May 2011

The Ninth Circuit took a narrow reading of the whistleblower protections provided under Sarbanes-Oxley, and thereby eliminated the applicability of any whistleblower protection. The would-be whistleblowers were two internal auditors at Boeing. Based on the Court’s description:

“In January 2007, plaintiffs Matthew Neumann and Nicholas Tides began working as auditors in Boeing’s IT Sarbanes-Oxley (“SOX”) Audit group. … It was charged with helping the company comply with SOX’s requirement that it annually assess the effectiveness of its internal controls and procedures for financial reporting.

Tides and Neumann claim that tensions were high in the IT SOX Audit group upon their arrival in January 2007 because management feared that Deloitte & Touche might declare a “material weakness” in the company’s internal controls. They allege that managers pressured IT SOX auditors to rate Boeing’s internal controls as “effective” and fostered a generally hostile work environment. Beginning in February 2007, Tides and Neumann began separately expressing concerns about this perceived pressure and several deficiencies in Boeing’s auditing practices that they viewed as potential violations of SOX.”

Both employees spoke to a newspaper reporter regarding their concerns. The reporter included the employees’ information in an article entitled “Computer security faults put Boeing at risk”. The Appellate Court described Boeing’s conduct regarding the employees as follows:

“At some point prior to the publication of the Post-Intelligencer article, Boeing caught on that several employees were likely releasing company information to the media. As a result, it authorized an investigation that included the monitoring of both Tides’ and Neumann’s work computers and email accounts. The investigation revealed that the two auditors were communicating with James without permission. Two months after the publication of the Post-Intelligencer article, Tides and Neumann were interviewed separately by HR investigators about their communications with James

[the reporter]. Both admitted to speaking with her about Boeing’s auditing practices and to providing her with company documents. After the interviews, Boeing suspended Tides and Neumann indefinitely. Their cases were then referred to an Employee Corrective Action Review Board, a committee composed of five voting members and one non-voting ethics advisor to evaluate charges of employee misconduct. After reviewing the applicable Boeing policies and the investigative reports detailing the two auditors’ contacts with the media, the Board unanimously voted to terminate Tides and Neumann effective September 28, 2007 and October 1, 2007, respectively. Both were later informed in writing that:


‘It has been determined that you created an unacceptable liability for the Company. Specifically, you violated PRO-2227, Information Protection, by disclosing Boeing information to non-Boeing persons without following appropriate procedures, obtaining necessary approvals and putting in place appropriate safeguards. In addition, you violated PRO-3439 by not referring inquiries from the news media to Communications, and by releasing information without approval in accordance with the requirements of said PRO. Your actions are aggravated by the fact that the information had an adverse effect on the Company’s reputation and its relations with its employees, customers, shareholders, suppliers and other important constituents, causing significant liability. The Company deems your behavior in this incident as unacceptable and in violation of its expectations as defined in PRO-1909.’”

The Appellate Court upheld the District Court’s dismissal of the claims of wrongful discharge claims based on protection as whistleblowers. The Appellate Court did so based on a strict reading of the SOX whistleblower provisions as follows:

“SOX’s whistleblower provision, 18 U.S.C. § 1514A, protects employees of publicly-traded companies from discrimination in the terms and conditions of their employment when they take certain actions to report conduct that they reasonably believe constitutes certain types of fraud or securities violations. … The plaintiff must show that: (1) he engaged in protected activity or conduct; (2) his employer knew or suspected, actively or constructively, that he engaged in the protected activity; (3) he suffered an unfavorable personnel action; and (4) the circumstances were sufficient to raise an inference that the protected activity was a contributing factor in the unfavorable action….

The issue in this case comes down to whether the plaintiffs’ disclosures to the Post-Intelligencer were protected under § 1514A(a)(1). To answer that question, we turn to the statute’s language to determine whether it has a plain meaning. … Section 1514A(a)(1) provides that:

‘…when the information or assistance is provided to or the investigation is conducted by—

A. a Federal regulatory or law enforcement agency;
B. any Member of Congress or any committee of Congress; or
C. a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct).’”


Since a news reporter is not one of the three listed persons or groups, the plaintiffs’ claims were dismissed.

Interestingly, had the Appellate Court focused on their own recital of the case facts, there would have been the basis for concluding that a complaint had been made to their supervisors, which would have provided protection under Section (C) above. Apparently, this position was not properly advanced by plaintiffs. Putting aside the details of the complaints, here is how the Ninth Circuit described the employees’ conduct before any mention was made to the press:

“Tides and Neumann repeatedly complained to management about the practice of … They also expressed concerns about the integrity of …. Both auditors believed that the system permitted unauthorized users to …”

At both the Department of Labor and at courts, whistleblowers have generally not fared well. We suspect that this is occurring because employers are wisely settling matters where the employees’ cases are strong.

See Best Practices in Whistleblower Systems for additional guidance. Fulcrum Inquiry provides turn-key whistleblower reporting services to companies and non-profit organizations desiring improved governance practices.