On May 25, 2011, the Department of Labor’s Administrative Review Board (ARB) issued a major decision in favor of whistleblowers. In Sylvester v. Parexel International, ARB Case No. 07-123 (ARB May 25, 2011), the ARB held that a whistleblower only needs a “reasonable belief” of a violation to engage in protected activity under the 2002 Sarbanes-Oxley Act (SOX). The ARB makes clear that a whistleblower does not have to wait for a violation to actually happen, and need not inform management of the basis of that reasonable belief. Indeed, since SOX prohibits companies from violating rules of the Securities and Exchange Commission (SEC), a whistleblower can have a reasonable belief about a violation that has nothing to do with any fraud against shareholders. The ARB also rejects the idea that a SOX violation has to be “material” to form the basis of a whistleblower’s “reasonable belief.” The ARB has also freed whistleblowers of the unnecessary hurdle of “pleading” their claims under the high “Iqbal” standard.
The Sylvester decision is a significant departure from the decision of the prior administration. All those decisions that required protected activity to “definitively and specifically” implicate a violation of law are now out-of-date. Indeed, in separate concurring opinions, three of the four ARB judges specifically rejected the “definitively and specifically” standard since it is not in the statute.
When considered together with Brown v. Lockheed Martin Corp, ARB No. 10-050, ALJ No. 2008-SOX-49 (ARB Feb. 28, 2011) (no fraud against shareholders need be shown), and Johnson v. Siemens Building Technologies, Inc., ARB Case No. 08-032 (ARB Mar. 31, 2011) (SOX covers the employees of subsidiaries), the Sylvester decision marks a decided turn in favor of recognizing whistleblowers as servants of the public purpose and deserving of strong protection. The ARB is clearing away the hurdles that made SOX so difficult for whistleblowers during its first eight years.