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Volume XI, Number 337

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Texas District Court Dismisses SOX Whistleblower Claim for Lack of Employer-Employee Relationship

On June 12, 2020, the U.S. District Court for the Southern District of Texas granted a motion to dismiss in favor of the defendant in a SOX whistleblower retaliation case, finding that the alleged whistleblower – a contractor and advisory board member of the defendant – was not an employee of the defendant, as required by SOX.  Moody v. American National Insurance Co., No. 3:19-cv-00206 (S.D. Tex. June 12, 2020).

Background

Plaintiff brought suit against the American National Insurance Company (“ANICO”) after he was allegedly retaliated against for complaining about the company’s purported SEC violations and bringing a related shareholder-derivative suit.  Specifically, Plaintiff claimed that he experienced retaliation when ANICO: (1) removed him from his position as an advisory board member, (2) canceled contracts with his insurance company, and (3) announced the termination of an office-space lease in one of his company’s buildings.

ANICO filed a motion to dismiss, arguing that Plaintiff is not an employee, and therefore, not within the class of persons that SOX protects.  In response, Plaintiff argued that as “an Advisory Director of ANICO … [and] an insurance agent selling insurance for and on behalf of ANICO as a contractor,” he is a covered employee under SOX.  Plaintiff relied on the U.S. Supreme Court’s decision in Lawson v. FMR (2014) (discussed here), which extended the class of people protected by SOX to include not only those employed by the public company itself, but also potentially employees of contractors and subcontractors who perform work for the pubic company.  According to Plaintiff, Lawson held that SOX protects a public company’s contractors and agents – and that he was therefore protected from retaliation under the statute.

Ruling

The court sided with ANICO, holding that “retaliation plaintiffs must be employees of the defendant they sue, whether that defendant-employer is the public company itself or one of its contractors.”  In other words, according to the court, the employer-employee relationship is an “essential element” of a retaliation claim.

Because Plaintiff never asserted that he had an employment relationship with ANICO, he cannot state a SOX retaliation claim against the company.  Without further factual support of an employer-employee relationship, it is not enough that Plaintiff claimed that he is the “functional equivalent of an employee” in his role as “an agent, contractor, or subcontractor of ANICO.”  Plaintiff’s service as an advisory board member was also found insufficient to give rise to an employer-employee relationship.  Despite the fact that a corporate director is not disqualified from becoming an employee of the corporation, according to the court, “it is ‘hornbook law’ that a corporate director is not, simply by virtue of his position, an employee.”

Implications

Although Lawson greatly expanded the potential universe of companies covered by SOX’s whistleblower provision, this case is a reminder that there are meaningful limitations to its reach – including the requirement that an employer-employee relationship exist in order for a whistleblower to state a claim under the statute.

© 2021 Proskauer Rose LLP. National Law Review, Volume X, Number 176
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About this Author

Lloyd B Chinn, Financial, Whistleblower Attorney, Proskauer Law Firm
Partner

Lloyd B. Chinn is a Partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd's practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media,...

212-969-3341
Pinny Goldberg Labor and Employment Lawyer Proskauer Rose Law Firm
Associate

Pinny Goldberg is an associate in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, wage and hour, wrongful discharge, whistleblowing and retaliation, covenants not to compete, breaches of fiduciary duty, unjust enrichment, and tort and contract claims. 

In...

212.969.3074
Alex Downie  New York  Labor & Employment Law
Law Clerk

Alex Downie is a law clerk in the Labor & Employment Law Department and a member of the Employment Litigation & Arbitration Group. He previously worked as a summer associate at Proskauer and as an intern at the Department of Justice.

Alex earned his J.D. from the University of Virginia School of Law, where he served as the executive editor of the Virginia Law & Business Review. He also volunteered for the school’s employment law clinic, where he assisted with a variety of employment-related matters ranging from employment discrimination to wage and hour disputes...

212-969-3848
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