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4th Circuit Vacates ARB SOX Whistleblower Decision for Lack of Protected Activity

On June 13, 2019, the Fourth Circuit overturned the ARB’s decision in favor of a complainant, ruling that the plaintiff had not engaged in protected activity under the SOX whistleblower protection provision by complaining of a company’s use of a mandatory arbitration policy that allegedly was overly broad.  Northrop Grumman Systems Corp. v. U.S. Dep’t of Labor, No. 17-cv-1811.  In so ruling, the court recognized important limits on the scope of protected activity under this statute.


Plaintiff worked in the company’s Information Systems business sector testing software related to emergency safety systems.  She allegedly sent several emails to company executives reporting what she believed were unlawful practices related to the company’s mandatory arbitration policy which she believed was incorporated into a Conflict of Interest form that employees were required to sign.  Plaintiff’s employment was terminated effective May 17, 2011, due to a reduction-in-force.

Following her termination, Plaintiff filed a complaint with OSHA, which dismissed her claim, and she appealed to the OALJ.  An ALJ found in her favor, holding in relevant part that she engaged in protected activity when she complained to company executives that the company’s Conflict of Interest form incorporated a mandatory arbitration policy she believed violated SOX, which prohibits mandatory arbitration policies.  The company appealed to the ARB, which upheld the ALJ’s findings, and then appealed to the Fourth Circuit.


The Fourth Circuit vacated the ARB’s order and remanded the case to the ALJ with instructions to dismiss Plaintiff’s complaint and enter judgment in favor of Northrup.  The court concluded that Plaintiff did not engage in protected activity under SOX because her complaints about the company’s arbitration policy bore no relation to any of the six enumerated categories of misconduct entitling employees to whistleblower protection under SOX (i.e., mail fraud, wire fraud, bank fraud, securities fraud, any SEC rule or regulation or any federal law relating to fraud against shareholders).  The Court further concluded that even if Plaintiff’s report had related to one of those types of misconduct, she lacked an objectively reasonable belief that the company’s Conflict of Interest form contained an unlawfully broad arbitration policy because (1) the form contained no reference to the arbitration policy, and (2) the arbitration policy explicitly carved out claims “to which an agreement to arbitration . . . is prohibited by law.”


This decision clarifies important limits on the scope of protected activity under Section 806 of SOX, confirming SOX does not extend whistleblower protection to complaints about any form of purportedly improper conduct.  It underscores that complaints which are unrelated to one of the six categories of misconduct specified in SOX will not qualify as protected activity under SOX.

© 2020 Proskauer Rose LLP.


About this Author

Steven J Pearlman, Labor Employment Law Firm, Proskauer Law firm

Steven Pearlman is a partner in the Labor & Employment Law Department and co-head of the firm's Whistleblowing & Retaliation Group, resident in the Chicago office. Steven’s practice focuses on defending complex employment litigation involving claims of discrimination and harassment, wage-and-hour laws and breaches of restrictive covenants (e.g., non-competition agreements). He has successfully tried cases to verdict before judges and juries in Illinois, Florida and California, and defended what is reported to be the largest Illinois-only class action in the history of the U.S....

Holly Ren Morris, Proskauer Law Firm, Chicago, Labor and Employment Law Attorney

Holly “Ren” Morris is an associate in the Labor & Employment Law Department. Their practice focuses on defending companies in all aspects of employment litigation.

Ren earned their J.D. from Northwestern University Pritzker School of Law, where they worked for the Bluhm Legal Clinic Center on Wrongful Convictions, served on the Journal of Criminal Law and Criminology and assisted in death eligible murder cases for the Mississippi Office of Capital Defense.

Pinny Goldberg Labor and Employment Lawyer Proskauer Rose Law Firm

Pinny Goldberg is an associate in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, wage and hour, wrongful discharge, whistleblowing and retaliation, covenants not to compete, breaches of fiduciary duty, unjust enrichment, and tort and contract claims.