My colleagues and I have written frequently about the complex web of legal issues facing corporate whistleblowers. A recent decision out of the 8th Circuit Court of Appeals, Beacom v. Oracle, looked at two of these issues:
2) whether a whistleblower who only reports issues internally can claim the more generous protections of Dodd-Frank, or whether they are limited to the protections provided by SOX, which explicitly protects internal reporting and reporting to the government.
The facts of Beacom v. Oracle are fairly straightforward. Vincent Beacom, who had worked as a salesperson with Oracle, sued his former employer for unlawful retaliation under SOX and Dodd-Frank. According to the court’s summary of events, Mr. Beacom raised concerns internally about sales projections for the Americas region, telling supervisors that their sales projections were unrealistic to the point that those projections would mislead investors.
In January 2012, Mr. Beacom accused one of his supervisors of “intentionally forecasting false revenue commitments.” Mr. Beacom was fired two months later for “poor performance and insubordination.” The court also notes that the company did come close to achieving those high revenue projections, and Mr. Beacom had told others that it would be possible to meet those projections, even as he protested them to his supervisor.
Reasonable Belief in Beacom
In its decision, the court first looked at the appropriate standard for the SOX “reasonable belief” requirement. Understanding the importance of the reasonable belief requirement requires a short background.
Establishing a claim of retaliation under SOX requires the employee to show:
(a) she engaged in protected activity;
(b) the employer took an adverse employment action against the employee; and
(c) that the adverse employment action was caused in part by the employee’s protected activity.
The reasonable belief requirement is a subset of the requirement that the employee engaged in protected activity and requires that the employee must have “reasonably believed” that the employer was engaging in fraud or a violation of securities laws at the time she made her complaint.
For several years, courts interpreted SOX cases under a fairly strict standard known as the Platone standard, which came from the 2006 decision by the Department of Labor’s Administrative Review Board (ARB) in Platone v. FLYI, Inc. This standard imposed a heightened requirement, improperly borrowed from the Energy Reorganization Act, requiring that whistleblowers show that their complaint “definitively and specifically related” to one of the six categories enumerated in the SOX anti-retaliation provision.
The ARB overruled Platone in 2011 and adopted what is now known as the Sylvester standard, after the ARB decision in Sylvester v. Parexel Int’l LLC. Under the Sylvester standard, according to the court in Beacom v. Oracle, an employee “must simply prove that a reasonable person in the same factual circumstances with the same training and experience would believe that the employer violated securities laws.” The court went on to say that this standard means that “an employee’s mistaken belief may still be objectively reasonable.”
Courts are not required to adopt the same standard that the ARB uses and, prior to the Beacom case, the 8th Circuit had yet to be faced with the question of whether it should defer to the ARB’s decision in Sylvester. As the decision here points out, three other federal circuit courts of appeals – the 2nd, 3rd, and 6th Circuits – now use the Sylvester standard, and no court has explicitly rejected it. With the Beacom v. Oracle decision, the 8th Circuit has now become the fourth court of appeals to adopt the standard.
Unfortunately for Mr. Beacom, the court went on to decide that even under this more whistleblower-friendly standard, he failed to meet the SOX reasonable belief requirement. The court emphasized that the regional sales projections were only off by around $10 million and that Oracle is “a company that annually generates billions of dollars.” The court said it was thus objectively unreasonable for Mr. Beacom to believe that fraud had occurred based on “a minor discrepancy,” and Beacom’s objections were therefore not entitled to SOX protections.
Internal Reporting and Dodd-Frank Protections
Since the court here decided that Mr. Beacom was not protected by SOX, it dismissed his Dodd-Frank claim for the simple reason that the relevant Dodd-Frank anti-retaliation provision essentially incorporates the requirements for SOX whistleblower protections. By doing so, the court avoided having to decide the answer to a question that has split the other federal courts: Unlike under SOX, are employees who only report fraud or misconduct internally protected under Dodd-Frank?
To tally up the current score: The 2nd Circuit has said yes, the 5th Circuit has said no and the 3rd Circuit has suggested that the answer is yes, but has not definitively ruled either way. Meanwhile, federal district courts are similarly split, but more have said that such employees are protected. Many of those district court rulings are currently under review on appeal, so more circuits may take a position on the issue soon, including the 8th Circuit, if the issue comes back before it. For now, until the Supreme Court steps in to resolve the uncertainty, it is important for whistleblowers who believe they have been retaliated against to consult an attorney to know how courts where they work have ruled on this question.