Tenth Circuit Issues its First Decision Interpreting SOX: Offers Broad Reading of the Act


On Tuesday, June 4th, the Tenth Circuit Court of Appeals issued its first decision interpreting the Sarbanes Oxley Act’s whistleblower protection provision, affirming a decision by the U.S. Department of Labor’s Administrative Review Board (“ARB”), which held that Lockheed Martin violated SOX by constructively discharging employee Andrea Brown after she had engaged in protected activity. The court applied Chevron deference to the ARB’s employee-friendly interpretations of SOX’s requirements.

Ms. Brown alleged that she was subjected to a variety of negative employment actions shortly after she complained to Lockheed’s Vice President of Human Resources that her supervisor had initiated sexual relationships with several soldiers using Lockheed’s pen pal program, “sent inappropriate emails and sex toys to soldiers stationed in Iraq,” and used company funds to purchase a laptop computer for one soldier and to “travel[] to welcome-home ceremonies for soldiers on the pretext of business while actually taking soldiers to expensive hotels in limousines for intimate relations.”

The administrative law judge concluded that Ms. Brown reasonably believed that Ms. Owen’s actions comprised mail and/or wire fraud and that Ms. Brown communicated this to Lockheed, which decision was affirmed by the ARB. The Tenth Circuit agreed and held that such complaints fell squarely within the protection of the Act. Rejecting Lockheed’s contention that § 1514A(a)(1) of SOX protected only employee complaints related to fraud against shareholders, the court held that:

[t]he plain, unambiguous text of § 1514A(a)(1) establishes six categories of employer conduct against which an employee is protected from retaliation for reporting: violations of 18 U.S.C. § 1341 (mail fraud), § 1343 (wire fraud), § 1344 (bank fraud), § 1348 securities fraud), any rule or regulation of the SEC, or any provision of Federal law relating to fraud against shareholders.

Further, the court emphasized that, even if the language of § 1514A(a) were ambiguous as to scope of complaints that enjoy protection, the ARB’s interpretation of the Act was entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984).

The Tenth Circuit’s decision to apply Chevron deference to ARB decisions is a significant development for employers because the ARB has issued a number of decisions in the last two years interpreting protected activity under SOX extremely broadly. The Supreme Court will have the opportunity to weigh in on this issue soon, as it has granted certiorari in Lawson v. FMR LLC, in which the First Circuit issued an interpretation of SOX at odds with that of the ARB. Until the Supreme Court offers clarity in Lawson, employers should continue to carefully consider whether employee complaints could be deemed protected activity under the Act.