3rd Circuit Lowers Bar for Whistleblowers to Bring Claims Under SOX 806

On March 19, 2013, a three-judge panel in the 3rd Circuit Court of Appeals issued a decision in Wiest v. Lynch that significantly lowers the bar for whistleblower claims under Section 806 of the Sarbanes-Oxley Act. SOX 806 prohibits retaliation against employees for protected whistleblowing activity, and enumerates specific statutes and rules that the purported whistleblower must allege he or she thought were or were going to be violated (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).

The question in Wiest was whether, to demonstrate that he or she engaged in protected activity, an employee’s claim under SOX 806 has to allege that his or her communication to management about alleged fraud “definitively and specifically” related to one of the enumerated statutes or rules, or whether the employee must merely allege that he or she informed management of a “reasonable belief” that the employer’s conduct violated or was going to violate one of the enumerated statutes or rules. The 3rd Circuit adopted the “reasonable belief” standard and overruled the district court’s application of the “definitively and specifically related” standard, becoming the first federal appellate court to adopt the holding of the Department of Labor’s Administrative Review Board in Sylvester v. Parexel Int’l., ARB 07-123 (May 25, 2011).

The 3rd Circuit’s decision is in conflict with other circuits, including the 1st, 5th, 6th, and 9th Circuits. The 9th Circuit decision adopting the “definitely and specifically related” standard is Van Asdale v. Int’l Game Tech., 577 F.3d 989, 996-97 (9th Cir. 2009). A case raising the issue was argued before the 10th Circuit on Sept. 19, 2012, and a decision in that case is expected shortly. A petition for en banc review was filed in the Wiest case on April 2, 2013, so it is possible that the full 3rd Circuit Court of Appeals will differ with the three-judge panel.