On October 17, 2017, the Tenth Circuit overturned the ARB’s decision in favor of complainant for want of protected activity under SOX.  Dietz v. Cypress Semiconductor Corp., No. 16-9529 (Oct. 17, 2017).  This decision rolled back the ARB’s expansive determination that a company violated federal mail and wire fraud laws by implementing a mandatory bonus plan that failed to comply with state wage payment laws.

Background.  Complainant worked for another entity before it was acquired by the Company.  Offer letters were sent to some of the prior company’s employees, including Complainant, which included compensation information.  The offer letters, however, omitted the fact that some of the employees would be subject to an alternative compensation plan (the “Design Bonus Plan”).  The Design Bonus Plan involved a mandatory wage deduction, which would later be recuperated based on the performance of the affected employees’ projects.  The Company did not start making the deductions until approximately nine months after the prior company’s employees started working for the Company.  Training sessions about the Design Bonus Plan were also offered.  In April 2013, after one of the training sessions, Complainant emailed his supervisor to discuss his concerns about the legality of the Design Bonus Plan and also discussed this with the General Counsel.   Additionally, Complainant complained that the Design Bonus Plan took employees by surprise.  Shortly thereafter, the Company disciplined Complainant and allegedly required him to write memos regarding his alleged errors.  Two months later, Complainant informed the Company that he intended to resign.  Instead of beginning the Company’s turnaround process (designed to retain employees), he was scheduled to attend a meeting two days later.

Procedural History.  Complainant resigned and filed a whistleblower claim under SOX before the DOL, claiming that the Company violated federal mail and write fraud laws by implementing the Design Bonus Plan resulting in unlawful wage deductions.  The ALJ found in Complainant’s favor and the ARB affirmed, concluding that although a complaint that a company has violated state law, standing alone, does not qualify for protection under SOX, the Complainant also had a reasonable belief that the wage law violations reflected misrepresentations, which constituted protected activity.  The Company appealed to the Tenth Circuit.

Rulings.  The Tenth Circuit vacated the ARB’s decision, finding that Complainant could not have reasonably believed that the Company engaged in mail or wire fraud.  The court explained that there was insufficient evidence to conclude that the Company “intended to deprive” the prior company’s employees of their property by omitting information about the Design Bonus Plan in the offer letters.  The court reasoned that the Company gave a plausible explanation for the omission, but even assuming that the Company’s excuse was insufficient, the “the evidence is still woefully inadequate to support any belief that [the Company] committed a fraud in order to deprive the employees of their property.”  The court noted that the Company did not start making the compulsory deductions under the Design Bonus Plan until after it provided training sessions and explained the plan to its employees.

Implications.  This decision is consistent with the general principle that complaints about typical wage-and-hour issues and other common employment law issues for that matter, do not qualify as protected activity under SOX.

Posted in DOL Decisions, SOX Whistleblower Decisions
Tags: SOX, whistleblower
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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.

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