A whistleblowing employee is not protected from retaliation under the Sarbanes-Oxley Act if a reasonable person, in his position and with his same training and experience, would not have believed there was a securities violation to report, the Eighth Circuit ruled this week. The ruling makes the Eighth Circuit the fourth federal appellate court to endorse the so-called Sylvester standard, first adopted by the Department of Labor's Administrative Review Board in 2012.
The ruling came as the Eighth Circuit rejected the claims of Vincent Beacom, a former vice president of sales at Oracle's Retail Global Business Unit. Beacom had complained about a change in revenue projection procedures which he felt mislead Oracle's shareholders. RGBU's revenues made up less than one fifth of one percent of Oracle's revenue at the time.
From Platone to Sylvester
The Sarbanes-Oxley Act makes it illegal for a publicly traded company to fire an employee in retaliation for reporting "any conduct which the employee reasonably believes constitutes" a violation of certain securities laws or fraud against shareholders. To qualify for SOX protection, an employee needn't be right about the reported violation, but she must hold a "reasonable belief" that the employer's action amounts to fraud against the shareholders.
The DOL's Arbitration Review Board first addressed that "reasonable belief" requirement in 2006, in the case of Platone v. FLYI. There, it adopted a rigorous standard requiring an employee's complaint to "definitively and specifically" relate to certain categories of fraud and "approximate the basic elements" of those violations.
Five years later, the ARB rejected that standard in Sylvester v. Parexel Int'l. The Senate, it now found, wanted to adopt "the normal reasonable person standard." Under Sylvester, a whistleblower is protected if a reasonable person with a similar background would have believed a violation was being committed.
In the following years, courts have applied both Platone and Sylvester. None have rejected the Sylvester standard, though only four circuits, now including the Eighth, have affirmatively adopted it.
Sorry Beacom, That's Just Not Reasonable
Applying that standard to Beacom's complaint, the court found that his whistleblowing was just not reasonable. Beacom had been upset by a change in the way RGBU projected revenues, which caused it to miss projected revenues repeatedly, though often by only a single sale. Beacom complained that this new practice was "intentionally forecasting false revenue commitments" which would result in "the wrong, incorrect, non-fact-based expectations were being sent up through the management chains, which would be the foundation of an expectation sent to" Wall Street, contributing to a decline in Oracle's stock value.
A reasonable person in Beacom's position would understand that revenue projections are predictive, and that missing those revenue projections by no more than $10 million "is a minor discrepancy to a company that annually generates billions of dollars." No reasonable person would think that Oracle was defrauding its investors that way, the court ruled.
Sylvester is a much more forgiving standard of reasonableness, but it is not forgiving enough to protect Beacom's complaint.