While the recent Supreme Court decisions discussed elsewhere in this newsletter provide some comfort to employers facing Title VII claims, two recent decisions demonstrate strong federal appellate-level support for a more employee-friendly interpretation of the whistleblower provisions of the Sarbanes-Oxley Act (SOX or the Act). SOX protects employees of publicly-held companies against retaliation for reporting a number of specific violations. Until recently, employee reports of SOX violations needed to be made in very specific terms and needed to relate to fraud against shareholders to receive protection under the Act. Those days appear to have  passed.

In Wiest v. Lynch, the Third Circuit Court of Appeals made it clear that there are no magic words necessary to succeed on a SOX retaliation complaint. In Wiest, Tyco Electronics terminated Wiest, a company accountant, after he raised concerns about requests he received to process payments for events and parties that lacked proper approval and documentation. On appeal, the Third Circuit rejected Tyco's argument that employees qualify for SOX protection only if their disclosures "definitively and specifically" relate to a "violation of statute." Instead, employees need only establish a "reasonable belief" that the company acted, or was about to act, fraudulently.

In Lockheed Martin Corp. v. Brown, the Tenth Circuit Court of Appeals followed the Third Circuit's lead and expanded the Act's protections to include employees who report a broad range of company wrongdoings.

Brown, a former communications director for Lockheed Martin, reported her concern that her then-supervisor, Wendy Owen, was using company money to support her sexual indiscretions with soldiers and that the costs were being passed on to the U.S. Government. According to Brown, Lockheed retaliated against her after Owen learned of Brown's complaint. Lockheed demoted Brown, put her on layoff notice, and assigned her to an office that doubled as a storage closet. Brown ultimately had a breakdown, went on medical leave, and quit. She filed a SOX retaliation complaint with the Occupational Safety and Health Administration.

On appeal, Lockheed argued that SOX did not protect Brown because her complaint did not relate to fraud against the Company's shareholders. The court disagreed, holding that SOX protects employees who not only report conduct relating to fraud against shareholders, but also mail fraud, wire fraud, bank fraud and securities fraud.

It is unclear if other circuit courts of appeals will follow suit, but one thing is certain – publicly-held corporations must think carefully before taking action against an employee who alleges company wrongdoing. Companies should review existing reporting and disclosure policies, as well as their retaliation policies. Internal reporting should be encouraged, and companies should provide employees with multiple avenues of complaint. Finally, employers should train managers to be sensitive to employee comments that might later be considered complaints.

If you have any questions regarding the impact of these decisions on your business or the role of your supervisors, please call Heather M. Sager +1 (415) 749 9510 or any Vedder Price attorney with whom you have worked.