November 20, 2014

Fifth Circuit Rules Disclosing Identity of Whistleblower Illegal Whistleblower Retaliation Under SOX

By the C|C Whistleblower Lawyer Team

And yet another important decision on the scope of the whistleblower retaliation provisions of the Sarbanes-Oxley Act (SOX).  This one by the Fifth Circuit Court of Appeals in Halliburton, Inc. v. Administrative Review Board.  Before the Court was the question of whether Halliburton’s outing of an employee who complained to the SEC violated the whistleblower protections afforded under the statute.  The Administrative Review Board of the Department of Labor found that it did.  The Fifth Circuit agreed.

Former Halliburton employee Anthony Menendez is the SEC whistleblower in this case.  He had lodged a complaint with the SEC about what he thought were the company’s “questionable” accounting practices.  He also complained internally to Halliburton management.  When the company received the SEC’s notice of investigation on the subject, it became clear Menendez was the whistleblower.  The company proceeded to disclose this revelation to Menendez’s colleagues who in turn immediately ostracized him.  Menendez described the day of the disclosure “as one of the worst in his life.”  He ultimately resigned and sued the company under the whistleblower retaliation provisions of SOX.

Halliburton made two basic arguments why SOX did not apply.  First, it claimed merely disclosing Menendez as a whistleblower is not an “adverse action” covered under the statute.  The Fifth Circuit disagreed.  It looked to the operative test of whether the company’s conduct “might dissuade an objectively reasonable employee in Menendez’s shoes from engaging in [whistleblowing].”  The Court found it definitely would:

[I]n a workplace environment . . . where collaboration is an important part of the job, the employer’s targeted disclosure to the whistleblower’s colleagues that the whistleblower had reported them to the authorities for alleged wrongdoing . . . thus creating an environment of ostracism, well might dissuade a reasonable employee from whistleblowing.

The Court went even further, describing as “obvious” the undesirable consequences to a whistleblower of such a disclosure.

Second, Halliburton claimed Menendez failed to prove the company acted with retaliatory motive.  The Fifth Circuit rejected this argument too, finding no requirement under SOX that a company’s adverse action against a whistleblower be wrongfully motivated.  A whistleblower need only show the whistleblowing activity was a “contributing factor” to the company’s action.  The Court made clear motive plays no role in this assessment: “personnel actions against employees should quite simply not be based on protected activities such as whistleblowing.”  Here, Halliburton’s action against Menendez clearly was.

Finally, Halliburton argued whatever the case, Menendez cannot recover his claimed damages for emotional distress and reputational harm; that such “noneconomic compensatory damages” are not available under SOX.  Again, the Court disagreed, pointing to the broad language of the statute providing for “all relief necessary to make the employee whole.”  The Court also looked to comparable language in the False Claims Act which several circuit courts have found allows for this kind of noneconomic relief.  And the Court looked to the text of SOX’s anti-retaliation provisions which specifically identify “threats and harassment” among the employer conduct the statute prescribes.  The Court reasoned what an “odd result” it would be to refuse a remedy “for the most usual and predictable result” of this conduct — emotional distress.

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