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Court Won’t Review Wiest; “Reasonable Belief” Is Law in Third Circuit

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The U.S. Court of Appeals for the Third Circuit won’t grant an en banc review of an earlier panel decision that made it easier for whistleblowers to claim protection under the Sarbanes-Oxley Act (SOX).

As a result, SOX whistleblowers in that jurisdiction — which includes Pennsylvania and Delaware — now are shielded from retaliation as long as they acted under a “reasonable belief” that their company was acting fraudulently.

The Sarbanes-Oxley Act of 2002 sets strict accountability standards for financial behavior by public companies and, under Section 806, protects workers against retaliation for blowing the whistle on a number of specific violations.

Until now, employers have used a narrow interpretation of Section 806 to kill whistleblower lawsuits in their infancy. Many federal courts require workers to show a detailed understanding of fraud regulations — and to have warned their supervisors in very specific terms — in order to get a hearing on the merits.

In Wiest v. Lynch, filed by Jeffrey Wiest against his former employers at Tyco Electronics,  a three-judge panel in the Third Circuit rejected this “formalistic approach” to endorse a looser standard set by the U.S. Department of Labor in a landmark ruling.

Tyco asked the court to convene all 14 of its judges for an en banc review of the decision, but such a move would have been very unusual.

Wiest is binding only in the Third Circuit, but it frames the debate for other federal circuits — including the Tenth Circuit, where another important appeal is pending, and potentially for the Supreme Court.

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