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, Restrictive Covenant & Trade Secret, and Whistleblower…

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, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) 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 the unusual experience of testifying in federal court in connection with investigations. 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 is a Fellow of the College of Labor and Employment Lawyers. Chambers has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

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 U.S. Library of Congress Burton Award Winner 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.

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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