On August 8, 2014, the Second Circuit affirmed the dismissal of a SOX whistleblower retaliation claim brought by a former AECOM Technology Corp. (“Company”) employee, holding that he did not engage in protected activity because he lacked a reasonable belief that the alleged conduct of which he complained violated one of the enumerated federal provisions in Section 806 of SOX.  Nielsen v. AECOM Technology Corp., No. 13-0235-CV (2d Cir. August 8, 2014).  Notably, however, the court abandoned the stricter standard – previously used by courts in the Circuit – that focuses on whether the employee’s protected communications “definitively and specifically” related to one of the listed categories of fraud or securities violations in Section 806.


As a Fire Engineering Manager for the Company, Plaintiff’s duties included reviewing subordinate engineering plans to ensure compliance with “applicable fire safety standards.”  Plaintiff alleged that the Company engaged in “fraudulent business practices” because it allegedly failed to take action and terminated his employment after he reported a subordinate for approving fire safety designs without actually reviewing the designs.  After Plaintiff’s termination, he filed a SOX whistleblower complaint.

In dismissing that claim, the District Court determined that he had failed to engage in protected activity because he did not demonstrate that his claims “definitively and specifically” related to the enumerated provisions in Section 806 of SOX – i.e., mail fraud, wire fraud, bank fraud, securities fraud or any rule or regulation of the SEC or any provision of federal law relating to fraud against shareholders.


The Second Circuit affirmed the dismissal, but rejected the “definitively and specifically” standard applied by the lower court, embracing the ARB’s decision in Sylvester v. Parexel Intʹl LLC, ARB No. 07‐123, 2011 WL 2165854, at *14‐15 (ARB May 25, 2011) (adopting less strenuous reasonable belief standard).  Applying that standard, the Second Circuit still held that Plaintiff failed to sufficiently allege that he held a reasonable belief that the Company committed mail, bank, securities or wire fraud.

The Court also determined that Plaintiff’s complaints about un-reviewed fire safety designs did not constitute “shareholder fraud” because his concern was “trivial” and “too tenuous” in terms of its relationship to shareholder interests.  It noted that there was “no claim that this fire safety review is required by any federal statute or regulation, that these designs had ever been submitted by AECOM for approval by any outside body, or even that the allegedly inadequate fire safety review posed any specific safety hazard.”  Thus, the Court concluded, Plaintiff failed to plead facts establishing that his complaint related to any significant company venture or that the complained of activity would impact the company’s business in the United States or overseas.  Accordingly, the court held that the Plaintiff’s allegations failed to establish that he engaged in protected whistleblowing activity under Section 806 of SOX.


This decision is significant because the Second Circuit has articulated for the first time that it will apply the “reasonable belief” standard to analyze whether a plaintiff engaged in “protected activity” under SOX.  While the new standard technically may be less taxing than the prior “definitively and specifically” standard used by courts in the Circuit, the Nelson decision underscores the high burden plaintiffs still must surmount in alleging complaints of “shareholder fraud” to establish protected activity.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.