In an important decision helping to define the Sarbanes-Oxley (SOX) whistleblower provisions, the Department of Labor's Administrative Review Board (ARB) has reversed the decision of an Administrative Law Judge (ALJ), finding that an airline employee did not engage in protected activity under SOX when she complained to her employer about what the ARB described as how the “company spends its money” or its “ability to collect a debt.” See Platone v. FLYi, ARB Case. No. 04-153.
In an important decision helping to define the Sarbanes-Oxley (SOX) whistleblower provisions, the Department of Labor's Administrative Review Board (ARB) has reversed the decision of an Administrative Law Judge (ALJ), finding that an airline employee did not engage in protected activity under SOX when she complained to her employer about what the ARB described as how the “company spends its money” or its “ability to collect a debt.” See Platone v. FLYi, ARB Case. No. 04-153. The ARB’s decision provides some much needed guidance regarding what constitutes protected activity under SOX.
In this case, the complainant, Platone, was employed as the manager of labor relations for FLYi (then known as Atlantic Coast Airlines). She was recommended for the position by John Swigart, who was an influential member of ALPA, the union representing FLYi’s pilots. Platone and Swigart were involved in a romantic relationship when she was hired, but, as the decision reports, neither informed FLYi of this fact.
Under the union contract, FLYi’s pilot union representatives were subject to a “flight pay loss” provision, which provided that pilots would still be paid by FLYi for time spent on certain union activities occurring when they would have instead been flying for the airline. The union, in turn, was to reimburse the airline for that time. During Platone’s employment, she became concerned that pilot representatives were abusing the flight pay system by picking up trips on their scheduled days off then dropping them for union business, so they could get paid for attending to union business on days they were not initially scheduled to fly. Platone brought these concerns to the attention of her supervisor and the union. The union denied that this had happened, but assured Platone and her supervisor that it would reimburse FLYi for flight pay loss incurred on days that were originally scheduled as days off, which satisfied the supervisor.
Around the same time the flight pay issue was being addressed, Platone’s supervisor found out about her relationship with Swigart. FLYi ultimately discharged her because of the conflict of interest that arose from this previously hidden relationship.
Platone subsequently filed a complaint with the Department of Labor, claiming FLYi violated SOX when it discharged her. Platone claimed her complaints about the abuse of the flight pay loss system constituted protected conduct under SOX, and that these complaints caused her to be discharged.
According to the ARB, to prevail on her SOX claim, Platone had to show that: (1) she engaged in protected activity (that is, that she provided information to a covered employer); (2) the employer knew that she engaged in protected activity; (3) she suffered an unfavorable personnel action; and (4) the protected activity was a contributing factor in the unfavorable action.
The ALJ found of favor of Platone, but the ARB reversed, finding that Platone’s complaints about alleged abuse of the flight pay system were not protected activity under SOX. In reaching this determination, the ARB held that SOX does not provide whistleblower protection for all employee complaints about how a public company spends its money and pays its bills. Instead, under SOX, the employee’s communications must “definitely and specifically” relate to any of the listed categories of fraud or securities violations listed in 18 U.S.C.A. § 1514A(a)(1) (these include mail fraud, wire, radio and TV fraud, bank fraud, securities fraud, or any rule or regulation of the Securities and Exchange Commission, or any provision of federal law relating to fraud against shareholders).
The ARB examined Platone’s communications with her supervisor and other managers and determined that these communications did not provide information regarding fraud against shareholders, but instead were efforts by Platone to resolve a potential billing problem.
The ARB noted that although Platone expressed her belief that the pilots abusing the flight pay system were cheating FLYi out of money, the real victim of any alleged impropriety was ALPA. ALPA had assured FLYi that it would reimburse the airline for flight pay loss incurred on days that were originally scheduled as days off. Platone’s supervisor testified that once he received assurance of reimbursement from ALPA, the issue of whether the pilots intentionally violated internal union policy was for ALPA to decide.
Accordingly, the ARB dismissed the case, holding that Platone did not engage in protected activity under SOX, and raised “nothing approximating fraud against shareholders.”
Employers’ Bottom Line:
The ARB decision in this case contains some important clarifications under SOX. First, not all complaints regarding how a company runs its business are protected under SOX. To be protected under SOX whistleblower provisions, the complaint must “definitely and specifically” relate to one of the enumerated types of fraud or securities regulations violations listed in SOX. Additionally, the ARB held that when allegations of mail or wire fraud arise under the employee protection provisions of SOX, the alleged fraudulent conduct must at least be of the type that would be adverse to investors’ interest. Finally, the ARB made it clear that when the allegedly protected activity involves fraud against shareholders, the amount of the potential loss is significant. Here, the ARB found from the record that the potential loss to FLYi was $1,500, which the ARB held would not be material to a reasonable shareholder. Claims under SOX, however, are increasing, and employers at publicly-traded corporations are wise to have detailed ethics and whistleblower policies in effect and to seek advice of counsel before taking an adverse action against any employee who has raised complaints about accounting or other material financial issues.
Ford & Harrison attorney Peter Petesch, a partner in our DC office, along with attorneys from the law firm of Gibson, Dunn & Crutcher LLP represented FLYi in this case. If you have any questions regarding this decision or SOX in general, please contact Mr. Petesch at ppetesch@fordharrison.com, 202-719-2013, or the Ford & Harrison attorney with whom you usually work.