Whistleblower Claim Fails, 1st Circuit Finds Fraud Belief Not Reasonable

A former employee seeking Sarbanes-Oxley Act whistleblower protection acted in good faith, concluded a 1st Circuit panel, but under an objective analysis, his belief that the company was engaged in fraud was not reasonable (Day v. Staples, Inc.).

The employee complained that the company improperly handled regularly customer returns. In some instances, as claimed, the company would issue credit without proper documentation, while credits due would be denied in other cases. The company claimed that the employee was terminated for performance reasons not connected to his statements concerning improper conduct.

The Department of Labor administrative law judge dismissed the SOX complaint, as did the federal district court. The district court concluded that the belief that Staples was engaged in accounting fraud was not reasonable.

On appeal, the 1st Circuit stated that "the complaining employee's theory of such fraud must at least approximate the basic elements of a claim of securities fraud." Day's complaint failed to approach this level. Disagreements with management about internal tracking systems and other elements of corporate efficiency were not protected under the whistleblower statute, held the court.