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.