The Whistleblower Minefield Gets Foggier

Whistleblowers beware: Whether the law protects your reporting of illegal or improper behavior in your organization depends critically on whether you work in a public corporation or a private company and whom you report your concerns to. And it could be getting worse if a certain colorful Congressman has anything to say about it

For example, the Los Angeles Times reported last week that the U.S. Court of Appeals for the local federal circuit has ruled that going to the press with what you know about corrupt or otherwise shady practices isn't protected activity under the Sarbanes-Oxley Act, covering corporate workers and misdeeds.

Two auditors who helped expose violations in Boeing Co.'s financial reporting practices weren't entitled to whistleblower protections because they leaked the information to a newspaper instead of the appropriate authorities, a federal appeals court ruled Tuesday.

A federal accounting law — the Sarbanes-Oxley Act of 2002 — protects whistleblowers in publicly traded companies only when they report the irregularities to financial regulators, Congress or their supervisors, a three-judge panel of the U.S. 9th Circuit Court of Appeals said.

The law encouraging employees to out their companies' fraudulent or negligent practices differs from the Whistleblowers Protection Act that shields government workers from retaliation for any disclosure of wrongdoing, the court said.

The case involved two internal auditors assigned to assess Boeing's compliance with stricter financial reporting regulations and safeguards imposed by the Sarbanes-Oxley Act. The two were fired after the Seattle Post-Intelligencer carried an article on July 17, 2007, headlined "Computer security faults put Boeing at risk." The story said Boeing had been unable for the previous three years "to prove it can properly protect its computer systems against manipulation, theft and fraud."

An investigation by the company's human resources department traced the leaks to emails sent by auditors Matthew Neumann and Nicholas Tides. Boeing fired them.

Neumann and Tides sued, alleging wrongful termination, saying that the federal law shielded them from reprisals. The suit was dismissed by a Seattle federal judge last year, and the 9th Circuit panel upheld that dismissal.

The Sarbanes-Oxley Act was adopted to protect shareholders in publicly traded companies from fraud and securities violations. It included protections for whistleblowers in response to "a culture, supported by law, that discouraged employees from reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but even internally," the 9th Circuit panel said.

But Congress' intent was to protect disclosures "only to individuals and entities with the capacity or authority to act effectively on the information provided," the judges said.

"If, as Neumann and Tides contended, the disclosure of information to the media is protected on the ground that it may ultimately fall into the hands of a member of Congress or a federal regulator, then virtually any disclosure to any person or entity would qualify as protected whistleblower activity," the unanimous court ruling said.

On the other hand, if you work for a government agency and for some reason your reporting of improprieties is not covered by a whistleblower protection statute, the First Amendment will not help you if, instead of going to the press, you take the matter up the chain of command, the U.S. Supreme Court has ruled. In a case where a Los Angeles District Attorney subjected  one of his lawyers to retaliatory career penalties for conscientiously but energetically calling attention to what he believed to be an invalidly obtained search warrant, the court concluded that since the lawyer was just  doing what he thought was his job, he was not speaking out publicly as a citizen and thus had no free speech protection.  Justice Kennedy, writing for the court, observed:

Employees who make public statements outside the course of performing their official duties retain some possibility of First Amendment protection because that is the kind of activity engaged in by citizens who do not work for the government. The same goes for writing a letter to a local newspaper . . . or discussing politics with a co-worker . . . When a public employee speaks pursuant to employment responsibilities, however, there is no relevant analogue to speech by citizens who are not government employees.

Meanwhile the National Whistleblowers Center reports that a bill introduced by freshman Staten Island Congressman Michael "Mikey Suits" Grimm would go far toward gutting Sarbanes-Oxley's whistleblower protections, chiefly by requiring corporate employees to complain about suspected financial wrongdoing to the company insiders committing it before going to the SEC.

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