Saturday, May 1, 2010


Former Compliance Auditors Properly Terminated for Leaking Information to Media

By Mo Syed 

The U.S. District Court for the Western District of Washington dismissed whistleblower claims brought by two former compliance auditors of a large aerospace company. The employees were auditors who performed testing on IT controls at the company. The tests being performed by the auditors were undertaken in compliance with the Sarbanes-Oxley Act’s (SOX) mandate that publicly traded companies review their controls over financial reporting. 

Both employees became “Audit IT SOX auditors” with the company in January 2007. During their employment, they made several complaints to supervisors about perceived auditing deficiencies, but eventually came to the conclusion that the company’s auditing culture “was unethical and that the work environment was hostile to those who sought change.” After making several complaints to supervisors about perceived deficiencies, the auditors provided information about the alleged deficiencies to a reporter at a daily newspaper.

When the company found out of the contact and disclosures made to the reporter, the employees were placed on suspension, and the matter was referred to a company Employee Corrective Action Review Board ("ECARB"). The ECARB voted unanimously to terminate both employees, and informed the men of these decisions. The employees filed whistleblower complaints with the Occupational Safety and Health Administration (OSHA). Faced with delays at OSHA, the employees decided to proceed in federal court. OSHA acknowledged the employees’ right to proceed in federal court.

In their lawsuit they claimed that the company wrongly fired them as whistleblowers and that they were protected under Section 806 of SOX.

The court noted that Section 806 of SOX, 18 USC § 1514A(a)(1), prohibits employers of publicly traded companies from "discriminat[ing] against an employee in the terms and conditions of employment" for "provid[ing] information . . . regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders." However, it noted that the protection exists 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 none of these three cover a reporter or media outlet, the whistleblowers were not protected.

The employees took the position that the company’s reliance on the media disclosures to fire them was merely a pretext and that they were fired allegedly protected activity such as the complaints to their supervisors. The employees argued they relied on company’s policies and procedures relating to sharing company information with outsiders that permitted disclosure of information protected under Section 7 of National Labor Relations Act (NLRA). The company took the position that media leaks are a violation of confidentiality rules and are not privileged by the NLRA. The court agreed that Section 7 of the NLRA did not apply because it related exclusively with the formation of labor unions and the practice of collective bargaining. The court went on to find that the company had demonstrated that the employees would have been fired even in the absence of activity protected under SOX – thus the reliance on media disclosures was not a mere pretext.

The court ruled that leaking information to the media is not protected activity under SOX, and the company was within its rights to terminate the auditors on this ground.