.S.C. §§] 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—

. . . .

(C) a person with supervisory authority over the employee. . . .2

To establish a prima facie case of whistleblower retaliation under Sarbanes-Oxley, a complainant must show: (1) she engaged in protected activity or conduct; (2) the employer knew of her protected activity; (3) she suffered an unfavorable personnel action; and (4) her protected activity was a contributing factor in the unfavorable personnel action.3

Factual and Procedural Background

Andrea Brown worked for her employer (the Company) as the Director of Communications in Colorado Springs, Colorado. She reported directly to, among others, Vice President of Communications Wendy Owen.

In May 2006, Brown began having difficulty obtaining responses from Owen on work-related matters. She discussed the problem with a co-worker, who happened to run the Company's military pen pals program. The co-worker told Brown that Owen had developed sexual relationships with several of the soldiers in the program and purchased items for the soldiers with Company money. Brown became concerned that Owen's actions were fraudulent and illegal. She also became concerned that, because Owen's misuse of Company funds might ultimately be charged back to the government, her behavior could lead to failure of government audits and affect the Company's future contracts and stock price.

Brown raised her concerns to the Company's Vice President of Human Resources. The Vice President of Human Resources then submitted an anonymous ethics complaint, but identified Brown as a person with knowledge. Almost immediately, the pen pal program was discontinued.

In December 2006, Owens...