On July 16, 2020, the Third Circuit affirmed the dismissal of a former IT analyst’s whistleblower retaliation claim, holding that he lacked an objectively reasonable belief that his complaints implicated one of the enumerated forms of fraud in the SOX whistleblower provision.  Reilly v. GlaxoSmithKline, LLC, No. 19-cv-2897.

Background

Plaintiff was an IT analyst for the Company, where his duties included maintaining the Company’s AS/400 computer servers and addressing performance and security issues related to them.  Beginning in 2011, Plaintiff allegedly began complaining to his supervisor about performance issues caused by the decision to “uncap” the servers’ processors, which allowed them to share capacity.  In 2013, he allegedly voiced an additional concern that the servers’ access management plan provided certain users with more authority than they should be allowed.  Plaintiff was placed in charge of remediating both of the foregoing issues.  Plaintiff escalated his complaints to the Company’s compliance office in 2014, then to the CEO in 2015, adding that he believed these issues were not adequately disclosed in the Company’s 2013 SEC report.  In response, the Company conducted two internal investigations, both of which concluded that Plaintiff’s complaints were unfounded.

In 2014, due to a decision to outsource management of the AS/400 servers, Plaintiff was notified that his department would be reduced to one analyst position and one manager position.  Believing he was “protected” due to his complaints, plaintiff decided not to apply for the remaining analyst position and his employment was eventually terminated in June 2015.  One month later, Plaintiff filed a SOX whistleblower retaliation complaint in the U.S. District Court for the Eastern District of Pennsylvania.  The Court granted the Company’s motion for summary judgment (see our post here).

Ruling

On appeal, the Third Circuit, relying on its decision in Wiest v. Tyco Elecs. Corp., 812 F.3d 319 (3d Cir. 2016) (see our post on that decision here), reiterated that “Section 806 of SOX protects whistleblowing employees from retaliation for providing information regarding conduct which the employee reasonably believes constitutes mail fraud, wire fraud, bank fraud, securities fraud, a violation of any rule or regulation of the SEC, or fraud against shareholders.”  The court held that Plaintiff failed to show that his “belief” that the Company was committing one of the enumerated forms of fraud was objectively reasonable.  First, the court found that it would not have been objectively reasonable for Plaintiff to believe that the Company was perpetuating a fraud while, at the same time, assigning him to remediate the very issues he complained of.  Describing Plaintiff’s complaints as “workplace disagreements about routine IT issues,” the Court noted that the Company was not required to include such technical details in its SEC reports.  In fact, the court stated that in its annual SEC reports, the Company had sufficiently disclosed risks related to cybersecurity and its computer systems, which in any event, did not relate to fraud.  Finding that Plaintiff had failed to show that his complaints about internal controls “relat[ed] in an understandable way” to any of Section 806’s enumerated forms of fraud, the court affirmed the lower court’s ruling dismissing Plaintiff’s claim.

Implications

Reilly reinforces that employees complaining of alleged violations of internal company policies or controls must still state an objectively reasonable belief that those violations implicate one of the provisions specifically enumerated in SOX.

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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.

Photo of Scott Tan Scott Tan

Scott Tan is an associate in the Labor & Employment Law Department.  Scott represents employers in a variety of matters in federal and state court, arbitrations and state and local administrative proceedings.  His practice encompasses a wide range of labor and employment matters…

Scott Tan is an associate in the Labor & Employment Law Department.  Scott represents employers in a variety of matters in federal and state court, arbitrations and state and local administrative proceedings.  His practice encompasses a wide range of labor and employment matters, including employment discrimination, retaliation, breach of contract, whistleblower claims, restrictive covenants, and wage & hour claims.  Scott also counsels clients on a diverse array of employment matters, including accommodations requests, reductions-in-force, pay equity, wage and hour issues, and compliance with federal, state, and local laws.  Scott’s recent work has involved advising and representing clients across industries such as financial services, sports, news and media, healthcare, legal services, and real estate, in matters ranging from single and multi-plaintiff lawsuits to class and collective actions.

Scott has an active pro bono practice and advises non-profit organizations on employee separations and other employment issues.  He recently secured a favorable judgment in New York state court on behalf of a charitable foundation.  Scott also co-leads Proskauer’s Moot Court Program, where he introduces local high school students to appellate advocacy and coaches them to participate in an annual competition against other New York City high schools.

Scott received his J.D. from UCLA School of Law, where he served on the Moot Court Honors Board and worked as a research assistant for Professor Jennifer Mnookin and Professor Hiroshi Motomura.