The ARB recently concluded that a former program manager was entitled to recover more than $250,000 in back pay and benefits under Section 806 of SOX based on his discipline and constructive discharge. The ARB clarified that a complainant may have engaged in protected activity by complaining of a failure to comply with state wage payment laws where his or her complaint in that regard is based on a reasonable belief that the employer is committing fraud by making a knowing misrepresentation or misstatement of material facts. Dietz v. Cypress Semiconductor Corp., ARB No. 15-017, 3/30/16 (released 4/6/16).

Complainant complained that his employer violated federal mail and wire fraud laws by implementing a mandatory bonus plan resulting in wage deductions, in violation of certain state laws. Complainant alleged that shortly after he lodged that complaint, the company disciplined him, removed some of his resources, accused him of errors, and demanded that he write memos about his alleged errors. Two months later, Complainant wrote a letter to the company stating that he intended to resign. Instead of beginning the company’s turnaround process (which the company designed to retain employees who expressed a desire to resign), Complainant was scheduled to attend a meeting two days later. Complainant allegedly believed he would be fired at the meeting, so he declined to attend the meeting and resigned effective immediately. Complainant proceeded to file a whistleblower retaliation claim under SOX.

The ALJ found that the Company retaliated against Complainant, and the Company appealed to the ARB. The ARB found that the ALJ had correctly concluded that the Company retaliated against Complainant for his protected whistleblowing activities in violation of SOX. It clarified that a complaint that a company has violated state law, standing alone, is not sufficient to trigger SOX, but in this case, Complainant also had a reasonable belief that the wage law violations reflected misrepresentations, which constituted protected activity. Specifically, Complainant asserted that the company did not inform employees that they were subject to certain deductions, purportedly resulting in material misrepresentations regarding salaries that had been offered to employees. The ARB ultimately affirmed the ALJ’s holding and award of more than $250,000 in back pay and benefits to Complainant.

This decision is concerning to employers, as it arguably broadens the protected activity covered by SOX to include state law violations which the complainant reasonably believes also constitute actionable fraud.