More Key Employment Law Developments

The employee in this instance, Dr. Linda Eagle, was a co-founder of Edcomm, Inc. In order to promote both herself and the company, Eagle created an account on the business-oriented social networking site LinkedIn. Eagle maintained the account with the assistance of other Edcomm employees, who had access to her password. Further, Edcomm urged employees to create their own LinkedIn accounts. However, Edcomm did not require employees to have LinkedIn accounts, nor did Edcomm pay for such accounts.

Additionally, while the company had become concerned about what happened to the LinkedIn accounts of former employees, it had not “adopted any policy to inform the employees that their LinkedIn accounts were the property of the employer.” After Edcomm was sold and Eagle was terminated, Edcomm accessed Eagle's LinkedIn account and changed the password so she was locked out of the account. Edcomm then replaced most of Eagle's profile with new-CEO Sandi Morgan's name, photograph, education, and experience, though it did not replace Eagle's “honors and awards.” As the court noted, “either a Google search for 'Linda Eagle' or a search for 'Linda Eagle' on LinkedIn during the time Edcomm had control of the account would direct the searcher to Eagle's LinkedIn account” ' now containing Sandi Morgan's credentials.

Initially, Eagle sued Edcomm for illegally taking control of and accessing her LinkedIn account in violation of the Computer Fraud and Abuse Act (CFAA), the Lanham Act, and several Pennsylvania laws. At the motion-to-dismiss stage, the court dismissed the CFAA and Lanham Act claims. Edcomm had also countersued Eagle, claiming that her connections were trade secrets that she had misappropriated. The court dismissed that claim at the summary judgment stage. When the case went to trial, eight state law claims remained. Of those, the court determined that Eagle had not proven that Edcomm had committed the torts of: 1) identity theft; 2) conversion; 3) tortious interference with contract; 4) civil conspiracy; and 5) civil aiding and abetting.

However, the court found that Edcomm had committed three violations of Pennsylvania law: 1) unauthorized use of name in violation of 42 Pa.C.S. ' 8316; 2) invasion of privacy by misappropriation of identity; and 3) misappropriation of publicity. In reaching these conclusions, the court found that Edcomm had taken and used Eagle's name without her permission, that her name had commercial value and that Edcomm had used her name to its commercial advantage.

Despite these findings, the court found that Eagle, representing herself, had failed to show “the fact of damages” with reasonable certainty. The court stated that “[a]side from her own self-serving testimony that she regularly maintained business through LinkedIn, Plaintiff failed to point to one contract, one client, one prospect, or one deal that could have been, but was not obtained during the period she did not have full access to her LinkedIn account.” Accordingly, Eagle was not entitled to any monetary damages in connection with her claims.

Given the rapidly expanding use of social media, and the perceived value of social media accounts, both employers and employees appear to have significant interests in maintaining “ownership” of such accounts. Because many states have privacy and identity torts similar to those Pennsylvania laws that were violated in Eagle, employers must take care with how they handle employees' social media accounts. Similarly, employees must recognize that accounts they utilize for business purposes, even if created by the employees themselves, may not be their personal property in all circumstances.

Court Rejects EEOC's Use Of 'Race Raters'

The Equal Employment Opportunity Commission (EEOC) has been aggressively challenging the use of credit reports in background checks for job applicants. Among these efforts was the EEOC's highly publicized action against Kaplan Higher Learning Education Corp., in which it alleged violation of the disparate impact provisions of Title VII. The EEOC's initiative suffered a major setback, however, when the United States District Court for the Northern District of Ohio granted Kaplan's motion to exclude the EEOC's expert's analysis and Kaplan's motion for summary judgment. EEOC v. Kaplan Higher Learning Edu. Corp., 10-cv-2882, 2013 WL 322116 (N.D. Ohio Jan. 28, 2013).

The EEOC alleged that Kaplan's use of credit checks as part of background checks for job applicants has a disparate impact on African-American applicants, in violation of Title VII. Kaplan began including credit checks in its hiring process for certain positions, particularly those related to financial aid, after discovering breaches of its systems when business officers misappropriated student payments in 2004. The use of credit reports in hiring, however, is not unusual. In fact, discovery requested by Kaplan revealed that the EEOC does credit checks on job applicants for 84 out of the 97 positions available at the EEOC.

The EEOC justifies the use of credit checks in its own hiring by explaining that “overdue just debts increase temptation to commit illegal or unethical acts as a means of gaining funds to meet financial obligations.”

The EEOC's disparate impact argument against Kaplan hinged on statistical analysis provided by Dr. Kevin Murphy, who analyzed the hiring rate of a sample of potential applicants. In order to determine the race of the applicant pool, the EEOC subpoenaed DMV records of the applicants from 38 states and the District of Columbia. Although 14 states provided the EEOC specific data regarding the drivers' race, 28 states did not, providing only copies of the requested licenses. Accordingly, Dr. Murphy assembled a team of five individuals he coined “race raters” to identify the race of the applicants. The race raters' job was to visually classify each applicant as African-American, Asian, Hispanic, White or Other, based upon a review of a photograph of the individual selected by Dr. Murphy. The race raters' qualifications included advanced degrees in academic areas including cultural anthropology, education, human development, psychology and economics, and some multi-racial experience.

Both Kaplan and the district court questioned the reliability of the “race raters”; Kaplan noting that the race raters had no prior experience in visual race classification and that the presence of names on the identification cards may have biased the racial identifications. The court noted that the EEOC's own guidelines discourage employers from visually identifying an individual's race and queried why the EEOC chose not to simply contact the individuals to directly ascertain their race.

Because the EEOC offered no evidence that the use of race raters has or could be tested, has an established error rate, or has been subject to peer review, the court excluded Dr. Murphy's analysis under the standard set forth by the Supreme Court in Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S. 579 (1993), pursuant to which courts are required to act as “gate-keepers” in determining whether expert evidence is sufficiently reliable to be heard by a jury. The district court also barred as untimely Dr. Murphy's supplemental reports finding a disparate impact in hiring practices even excluding all the applicants who were subject to the race raters. Because the EEOC failed to produce any other evidence of disparate impact, the district court granted summary judgment on the Title VII claim for Kaplan.

Arbitration Agreements and 'Pattern or Practice' Claims

In a recent decision, the United States Court of Appeals for the Second Circuit held that a mandatory arbitration agreement containing a class action waiver applied to preclude a “pattern or practice” claim under Title VII. According to the court in Parisi v. Goldman, Sachs & Co., No. 11-5229 (2d Cir. March 21, 2013), an employee may waive the right to assert a pattern or practice claim in arbitration because employees do not possess a “statutory right to pursue a pattern-or-practice claim.”

In the case, Lisa Parisi and two other female former employees of Goldman Sachs, alleged that the firm engaged in “a continuing pattern and practice of discrimination based on sex against female Managing Directors, Vice Presidents and Associates with respect to compensation, business allocations, promotions and other terms and conditions” of employment, in violation of Title VII of the Civil Rights Act of 1964 and New York City law. Goldman Sachs responded that the case should be remanded to arbitration in accordance with Parisi's Managing Director Agreement.

Further, Goldman Sachs asserted, Parisi should be compelled to arbitrate her claims individually, rather than on a class-wide basis, because the Managing Director Agreement was silent as to the permissibility of class arbitration and, under the Supreme Court's holding in Stolt-Nielsen S.A. v. Animal Feeds International Corp., 130 S.Ct. 1758 (2010), a party cannot be compelled to participate in a class-wide arbitration absent an express agreement to do so. Parisi responded that the arbitration agreement should not be enforced because, in signing it, she “did not understand it to require a ban on class claims, nor did she waive her substantive right to challenge systemic discrimination at Goldman Sachs.”

The district court held that, while the arbitration clause was generally valid, it could not be interpreted to compel individual arbitration of Parisi's pattern or practice claim because to do so “would make it impossible for Parisi to arbitrate a Title VII pattern-or-practice claim, and ' consequently, the clause effectively operated as a waiver of a substantive right under Title VII.” Accordingly, the district court denied Goldman Sachs's motion to compel arbitration. The Court of Appeals reversed and ordered that Parisi be compelled to arbitrate her claims.

According to the Second Circuit, although it is true that non-government plaintiffs can only bring pattern or practice claims in class actions, “there is no substantive statutory right to pursue a pattern-or-practice claim.” Thus, enforcing Goldman Sachs's agreement did not run afoul of the Supreme Court's conclusion that employees cannot be required in an employment agreement to forfeit substantive statutory rights. Instead, “in Title VII jurisprudence, 'pattern-or-practice' simply refers to a method of proof [of intentional discrimination] and does not constitute a 'freestanding cause of action.'” Further, “since private plaintiffs do not have a right to bring a pattern-or-practice claim of discrimination, there can be no entitlement to the ancillary class action procedural mechanism.” Finally, the court noted that since the arbitral forums in which Parisi would be required to arbitrate “afford flexibility and
informality to parties adducing relevant evidence,” Parisi would likely not be precluded from offering evidence of systemic discrimination in support of her individual claim.

Anti-Retaliation Provision of SOX

In a split decision, the Third Circuit clarified that, in order to plead and establish a cause of action under the employee anti-retaliation provision of the Sarbanes-Oxley Act (SOX), an employee need only allege (and ultimately prove) that he or she had a subjective, good-faith belief that his or her employer violated a statute enumerated in SOX and that the belief was objectively reasonable. Wiest v. Lynch, No. 11-4257, 2013 WL 1111784 (3d Cir. Mar. 19, 2013).

The case involved Jeffrey Wiest, a long-time accountant at Tyco Electronics Corporation. Tyco's accounting department had been under “a high level of audit scrutiny” for years following the well-publicized scandal involving Tyco's parent corporation and its former CEO. Wiest repeatedly questioned expenses incurred by Tyco, alleging that they failed to satisfy accounting standards or securities and tax laws. Wiest claimed that he was fired in retaliation for his reports of improper expenditures.

After complying with the statutory requirement that an employee may not sue in court unless he or she has first filed a claim with the Department of Labor (DOL) and waited 180 days, Wiest filed suit under Section 806 of SOX, which prohibits publicly traded companies from retaliating against an employee who provides information that the employee “reasonably believes” constitutes a violation of certain enumerated laws. Tyco moved to dismiss the complaint, arguing that the complaint failed to show that Wiest had engaged in activity protected under SOX.

Following precedent from other courts and the DOL's Administrative Review Board (ARB), the body authorized to issue final agency decisions under SOX, the trial court agreed. The trial court concluded that Wiest was required to allege that his complaints to his employer: 1) “definitively and specifically” related to a law listed in Section 806 of SOX; 2) expressed an objectively reasonable belief that the company misrepresented or omitted material facts to investors, which risked loss; and 3) reflected a reasonable belief of an existing violation. The trial court found that Wiest failed to satisfy this standard, and dismissed his SOX complaint.

Shortly before the trial court issued its decision, the ARB overruled its earlier precedent upon which the trial court largely relied, in effect making it easier for employees to establish that they had engaged in protected activity under SOX. On appeal, the Third Circuit concluded that the ARB's decisions were entitled to strong deference and reversed the trial court in part. The fact that the agency altered its previous interpretation of SOX was not a bar to deference, the Third Circuit held, because its reversal was adequately explained.

Under the latest pronouncements of the ARB, as adopted by the Third Circuit, the employee's complaints no longer must “definitively and specifically” relate to one of the enumerated laws in SOX. Rather, the employee must only establish that he or she held a subjective, good-faith belief that his or her employer violated a law listed in SOX and that this belief was objectively reasonable. A belief is objectively reasonable if a reasonable person with the same training and experience as the employee would believe that the conduct implicated in the employee's communication to the employer could rise to a violation of a law listed in SOX.

Moreover, the requirement that the communications express an objectively reasonable belief that the company misrepresented material facts to investors improperly required the employee to establish the specific elements of a securities law violation, a requirement absent from the statute. Furthermore, contrary to the trial court's decision, no existing violation must be alleged. SOX protects an employee's communication about a violation that has not yet occurred, as long as the employee reasonably believes that the violation is likely to occur. Finally, the Third Circuit clarified that the employee's communications to the employer do not need to reveal all of the facts establishing that the employee
had an objectively reasonable belief.

The changes announced by the ARB, and adopted by the Third Circuit in Wiest, relax the standards necessary for an employee to establish that he or she engaged in protected activity under SOX. Whereas employers frequently prevailed at the agency and court levels in arguing that the employee had not engaged in protected activity, employees in the Third Circuit will have an easier time surviving such a challenge following Wiest.

J. Ian Downes is Counsel, and Jennifer L. Burdick, Kate Ericsson and Jeffrey W. Rubin are Associates, at Dechert LLP, Philadelphia.

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Last month, we noted that developments in the labor and employment area are proliferating at a rapid pace. We discussed issues arising under the Fair Labor Standards Act (FLSA) and the Pregnancy Discrimination Act (PDA), among many other topics. The discussion continues herein with a look at decisions concerning the “ownership” of employee social media accounts, the use of expert witnesses in novel ways under Title VII, the ability of employers to use arbitration agreements to limit exposure to class actions, and the standards governing retaliation claims under the Sarbanes-Oxley Act.

'Taking Control' of Social Media Account

In Eagle v. Edcomm, Inc., the United States District Court for the Eastern District of Pennsylvania found that an employer had committed several torts by “taking control” of a former employee's LinkedIn account after her termination. After a trial, the court decided that while the employee had proven three out of her eight claims against the employer, she was not entitled to monetary damages because she had not proven her damages with reasonable certainty.

The employee in this instance, Dr. Linda Eagle, was a co-founder of Edcomm, Inc. In order to promote both herself and the company, Eagle created an account on the business-oriented social networking site LinkedIn. Eagle maintained the account with the assistance of other Edcomm employees, who had access to her password. Further, Edcomm urged employees to create their own LinkedIn accounts. However, Edcomm did not require employees to have LinkedIn accounts, nor did Edcomm pay for such accounts.

Additionally, while the company had become concerned about what happened to the LinkedIn accounts of former employees, it had not “adopted any policy to inform the employees that their LinkedIn accounts were the property of the employer.” After Edcomm was sold and Eagle was terminated, Edcomm accessed Eagle's LinkedIn account and changed the password so she was locked out of the account. Edcomm then replaced most of Eagle's profile with new-CEO Sandi Morgan's name, photograph, education, and experience, though it did not replace Eagle's “honors and awards.” As the court noted, “either a Google search for 'Linda Eagle' or a search for 'Linda Eagle' on LinkedIn during the time Edcomm had control of the account would direct the searcher to Eagle's LinkedIn account” ' now containing Sandi Morgan's credentials.

Initially, Eagle sued Edcomm for illegally taking control of and accessing her LinkedIn account in violation of the Computer Fraud and Abuse Act (CFAA), the Lanham Act, and several Pennsylvania laws. At the motion-to-dismiss stage, the court dismissed the CFAA and Lanham Act claims. Edcomm had also countersued Eagle, claiming that her connections were trade secrets that she had misappropriated. The court dismissed that claim at the summary judgment stage. When the case went to trial, eight state law claims remained. Of those, the court determined that Eagle had not proven that Edcomm had committed the torts of: 1) identity theft; 2) conversion; 3) tortious interference with contract; 4) civil conspiracy; and 5) civil aiding and abetting.

However, the court found that Edcomm had committed three violations of Pennsylvania law: 1) unauthorized use of name in violation of 42 Pa.C.S. ' 8316; 2) invasion of privacy by misappropriation of identity; and 3) misappropriation of publicity. In reaching these conclusions, the court found that Edcomm had taken and used Eagle's name without her permission, that her name had commercial value and that Edcomm had used her name to its commercial advantage.

Despite these findings, the court found that Eagle, representing herself, had failed to show “the fact of damages” with reasonable certainty. The court stated that “[a]side from her own self-serving testimony that she regularly maintained business through LinkedIn, Plaintiff failed to point to one contract, one client, one prospect, or one deal that could have been, but was not obtained during the period she did not have full access to her LinkedIn account.” Accordingly, Eagle was not entitled to any monetary damages in connection with her claims.

Given the rapidly expanding use of social media, and the perceived value of social media accounts, both employers and employees appear to have significant interests in maintaining “ownership” of such accounts. Because many states have privacy and identity torts similar to those Pennsylvania laws that were violated in Eagle, employers must take care with how they handle employees' social media accounts. Similarly, employees must recognize that accounts they utilize for business purposes, even if created by the employees themselves, may not be their personal property in all circumstances.

Court Rejects EEOC's Use Of 'Race Raters'

The Equal Employment Opportunity Commission (EEOC) has been aggressively challenging the use of credit reports in background checks for job applicants. Among these efforts was the EEOC's highly publicized action against Kaplan Higher Learning Education Corp., in which it alleged violation of the disparate impact provisions of Title VII. The EEOC's initiative suffered a major setback, however, when the United States District Court for the Northern District of Ohio granted Kaplan's motion to exclude the EEOC's expert's analysis and Kaplan's motion for summary judgment. EEOC v. Kaplan Higher Learning Edu. Corp., 10-cv-2882, 2013 WL 322116 (N.D. Ohio Jan. 28, 2013).

The EEOC alleged that Kaplan's use of credit checks as part of background checks for job applicants has a disparate impact on African-American applicants, in violation of Title VII. Kaplan began including credit checks in its hiring process for certain positions, particularly those related to financial aid, after discovering breaches of its systems when business officers misappropriated student payments in 2004. The use of credit reports in hiring, however, is not unusual. In fact, discovery requested by Kaplan revealed that the EEOC does credit checks on job applicants for 84 out of the 97 positions available at the EEOC.

The EEOC justifies the use of credit checks in its own hiring by explaining that “overdue just debts increase temptation to commit illegal or unethical acts as a means of gaining funds to meet financial obligations.”

The EEOC's disparate impact argument against Kaplan hinged on statistical analysis provided by Dr. Kevin Murphy, who analyzed the hiring rate of a sample of potential applicants. In order to determine the race of the applicant pool, the EEOC subpoenaed DMV records of the applicants from 38 states and the District of Columbia. Although 14 states provided the EEOC specific data regarding the drivers' race, 28 states did not, providing only copies of the requested licenses. Accordingly, Dr. Murphy assembled a team of five individuals he coined “race raters” to identify the race of the applicants. The race raters' job was to visually classify each applicant as African-American, Asian, Hispanic, White or Other, based upon a review of a photograph of the individual selected by Dr. Murphy. The race raters' qualifications included advanced degrees in academic areas including cultural anthropology, education, human development, psychology and economics, and some multi-racial experience.

Both Kaplan and the district court questioned the reliability of the “race raters”; Kaplan noting that the race raters had no prior experience in visual race classification and that the presence of names on the identification cards may have biased the racial identifications. The court noted that the EEOC's own guidelines discourage employers from visually identifying an individual's race and queried why the EEOC chose not to simply contact the individuals to directly ascertain their race.

Because the EEOC offered no evidence that the use of race raters has or could be tested, has an established error rate, or has been subject to peer review, the court excluded Dr. Murphy's analysis under the standard set forth by the Supreme Court in Daubert v. Merrell Dow Pharmaceuticals Inc. , 509 U.S. 579 (1993), pursuant to which courts are required to act as “gate-keepers” in determining whether expert evidence is sufficiently reliable to be heard by a jury. The district court also barred as untimely Dr. Murphy's supplemental reports finding a disparate impact in hiring practices even excluding all the applicants who were subject to the race raters. Because the EEOC failed to produce any other evidence of disparate impact, the district court granted summary judgment on the Title VII claim for Kaplan.

Arbitration Agreements and 'Pattern or Practice' Claims

In a recent decision, the United States Court of Appeals for the Second Circuit held that a mandatory arbitration agreement containing a class action waiver applied to preclude a “pattern or practice” claim under Title VII. According to the court in Parisi v. Goldman , Sachs & Co. , No. 11-5229 (2d Cir. March 21, 2013), an employee may waive the right to assert a pattern or practice claim in arbitration because employees do not possess a “statutory right to pursue a pattern-or-practice claim.”

In the case, Lisa Parisi and two other female former employees of Goldman Sachs, alleged that the firm engaged in “a continuing pattern and practice of discrimination based on sex against female Managing Directors, Vice Presidents and Associates with respect to compensation, business allocations, promotions and other terms and conditions” of employment, in violation of Title VII of the Civil Rights Act of 1964 and New York City law. Goldman Sachs responded that the case should be remanded to arbitration in accordance with Parisi's Managing Director Agreement.

Further, Goldman Sachs asserted, Parisi should be compelled to arbitrate her claims individually, rather than on a class-wide basis, because the Managing Director Agreement was silent as to the permissibility of class arbitration and, under the Supreme Court's holding in Stolt-Nielsen S.A. v. Animal Feeds International Corp. , 130 S.Ct. 1758 (2010), a party cannot be compelled to participate in a class-wide arbitration absent an express agreement to do so. Parisi responded that the arbitration agreement should not be enforced because, in signing it, she “did not understand it to require a ban on class claims, nor did she waive her substantive right to challenge systemic discrimination at Goldman Sachs.”

The district court held that, while the arbitration clause was generally valid, it could not be interpreted to compel individual arbitration of Parisi's pattern or practice claim because to do so “would make it impossible for Parisi to arbitrate a Title VII pattern-or-practice claim, and ' consequently, the clause effectively operated as a waiver of a substantive right under Title VII.” Accordingly, the district court denied Goldman Sachs's motion to compel arbitration. The Court of Appeals reversed and ordered that Parisi be compelled to arbitrate her claims.

According to the Second Circuit, although it is true that non-government plaintiffs can only bring pattern or practice claims in class actions, “there is no substantive statutory right to pursue a pattern-or-practice claim.” Thus, enforcing Goldman Sachs's agreement did not run afoul of the Supreme Court's conclusion that employees cannot be required in an employment agreement to forfeit substantive statutory rights. Instead, “in Title VII jurisprudence, 'pattern-or-practice' simply refers to a method of proof [of intentional discrimination] and does not constitute a 'freestanding cause of action.'” Further, “since private plaintiffs do not have a right to bring a pattern-or-practice claim of discrimination, there can be no entitlement to the ancillary class action procedural mechanism.” Finally, the court noted that since the arbitral forums in which Parisi would be required to arbitrate “afford flexibility and
informality to parties adducing relevant evidence,” Parisi would likely not be precluded from offering evidence of systemic discrimination in support of her individual claim.

Anti-Retaliation Provision of SOX

In a split decision, the Third Circuit clarified that, in order to plead and establish a cause of action under the employee anti-retaliation provision of the Sarbanes-Oxley Act (SOX), an employee need only allege (and ultimately prove) that he or she had a subjective, good-faith belief that his or her employer violated a statute enumerated in SOX and that the belief was objectively reasonable. Wiest v. Lynch, No. 11-4257, 2013 WL 1111784 (3d Cir. Mar. 19, 2013).

The case involved Jeffrey Wiest, a long-time accountant at Tyco Electronics Corporation. Tyco's accounting department had been under “a high level of audit scrutiny” for years following the well-publicized scandal involving Tyco's parent corporation and its former CEO. Wiest repeatedly questioned expenses incurred by Tyco, alleging that they failed to satisfy accounting standards or securities and tax laws. Wiest claimed that he was fired in retaliation for his reports of improper expenditures.

After complying with the statutory requirement that an employee may not sue in court unless he or she has first filed a claim with the Department of Labor (DOL) and waited 180 days, Wiest filed suit under Section 806 of SOX, which prohibits publicly traded companies from retaliating against an employee who provides information that the employee “reasonably believes” constitutes a violation of certain enumerated laws. Tyco moved to dismiss the complaint, arguing that the complaint failed to show that Wiest had engaged in activity protected under SOX.

Following precedent from other courts and the DOL's Administrative Review Board (ARB), the body authorized to issue final agency decisions under SOX, the trial court agreed. The trial court concluded that Wiest was required to allege that his complaints to his employer: 1) “definitively and specifically” related to a law listed in Section 806 of SOX; 2) expressed an objectively reasonable belief that the company misrepresented or omitted material facts to investors, which risked loss; and 3) reflected a reasonable belief of an existing violation. The trial court found that Wiest failed to satisfy this standard, and dismissed his SOX complaint.

Shortly before the trial court issued its decision, the ARB overruled its earlier precedent upon which the trial court largely relied, in effect making it easier for employees to establish that they had engaged in protected activity under SOX. On appeal, the Third Circuit concluded that the ARB's decisions were entitled to strong deference and reversed the trial court in part. The fact that the agency altered its previous interpretation of SOX was not a bar to deference, the Third Circuit held, because its reversal was adequately explained.

Under the latest pronouncements of the ARB, as adopted by the Third Circuit, the employee's complaints no longer must “definitively and specifically” relate to one of the enumerated laws in SOX. Rather, the employee must only establish that he or she held a subjective, good-faith belief that his or her employer violated a law listed in SOX and that this belief was objectively reasonable. A belief is objectively reasonable if a reasonable person with the same training and experience as the employee would believe that the conduct implicated in the employee's communication to the employer could rise to a violation of a law listed in SOX.

Moreover, the requirement that the communications express an objectively reasonable belief that the company misrepresented material facts to investors improperly required the employee to establish the specific elements of a securities law violation, a requirement absent from the statute. Furthermore, contrary to the trial court's decision, no existing violation must be alleged. SOX protects an employee's communication about a violation that has not yet occurred, as long as the employee reasonably believes that the violation is likely to occur. Finally, the Third Circuit clarified that the employee's communications to the employer do not need to reveal all of the facts establishing that the employee
had an objectively reasonable belief.

The changes announced by the ARB, and adopted by the Third Circuit in Wiest, relax the standards necessary for an employee to establish that he or she engaged in protected activity under SOX. Whereas employers frequently prevailed at the agency and court levels in arguing that the employee had not engaged in protected activity, employees in the Third Circuit will have an easier time surviving such a challenge following Wiest.

J. Ian Downes is Counsel, and Jennifer L. Burdick, Kate Ericsson and Jeffrey W. Rubin are Associates, at Dechert LLP, Philadelphia.

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