The Ninth Circuit recently affirmed a grant of summary judgment in an employer’s favor, dismissing a SOX and Dodd-Frank whistleblower retaliation case based on the plaintiff’s lack of an objectively reasonable belief of violations of securities law.  Rocheleau v. Microsemi Corporation, Inc., 680 Fed. Appx. 533 (2017).

Background.  Defendant, a publicly traded company, hired Plaintiff as an independent contractor in 2006.  Plaintiff claimed that beginning in 2008, she began voicing concerns internally that Defendant misclassified her and others as independent contractors.  In addition, she began filing complaints with the government, including a complaint with the OFCCP on January 10, 2010, and she claimed she was asked to retroactively change hiring and recruiting data in violation of OFCCP regulations.  Her employment was subsequently terminated on February 17, 2010.  She then filed a lawsuit before the United States District Court for the Central District of California, claiming violations of the SOX and Dodd-Frank’s respective anti-retaliation provisions.  In support, she alleged that Defendant’s actions constituted fraud against its shareholders because they allegedly created an unreported risk factor to Defendant’s business and engaged in payroll tax fraud.  Defendant moved for summary judgment on the grounds that Plaintiff failed to establish a prima facie case under either statute, as Plaintiff could not hold an objectively reasonable belief that Defendant’s alleged actions would cause it and its shareholders to suffer significant losses.  The district court granted Defendant summary judgment and Plaintiff appealed.

Ninth Circuit’s Ruling.  The Ninth Circuit affirmed the district court’s ruling, concluding Plaintiff failed to show that she engaged in protected activity under SOX or Dodd-Frank.  The court began with the premise that “to have an objectively reasonable belief there has been shareholder fraud, the complaining employee’s theory of such fraud must at least approximate the basic elements of a claim of securities fraud.”  According to the court, Plaintiff failed to make this showing, as she only complained that Defendant violated OFCCP rules and regulations and misclassified her and others as independent contractors.  The Ninth Circuit clarified that “OFCCP regulations are not themselves protected under SOX or Dodd-Frank, and no objectively reasonable basis existed to believe that any such violations would cause [Defendant] and its shareholders to suffer significant losses, as required to establish a prima facie case of reasonable belief in shareholder fraud.”  The court also held that “the misclassification of a single employee as an independent contractor falls far short of the materiality standard for shareholder fraud.”  The court also found that Plaintiff had not actually changed OFCCP-related data so there was no shareholder fraud.

Implications.  This is a valuable win for employers faced with SOX and Dodd-Frank whistleblower retaliation claims alleging protected activity based on shareholder fraud because it stresses the need to at least approximate the basic elements of a claim of securities fraud and enables employers to capitalize on a lack of materiality in particular.

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Photo of Steven J. Pearlman Steven J. Pearlman

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

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice.

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

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice. Steven’s national practice focuses on defending companies in federal and state courts and arbitration against claims of: discrimination, retaliation and harassment, including claims brought by high-level executives; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations (including class, collective and PAGA actions).

Illustrating his versatility, Steven has successfully handled bench and jury trials in multiple jurisdictions (e.g., Illinois, California, Florida and Texas); defended one of the largest Illinois-only class actions in the history of the federal courts in Chicago; and prevailed following his oral arguments before the Seventh Circuit and state appellate courts. Steven brings his litigation experience to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. 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.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He was also named as One of the Top 10 Impactful Labor & Employment Lawyers in Illinois for 2023 by Business Today. 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.” Chambers also reports that “He is someone who can navigate the twists and turns of litigation without difficulty. Steven is great with brief-writing, crafting arguments, and making sure the client is always happy.”

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 was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often 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.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.