Chapter 5 - Prohibited Whistleblower Retaliation Under SOX
What acts of retaliation are prohibited by the SOX whistleblower-protection provision?
The SOX whistleblower-protection provision prohibits a broad range of retaliatory acts, including:
any other form of discrimination that might dissuade a reasonable employee from whistleblowing.
The final catch-all category includes non-tangible employment actions, such as “outing” a whistleblower in a manner that forces the whistleblower to suffer alienation and isolation from work colleagues. SOX also proscribes a threat to retaliate.
Is constructive discharge a prohibited act of retaliation under SOX?
Termination goes beyond “You’re fired!” Constructive discharge also constitutes an adverse employment action. This occurs where an employer has created “working conditions so intolerable that a reasonable person in the employee’s position would feel forced to resign,” or where the employer “acts in a manner so as to have communicated to a reasonable employee that [s/he] will be terminated, and the . . . employee resigns.” Under the latter standard, an employee facing “imminent discharge” may establish constructive discharge.1
Does SOX prohibit employers from “outing” confidential whistleblowers?
Yes, disclosing a whistleblower’s identity may constitute an adverse employment action. The U.S. Court of Appeals for the Fifth Circuit reached this conclusion in a SOX case brought by Anthony Menendez, a former director in Halliburton Inc.’s finance and accounting department.2
About four months after Mr. Menendez joined Halliburton, he noticed that the company’s accounting practices that involved revenue recognition did not appear to conform to generally accepted accounting principles (“GAAP”). Mr. Menendez circulated a memo in his department about the issue. In response, his supervisor, who also received the memo, said that Mr. Menendez was not a “team player” and should work more closely with his colleagues to resolve accounting issues. Halliburton nonetheless studied the issue and, a couple of months later, determined that the accounting practices were proper.
After his supervisor refused a second meeting with him about the issue, Mr. Menendez filed a confidential disclosure with the SEC about Halliburton’s accounting practices. Mr. Menendez later raised the same issues in a memo to Halliburton’s board of directors. The memo was forwarded to Halliburton’s general counsel.
When Halliburton received a notice of investigation from the SEC requiring Halliburton to retain documents, Halliburton’s general counsel inferred from Mr. Menendez’s internal disclosures that he was the source of the SEC inquiry. The general counsel then sent an email to Mr. Menendez’s colleagues instructing them to retain certain documents because “the SEC has opened an inquiry into the allegations of Mr. Menendez,” effectively “outing” Mr. Menendez as a whistleblower.
Thereafter, Mr. Menendez’s colleagues began to treat him differently, refusing to work or associate with him. He resigned within a year. Applying the Burlington Northern material-adversity standard, the Fifth Circuit concluded that “outing” Mr. Menendez was an actionable adverse action:
It is inevitable that such a disclosure would result in ostracism, and, unsurprisingly, that is exactly what happened to Menendez following the disclosure. Furthermore, when it is the boss that identifies one of his employees as the whistleblower who has brought an official investigation upon the department, as happened here,3 the boss could be read as sending a warning, granting his implied imprimatur on differential treatment of the employee, or otherwise expressing a sort of discontent from on high. . . . In an environment where insufficient collaboration constitutes deficient performance, the employer’s disclosure of the whistleblower’s identity and thus targeted creation of an environment in which the whistleblower is ostracized is not merely a matter of social concern, but is, in effect, a potential deprivation of opportunities for future advancement.4
When Halliburton outed Mr. Menendez to his colleagues as the whistleblower responsible for the SEC investigation, the company inevitably “creat[ed] an environment of ostracism,” which “well might dissuade a reasonable employee from whistleblowing.” This ruling underscores the broad scope of actionable retaliation under SOX.
Does SOX prohibit post-termination retaliation?
The ARB and some district judges have held that SOX prohibits post-employment retaliation. For example, in Kshetrapal v. Dish Network, LLC,5 Mr. Kshetrapal, an associate director for Dish Network (“Dish”), disclosed that a marketing agency with which Dish had contracted was submitting fraudulent bills. When Mr. Kshetrapal disclosed the fraud, his supervisors initially ignored him. Mr. Kshetrapal continued to press the issue, and Dish conducted an investigation, which resulted in Dish firing Mr. Kshetrapal’s supervisor and terminating its contract with the marketing agency. One month after taking these corrective actions, Dish forced Mr. Kshetrapal to resign.
The marketing agency sued Dish for breach of contract, and Mr. Kshetrapal was deposed in that litigation. During his deposition, Mr. Kshetrapal testified about the marketing agency’s fraud and his belief that his supervisor received bribes from the marketing agency. Shortly after the deposition, Mr. Kshetrapal began working for a music streaming service on which Dish ran ads. Upon learning that Mr. Kshetrapal worked for the music streaming service, Dish pulled its ads. Soon thereafter, a prospective employer of Mr. Kshetrapal rescinded a job offer because Dish ordered it not to hire Mr. Kshetrapal.
Mr. Kshetrapal sued Dish for retaliation, and in denying Dish’s motion to dismiss, Judge Crotty held that Mr. Kshetrapal’s deposition testimony about the alleged fraud was protected under SOX even though the deposition took place when he no longer worked for Dish. According to Judge Crotty, “a contrary holding would discourage employees from exposing fraudulent activities of their former employers for fear of retaliation in the form of blacklisting or interference with subsequent employment. Such a result would contravene the purpose of SOX.” Some courts, however, have held that SOX does not proscribe post-termination retaliation.
Is retaliation that occurred outside of the statute-of-limitations period relevant evidence of retaliation?
Yes. Discrete conduct occurring outside the statute of limitations may be circumstantial evidence of retaliation. An example is when a supervisor ultimately follows through on a threat to fire a whistleblower if the whistleblower raises additional compliance concerns. Even if the threat itself was made outside of the statute-of-limitations period, it is still relevant to prove retaliation.
To learn more about SOX whistleblower law, download the new eBook Sarbanes-Oxley Whistleblower Law: Robust Protection for Corporate Whistleblowers.
Dietz v. Cypress Semiconductor Corp., ARB Case No. 15-017, 2016 WL 1389927, at *7(ARB Mar. 30, 2016).
See Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254 (5th Cir. 2014).
Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53 (2006)
Halliburton, Inc. v. Admin. Review Bd., 771 F.3d at 262.
90 F. Supp. 3d 108, 112–14 (S.D.N.Y. 2015).