In Tides v. The Boeing Co., No. 10-35238, 2011 WL 1651245 (9th Cir. May 3, 2011), the United States Court of Appeals for the Ninth Circuit held that the whistleblower provisions of the Sarbanes-Oxley Act of 2002 ("SOX"), 18 U.S.C. § 1514A(a)(1), do not protect employees of publicly traded companies who disclose information to the media. Instead, the Court held, SOX protects employees only if they disclose certain types of information to the three groups identified in the statute: (1) federal regulatory and law enforcement agencies, (2) Congress and (3) employee supervisors. This case sets parameters for what is and what is not protected whistleblower activity under SOX for which an employee can receive damages under the law.
Tides was brought by two former employees of Boeing
Company ("Boeing" or the "Company") who worked
at Boeing's information technology SOX audit team. This team
was responsible for helping the Company comply with SOX's
requirement to assess annually the effectiveness of Boeing's
internal controls and procedures for financial reporting.
Plaintiffs allegedly believed that Boeing managers fostered a
hostile work environment, pressuring them to rate the Company's
internal controls as "effective" despite problems with
these controls. Plaintiffs allegedly communicated their concerns to
a reporter from the
Seattle Post-Intelligencer despite knowing about
Boeing's policy restricting the release of Company information
to the media. Using this information, the
Post-Intelligencer published an article,
Computer Security Faults Put Boeing at Risk," on July 17,
2007.
Prior to the publication of the article, Boeing began suspecting
that several employees were releasing Company information to the
media and began monitoring plaintiffs' work computers and email
accounts. After the publication of the article, Boeing's human
resources personnel interviewed each plaintiff separately. They
both admitted to providing the Post-Intelligencer reporter
Company documents and information about Boeing's SOX audit
practices. At the completion of the internal investigation,
plaintiffs were terminated for disclosing Boeing's information
to non-Boeing persons without following appropriate procedures and
failing to refer the news media's inquiries to the
Company's communications department in violation of Company
policies.
After their termination of employment, plaintiffs filed SOX
whistleblower complaints that were consolidated in court. Under
SOX, employees of publicly traded companies are protected from
discrimination in the terms and conditions of their employment when
they take certain steps to report conduct that they reasonably
believe constitutes certain types of fraud or securities
violations. Employees who file a successful SOX whistleblower
lawsuit may receive reinstatement, back pay with interest and
special damages (such as attorneys' fees).
Boeing moved for summary judgment dismissing the case, arguing
(among other things) that the SOX whistleblower provisions did not
protect employees from disclosures to the media. The
United States District Court for the Western District of Washington
granted Boeing's motion and dismissed the case with
prejudice. Plaintiffs appealed.
The Ninth Circuit affirmed. The Court held that the plain language
of the statute covers only disclosures made to federal regulatory
and law enforcement agencies, Congress and employee supervisors.
The protections do not cover disclosures made to the media. The
Court rejected plaintiffs' argument that media disclosures
should be covered because such reports might ultimately cause
information to be communicated to the appropriate governmental
authorities. Had Congress wanted to protect reports to the media,
the Court reasoned, it would have listed the media in the statute
or more broadly protected "any disclosure" of specified
information, as it did with the
Whistleblower Protection Act, 5 U.S.C. § 2302. Although a
review of legislative history was not necessary because of the
unambiguous language of SOX, the Court noted that this history
supported its conclusions.
The conclusions reached by the Ninth Circuit reinforce
employers' right to control their information from disclosure
to non-governmental entities. However, employers should be cautious
in their dealings with employees who complain about or disclose
potential SOX violations, even if the SOX whistleblower provisions
do not protect an employee's particular communication. For
example, recent legal trends (not addressed in Tides)
suggest that employers (before they monitor their employees'
computer activities) should have policies in place communicating
that the company has a right to access its technology systems and
that employees do not have a right of privacy in these systems.
Boeing's monitoring of plaintiffs' computers and email
accounts, which revealed the activities that led to their
termination, directly implicates these privacy issues. Companies
should have robust policies protecting their data and managing
employees' representations to the media, but application of
these policies must be careful in light of countervailing rights
and considerations.
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