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Friday, Mar 29, 2024

No Protection For Employees Who Disclose Wrongdoing to the Media

A federal appeals court has ruled that the anti-retaliation provision found in the corporate governance law known as the Sarbanes-Oxley Act (“SOX”) does not protect employees who disclose potential legal violations to the media. In the case of Tides v. Boeing Company, two Boeing internal auditors were fired after admitting that they provided internal company information to a newspaper reporter. They later sued, claiming that their termination was illegal. SOX is a federal law that requires companies to annually assess the effectiveness of their internal controls and procedures for financial reporting. SOX contains a whistleblower provision that protects employees who report company conduct that they reasonably believe constitutes a securities law violation or wire, bank or securities fraud to specified government officials. Nicholas Tides and Matthew Neumann worked as auditors in Boeing’s Information Technology SOX Audit group, which is responsible for ensuring the integrity of Boeing’s IT controls for financial reporting. Tides and Neumann began separately to complain to management that supervisors were pressuring auditors to rate Boeing’s IT controls as “effective.” They also reported their belief that certain auditing practices were in violation of SOX. For example, they claimed that Boeing’s software system allowed unauthorized users to alter its IT SOX audit results. A reporter with the Seattle Post-Intelligencer contacted Tides and Neumann to interview them for a story about Boeing’s SOX compliance. Both employees told the reporter that they felt pressure to render positive audit results. They also sent the reporter internal company emails and other Boeing documents in violation of a corporate policy prohibiting employees from releasing company information without prior authorization. When Tides and Neumann admitted that they spoke with the reporter and gave her company documents, Boeing terminated them for violating company policy. Tides and Neumann filed SOX whistleblower complaints with the Occupational Safety and Health Administration, the government agency responsible for investigating whistleblower complaints. They later sued Boeing in federal district court in Washington, but the case was dismissed because SOX doesn’t protect media complaints. The two ex-employees appealed that ruling to the Ninth Circuit U.S. Court of Appeals. The normally very liberal appellate panel agreed that the employees’ disclosures to the newspaper reporter did not constitute activity protected under SOX’s whistleblower provision. The court noted that SOX specifically enumerates only three types of recipients to whom employees may report conduct they believe violates the statute: (1) federal regulatory and law enforcement agencies; (2) members of Congress; and (3) employee supervisors. The court went on to say that if Congress had wanted to protect SOX related disclosures to the media, it could have included the same broad language in SOX as it did in the federal Whistleblower Protection Act (“WPA”). The WPA protects government employees or job applicants for “any disclosure of information” that they believe constitutes unlawful activity. The WPA does not expressly limit the recipients to whom the employees can make protected disclosures. Despite a very favorable outcome for Boeing in this case, employers ought to handle whistleblowers with care. Numerous other federal and state labor laws afford protection to whistle blowers. Mistakes may result in costly wrongful termination litigation. Richard S. Rosenberg is a founding partner of Ballard Rosenberg Golper & Savitt LLP, a management side labor law firm in Glendale. Rosenberg was selected as one of the 25 best lawyers in the San Fernando Valley. He may be reached at (818) 508-3700 or [email protected].

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