Katz, Marshall & Banks partner Debra S. Katz 1 published a continuing legal education white paper entitled “Whistleblowing, Sarbanes-Oxley, and Retaliation Claims.” The paper was presented at an American Law Institute-American Bar Association continuing legal education seminar on November 29, 2007. The full text of the paper is available below.
I. Sarbanes-Oxley: Whistleblower Protection
Undoubtedly the most widely discussed federal whistleblower statute is the enacted provision of the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204 (July 30, 2002) that protects certain corporate whistleblowers who report financial or securities-related wrongdoing.2 As of March 21, 2006, 714 Sarbanes-Oxley whistleblower cases had been filed with the Department of Labor (285 of those coming in FY2005, an increase of 101 over FY2004). Six hundred nineteen cases have been completed, resulting in 642 determinations (the difference in number is due to the fact that some cases have multiple complainants, each of whom receives a separate determination). Of these, the Occupational Safety and Health Administration reports that 454 were dismissed, 92 were withdrawn, and 96 were determined to have merit (resulting in 81 settlements).3 Given increased media exposure and employee education about this law, and the breadth of the coverage and protections afforded, one can only anticipate a proliferation in the number of cases filed.
B. What Whistleblowing is Covered?
This statute provides a new civil remedy to employees of publicly traded companies who allege that they were retaliated against because they provided information about, or participated in an investigation relating to, what they reasonably believed to be violations of securities statutes and regulations. See Pub. L. No. 107-204, § 806, codified at 18 U.S.C. § 1514A.
The investigation prong protects those who provide, or cause to be provided, information or otherwise participate in an investigation regarding any conduct that the employee reasonably believes constitutes a violation of specified federal securities and fraud law. The information or assistance must have been provided to, or the investigation must be conducted by, (1) a federal regulatory or law enforcement agency; (2) a member of Congress or any committee of Congress; (3) a person with supervisory authority over the employee; or (4) a person working for the employer who has the authority to investigate, discover, or terminate the misconduct.
The proceedings prong protects those who file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed, or about to be filed, relating to an alleged violation of federal securities and fraud laws. The Department of Labor has historically interpreted "proceedings" broadly to encompass internal reports to management, and potentially employee leaks to the media, on the grounds that such contacts were a "preliminary step" towards causing a proceeding to be filed or initiated.
C. What Employers are Covered Under SOX?
SOX whistleblower provisions apply to publicly traded companies with a class of securities registered under Section 12 of the Securities Exchange Act of 1934 ("Exchange Act") (15 U.S.C. § 78l) or subject to the periodic reporting requirements of Section 15(d) (e.g., required to file forms 10-K and 10-Q). (15 U.S.C. § 78o(d)). See 18 U.S.C. 1514A(a).
The Act applies to all companies that have obtained a listing in the United States or have registered securities with the SEC. However, coverage under the whistleblower provisions is narrower than coverage under SOX Section 402 (enhanced conflict of interest provisions) in that it does not cover companies that have filed a registration statement but do not yet have a class of securities registered under Section 12 or report under Section 15(d) of the Exchange Act.
The requirement that a respondent be subject to the registration or reporting requirements of the Exchange Act has been strictly construed. For example, in Flake v. New World Pasta Co., 2003-SOX-18 (ALJ July 7, 2003), aff'd, ARB No. 03-126 (ARB Feb. 25, 2004), an ALJ addressed the issue of whether the respondent was a company subject to jurisdiction under Section 806. It was undisputed that the respondent had no publicly traded securities. Therefore, the only issue was whether it was required to file reports under Section 15(d) of the Exchange Act. The ALJ found that the respondent fell within an exception to Section 15(d)'s reporting requirements because its public debt had been held by less than 300 persons in each year since its registration and offering. According to the ALJ, the fact that the respondent voluntarily filed some reports required by Section 15(d) in order to comply with a contractual agreement did not transform it into an issuer "required to" make such filings. Therefore, the ALJ granted the respondent's motion for summary decision. See also SEC Division of Corporation Finance, Sarbanes-Oxley Act of 2002 - FAQ #1 (Nov. 8, 2002) (company that voluntarily files reports under the Exchange Act but is not required to because it had fewer than 300 security holders of record at the beginning of its fiscal year is not an "issuer" within the meaning of SOX).
In Stevenson v. Neighborhood House Charter Sch., 2005-SOX-87 (ALJ Sept. 7, 2005), complainant argued that respondent, a non-publicly traded charter school, should be covered under Section 806 because it was subject to reporting under SEC Rules 10b5 and 15c2-12, had a retirement plan with benefits subject to reporting and disclosure requirements under ERISA, and received funds from public companies. The ALJ rejected these arguments, reasoning that whether or not a company is covered by Section 806 "is determined solely by whether the company has a class of stock registered under Section 12 of the [Exchange Act] or whether it is required to make reports pursuant to Section 15(d)."
See also Paz v. Mary's Center for Maternal & Child Care, 2006-SOX-7 (ALJ Dec. 12, 2005) (dismissing complaint against non-profit health organization which neither had a class of securities registered under Section 12 of the Exchange Act nor was required to file reports under Section 15(d)); Fiedler v. Compass Group USA, Inc., 2005-SOX-38 (ALJ July 15, 2005); Gibson-Michaels v. Federal Deposit Ins. Corp., 2005-SOX-53 (ALJ May 26, 2005) (FDIC is not a covered employer under Section 806); Weiss v. KDDI America, Inc., 2005-SOX-20 (Feb. 11, 2005); Roulett v. American Capital Access, 2004-SOX-78 (ALJ Dec. 22, 2004) (respondent not covered under Section 806 where it withdrew its registration before any approval by an exchange or the SEC was effected and, therefore, never registered a class of securities under Section 12); Ionata v. Nielsen Media Research, Inc., 2003-SOX-29 (ALJ Oct. 2, 2003) (ALJ lacked jurisdiction because the respondents were not companies "with a class of securities registered under Section 12 of the Securities Exchange Act of 1934").
Consistent with this strict construction of the requirement that the respondent be subject to the registration or reporting requirements of the Exchange Act, an ALJ in Gallagher v. Granada Entertainment USA, 2004-SOX-74 (ALJ Apr. 1. 2005), found no liability where the employer was not subject to the requirements of Sections 12 or 15(d) at the time the adverse employment action was taken. The ALJ reasoned that the adverse action occurred on January 22, 2004, but the company did not become subject to Section 12 until after a merger on February 2, 2004.
The Act's whistleblower protections apply to foreign private issuers (as defined by Rule 36-4(c) of the Exchange Act) subject to SEC reporting and registration obligations. Foreign issuers that are exempt from SEC filing requirements under Rule 12g3-2(b) of the Exchange Act are excluded from coverage under SOX.
Foreign corporations doing business in the United States are subject to Section 806 whistleblower provisions. See Ward v. W & H Voortman, Ltd., 685 F. Supp. 231, 232 (M.D. Ala. 1988). Whether SOX whistleblower provisions apply to U.S. residents working abroad has been an open issue. Statutory whistleblower provisions generally do not apply extraterritorially absent clear language by Congress in the statute to extend the statute's protections abroad. See, e.g., EEOC v. Arabian American Oil Co., 499 U.S. 244, 248 (1991); Mendonca v. Tidewater, Inc., 2001 U.S. Dist. LEXIS 3486, at *7 (E.D. La. Mar. 4, 2001). Still, courts have held that U.S. courts do, in certain circumstances, have jurisdiction over violations of the Exchange Act, although the violations take place outside the U.S. See, e.g., Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1336-37 (2d Cir. 1972) (statute applicable when foreigner made substantial misrepresentations in the United States for transactions executed in England); Schoenbaum v. Firstbrook, 405 F.2d 200, 208 (2d Cir. 1968). In its Final Rule, OSHA declined to clarify this issue, despite requests by commentators, on the ground that the purpose of the regulations is procedural and not to interpret the statute. 69 Fed. Reg. 52104, 52105 (Aug. 24, 2004).
Nonetheless, most courts and ALJs have refused to afford SOX whistleblower protection to employees working outside the United States. For instance, in Carnero v. Boston Scientific Corp., 2004 U.S. Dist. LEXIS 17205 (D. Mass. Aug. 27, 2004), the court refused to apply Section 806 to a foreign national working for Argentinean and Brazilian subsidiaries. According to the court, "[n]othing in Section 1514A(a) remotely suggests that Congress intended it to apply outside of the United States." The court noted, as well, that application of Section 1514A overseas might conflict with foreign laws, particularly where a plaintiff seeks reinstatement. The First Circuit, citing the presumption against the extraterritorial application of Congressional statutes, affirmed. Carnero v. Boston Scientific Corp., 433 F.3d 1 (1st Cir. 2006). See also O'Mahony v. Accenture Ltd., 2005-SOX-72 (ALJ Jan. 20, 2006) ("[a]s a matter of statutory construction, the whistleblower provision of the Act applies only to employees who work within the United States"); Ede v. Swatch Group, 2004-SOX-68 & 69 (ALJ) (Jan. 14, 2005) (SOX does not apply extraterritorially to employees working outside of the United States); Concone v. Capital One Finance Corp., 2005-SOX-6 (ALJ Dec. 3, 2004) (no applicability to persons employed outside the United States).
However, in Penesso v. LLC International, Inc., 2005-SOX-16 (ALJ Mar. 4, 2005), respondent, citing Carnero and Concone, moved for summary decision on the grounds that Section 806 does not have extraterritorial application. The ALJ denied summary decision and distinguished Carnero and Concone, finding "this case has a substantial nexus to the United States, and it is appropriate for the complainant to bring this claim under § 1514A of the Sarbanes-Oxley Act." The ALJ reasoned that the complainant was a U.S. citizen, much of the protected activity took place in the U.S. when complainant came to respondent's U.S. headquarters to inform corporate officers of the financial improprieties he believed were taking place in Italy, and at least one of the alleged retaliatory actions took place in the U.S.
c. Extraterritorial Application Prohibited
In the first Circuit Court decision issued on the whistleblower protections under the Sarbanes-Oxley Act, the First Circuit Court of Appeals recently held that the whistleblower provision of the SOX applies only to employees who work within the United States. See Carnero v. Boston Scientific Corp., 433 F.3d 1 (1st Cir. 2006) (case below 2004-SOX-18), (denying coverage where complainant was an Argentinian citizen resident in Brazil working for two Brazilian subsidiaries.) See also Ede v. The Swatch Group, Ltd., ARB No. 05-053, ALJ Nos. 2004-SOX-68 and 69 (ARB June 27, 2007) (denying coverage where complainants were working for the Swatch Group subsidiaries in Switzerland, Hong Kong, and Singapore, but never worked for any subsidiary in the United States); O'Mahony v. Accenture Ltd., 2005-SOX-72 (ALJ Jan. 20, 2006). But see Penesso v. LLC International, Inc., 2005-SOX-16 (ALJ Mar. 4, 2005) (finding SOX jurisdiction where the US citizen complainant was employed in Italy by the Italian subsidiary of a corporation headquartered in McLean, Virginia, and distinguishing Carnero on the basis of a substantial nexus to the United States, where protected activity and at least one retaliatory act occurred in the US).
SOX whistleblower provisions cover not only publicly traded companies, but also "any officer, employee, contractor, subcontractor or agent" of a covered company. 18 U.S.C. § 1514A(a). Therefore, private companies that are not publicly traded, as well as other entities or individuals, that serve as "agents" or "contractors" of the publicly traded employer, may be subject to the whistleblower provisions. OSHA specifies that a small accounting firm acting as a contractor of a publicly traded company could be liable for retaliation against an employee who provides information to the SEC regarding a violation of SEC regulations (e.g., accounting irregularities). OSHA Whistleblower Investigations Manual (2003), at 14-1 ("OSHA Manual").
SOX also might be found to apply to publicly traded companies for acts committed by them against employees of their agents or contractors. In an environmental whistleblower case, the ARB held that a government agency could be subject to a discrimination charge filed by the employee of a private-sector government contractor when the agency banned the contractor's employee from entering the government workplace. Stephenson v. NASA, ARB No. 96-080, ALJ No. 94-TSC-5 (ARB Feb. 3, 1997). In its Final Rule, OSHA, citing Stephenson, confirmed that "a respondent may be liable for its contractor's or subcontractor's adverse action against an employee in situations where the respondent acted as an employer with regard to the employee of the contractor or subcontractor by exercising control of the work product or by establishing, modifying or interfering with the terms, conditions, or privileges of employment." "Conversely," OSHA added, "a respondent will not be liable for the adverse action taken against an employee of its contractor or subcontractor where the respondent did not act as an employer with regard to the employee." 69 Fed. Reg. at 52017.
The analysis used in Stephenson suggests that the scope of SOX may apply freely across contractual arrangements. Yet, the scope of contractor or agent coverage generally has been limited to cases where the contractor or agent is acting in such a role with respect to the complainant's employment relationship. See, e.g., Brady v. Calyon Securities (USA), 2005 U.S. Dist. LEXIS 27130 (S.D.N.Y. Nov. 8, 2005); Brady v. Direct Mail Mgmt., Inc., 2006-SOX-16 (ALJ Jan. 5, 2006); Roulett v. American Capital Access, 2004-SOX-78 (ALJ Dec. 22, 2004); Judith v. Magnolia Plumbing Co., Inc., 2005-SOX-99 & 100 (ALJ Sept. 20, 2005).
The scope of contractor or agent coverage also has generally been limited to cases where the complainant was employed by the publicly traded company, not by the agent or contractor. For example, in Minkina v. Affiliated Physician's Group, 2005-SOX-19 (ALJ Feb. 22, 2005), appeal dismissed, ARB No. 05-074 (ARB July 29, 2005), an ALJ, interpreting SOX's "any officer, contractor, subcontractor or agent" language, concluded that, although a privately held entity could engage in discrimination prohibited by Section 806 with regard to an employee of a publicly traded company when acting in the capacity as an agent of the publicly traded company, Section 806 does not protect employees of the privately-held contractors, subcontractors and agents from discrimination. See also Goodman v. Decisive Analytics Corp., 2006-SOX-11 (ALJ Jan. 10, 2006) (employee of a private contractor or subcontractor of a publicly traded company is not afforded SOX whistleblower protection); Kalkunte v. DVI Financial Servs. Inc., 2004-SOX-56 (ALJ July 18. 2005).
The Act's retaliation provisions have been applied to private subsidiaries of publicly traded companies, but not under all circumstances. The cases have addressed three distinct, albeit often intertwined, inquiries: (1) whether the employee of the subsidiary is a covered "employee" under SOX; (2) if so, whether the subsidiary/employer is a covered entity subject to suit; and (3) if the employee names the parent as a respondent, whether the existence of separate corporate identities insulates the parent from liability.
4. Whether The Employee Of The Subsidiary Is A Covered "Employee"
The first inquiry - whether the employee of the subsidiary is a covered "employee" under SOX - has been consistently answered in the affirmative. For example, in Platone v. Atlantic Coast Airlines Holdings Inc., 2003-SOX-27 (ALJ Apr. 30, 2004), an ALJ held that an employee of a non-publicly traded subsidiary was a covered "employee" where the company's parent/holding company was publicly traded. The ALJ in Platone reasoned that, under the facts of the case, the holding company was the alter ego of the subsidiary and that it certainly had the ability to affect the complainant's employment. In Collins v. Beazer Homes USA, Inc., 334 F. Supp.2d 1365 (N.D. Ga. 2004), the first reported federal district court decision on point, a federal district court in Georgia held that where the officers of a publicly traded parent company had the authority to affect the employment of the employees of the subsidiary, an employee of the subsidiary was a "covered employee" within the meaning of the SOX whistleblower provision. Both Platone and Collins looked to the interrelatedness of the corporate structures to ultimately conclude the employee of the subsidiary was a covered "employee."
An ALJ in Morefield v. Exelon Servs. Inc., 2004-SOX-2 (ALJ Jan. 28, 2004), held that the Vice President-Finance of a non-publicly traded subsidiary of a publicly traded company was covered under SOX, regardless of the parent company's role in affecting the employment of the subsidiary's employees. The ALJ concluded that, based on the legislative intent and purpose of SOX, the term "employee of publicly traded company," within the meaning of SOX, "includes all employees of every constituent part of the publicly traded company, including, but not limited to, subsidiaries and subsidiaries of subsidiaries which are subject to its internal controls, the oversight of its audit committee, or contribute information, directly or indirectly, to its financial reports."
Similarly, in Gonzalez v. Colonial Bank, 2004-SOX-39 (ALJ Aug. 20, 2004) (Gonzalez III), an ALJ concluded that Congress intended to provide whistleblower protection to employees of subsidiaries of publicly traded companies. Therefore, the ALJ held that the complainant, an employee of a non-publicly traded subsidiary of a publicly traded bank holding company, set forth a cause of action sufficient to withstand a motion for summary decision. The ALJ also reasoned that evidence reflected that the holding company's actions affected the complainant's employment and shared management and function with the subsidiary.
In Klopfenstein v. PPC Flow Technologies Holdings, Inc., 2004-SOX-11 (ALJ July 6, 2004), an ALJ, citing Morefield, agreed with the complainant that employees of non-public subsidiaries of publicly traded companies can be covered by the SOX whistleblower provisions.
In Carnero v. Boston Scientific Corp., 433 F.3d 1 (1st Cir. 2006), the First Circuit suggested that an employee of a subsidiary of a publicly traded company could be a covered employee not only due to the parent company's role in affecting the employment of the subsidiary's employees but also because the subsidiary could be considered an "agent" of the parent. Therefore, the court opined, "the fact that [complainant] was employed by [the parent's] subsidiaries may be enough to make him a BSC 'employee' for purposes of seeking relief under the whistleblower statute." However, the court ultimately held that Section 806 did not protect the plaintiff foreign national due to its lack of extraterritorial effect.
5. Whether A Non-Publicly Traded Subsidiary Is A Covered Entity
The second inquiry - whether a subsidiary of a publicly traded parent company, standing alone, is a covered entity subject to suit - is a much debated issue.
In Klopfenstein, 2004-SOX-11 (ARB May, 31, 2006) (remanding the case to the ALJ for further findings based on erroneous legal analysis as to the standards used for determining who is covered by SOX provisions), an executive of a subsidiary of a non-publicly traded holding company that, in turn, was owned by a publicly traded parent company filed a complaint naming only the holding company and a vice president of the subsidiary as respondents. Initially, the ALJ held that the non-publicly traded subsidiary was not a proper respondent, because SOX does not "provide a cause of action directly against such subsidiary alone." On review, however, the ARB found that the ALJ's holding was erroneous. The ARB held that it was necessary to that particular case to discuss whether SOX provisions covered non-public subsidiaries of its public parent. Instead, the ARB emphasized that "whether a particular subsidiary or its employee is an agent of a public parent for purposes of the SOX employee protection provision should be determined according to principles of the general common law of agency." Because the legal concept of agency relies on the underlying factual elements, the ARB made a point to charge the ALJ with the function of determining whether an agency relationship exists based on the specific facts in that case.
Notably, the ARB in Klopfenstein specifically rejected the ALJ's reasoning that the named respondents did not fall within the scope of agency principles. It was previously unclear what position the DOL would take on this issue, as the SOX whistleblower provision prohibits retaliation not only by publicly traded companies, but also by "any officer, employee, contractor or agent" of a covered company. 18 U.S.C. § 1514A(a). The Klopfenstein ALJ had found that the subsidiary holding company did not fall within the category because the compnay was more than an "agent" of the parent within the meaning of SOX. The ARB, however, disagreed and found that because there were overlapping officers between them, and the PCC officers and employees were involved in overseeing the named respondents' investigation, it was more probable that an agency relationship existed "because one characteristic of an agent is that it acts on behalf of the principal."
In its amicus brief filed in Ambrose v. U.S. Foodservice, Inc., ALJ No. 2005-SOX-105, ARB Case No. 06-096, the Secretary of Labor for OSHA took a strong position on this issue. It clearly recommended the "integrated employer" test for determining whether employees of subsidiaries of publicly traded companies are protected under the SOX whistleblower provisions. In cases under labor and employment statutes, federal courts have used this test to determine if "two or more companies may be considered so interrelated that they constitute a single employer subject to liability or coverage under the particular statute." Amicus Curiae Br. of the Secretary of Labor for OSHA In Matter of: John Ambrose v. U.S Foodservice, Inc., ARB Case No. 06-096, p. 15 (XXXX). The four factors used to make this determination include: "(1) the interrelation of operations; (2) centralized control of labor or employment decisions; (3) common management; and (4) common ownership or financial control." Id. The Secretary emphasized that this is a case-by-case factual determination and that "[n]one of these factors are conclusive, and all four need not be met in every case." Id.
On the other hand, an ALJ in Powers v. Pinnacle Airlines Corp., 2003-AIR-12 (ALJ Mar. 5, 2003), dismissed a complaint brought against the employer, a non-publicly traded subsidiary of a non-publicly traded subsidiary of a publicly traded airline, on the basis that the subsidiary was not a proper respondent under SOX. The appeal of this decision was dismissed in Powers v. Pinnacle Airlines, Inc., ARB No. 04-035, ALJ No. 2003-AIR-12 (ARB Sept. 28, 2004). Citing Klopfenstein and Powers, the respondent in Gonzalez v. Colonial Bank, 2004-SOX-39 (ALJ Aug. 17, 2004) (Gonzalez II), moved for summary decision on the ground that it was not a publicly traded company. However, the issue did not have to be decided as the ALJ permitted the complainant to amend his complaint to include as a respondent the publicly traded holding company.
In Dawkins v. Shell Chemical, LP, 2005-SOX-41 (ALJ May 16, 2005), the ALJ granted summary decision for the employer because the complaint identified only the employer, a non-publicly traded subsidiary, as respondent and did not name the parent companies. The ALJ noted that there was no evidence that the parent companies were sufficiently involved in the management and employment relations of the respondent to justify piercing the corporate veil. However, it does not appear that the ALJ considered this factor in deciding whether the complainant could proceed against the subsidiary, but rather addressed this issue only in relation to whether the complainant successfully could have pursued the parent companies if they had been properly included or were added as respondents.
In contrast to the above cases, an ALJ in Hughart v. Raymond James & Associates, Inc., 2004-SOX-9 (ALJ Dec. 17, 2004) suggested that a case under Section 806 may proceed solely against a subsidiary if the parent company and its wholly owned subsidiary are "so intertwined as to represent one entity." Ultimately, the ALJ dismissed the complaint because the two corporate entities had a sufficient degree of separation such that they "were not one entity for consideration of the applicability of SOX."
In Grant v. Dominion East Ohio Gas, 2004-SOX-63 (ALJ Mar. 10, 2005), an ALJ rejected the reasoning in Hughart and concluded (consistent with what appears to be the majority view) that the plain language of Section 806 provides no cause of action against a non-public subsidiary standing alone, regardless of whether complainant could produce evidence to justify piercing the corporate veil. The ALJ reasoned that even if complainant could establish that the parent company was liable for the acts of its subsidiary, this "does not cure the deficiency of not naming a company covered by the Act as Respondent. In other words, neither the doctrine of piercing the corporate veil, nor agency law principles generally, operate to pull a parent company into litigation if the parent company is not named as a party in the first place."
6. Whether The Existence Of Separate Corporate Identities Insulates The Parent From Liability
The third inquiry - whether the existence of separate corporate identities insulates the parent corporation from liability for acts of the subsidiary - has proven a more difficult issue for ALJs, requiring evaluation of specific facts to determine whether piercing the corporate veil or some other basis for ignoring corporate separateness is warranted.
For instance, in Powers, 2003-AIR-12, an ALJ dismissed a SOX complaint where the employee was employed by a non-publicly traded subsidiary of a non-publicly traded subsidiary of a publicly traded airline. The ALJ reasoned that the complainant's attempt to hold the parent liable "ignores the general principle of corporate law that a parent corporation is not liable for the acts of its subsidiaries. In other words, the mere fact of a parent-subsidiary relationship between two corporations does not make one company liable for the torts of its affiliate." The ALJ continued that the complainant had not alleged any facts that would justify piercing the corporate veil and ignoring the separate corporate entities. Specifically, the ALJ noted that the subsidiary's impact on the parent was "questionable at best."
Likewise, in Hasan v. J.A. Jones-Lockwood, 2002-ERA-5 (ALJ Sept. 17, 2002), an ALJ held that a parent company was not an "employer" under the analogous ERA retaliation provision merely because it was the parent of another company that employed a complainant. The ALJ reasoned that no evidence showed that the parent had the power to hire, promote, discipline or give raises or had input in those decisions.
In contrast, in Platone, 2003-SOX-27, an ALJ held that the parent/holding company was a proper respondent in an action by an employee of a non-publicly traded subsidiary where the ALJ found the subsidiary to be a "mere instrumentality" of the holding company. The ALJ reasoned that the holding company had no employees; the companies disregarded the separate identity of the subsidiary in its dealings with the public, the SEC, and its employees; there was a great degree of commonality between the senior management of the two corporate entities, including those responsible for labor relations within the subsidiary; and the holding company had the ability to affect the complainant's employment, including making the ultimate termination decision.
Likewise, in Gonzalez III, 2004-SOX-39, the complainant, an employee of a non-publicly traded subsidiary, was permitted to amend his complaint to add the publicly traded holding company as a respondent. The ALJ denied summary decision for the holding company because evidence suggested that the holding company had shared management and function with the subsidiary and that the holding company's actions affected the complainant's employment.
Similarly, in McIntyre v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2003-SOX-23 (ALJ Sept. 4, 2003), the ALJ permitted complainant to amend his complaint to include as a respondent the publicly traded parent company. The ALJ reasoned that complainant had alleged facts regarding commonality of management and operations which arguably justified piercing the corporate veil. The ALJ also noted that there was a genuine issue of material fact as to whether the subsidiary and parent company constituted a "joint employer." See also Clemmons v. Ameristar Airways, Inc., 2004-AIR-11 (ALJ Jan. 14, 2005) (in AIR21 case, finding joint employment based on interrelation of operations, common management, centralized control of labor relations and common ownership).
In Mann v. United Space Alliance, LLC, 2004-SOX-15 (ALJ Feb. 18, 2005), Boeing and Lockheed Martin established the employer USA as a joint venture. All three entities were named as respondents. The ALJ, citing Gonzalez, Platone, and Morefield, found that "shared management and control and unity of operations have been key factors in holding the parent company and its subsidiary to be covered by the Act." Finding a lack of such shared functions, the ALJ concluded that USA was not a covered respondent under the Act. The ALJ reasoned that neither Boeing nor Lockheed affected, nor was USA acting as an agent with respect to, the complainant's employment. The ALJ also found that Boeing and Lockheed Martin could not be held liable for any violation of the Act by USA.
In Bothwell v. American Income Life, 2005-SOX-57 (ALJ Sept. 19, 2005), an ALJ granted summary decision on the grounds that complainant's employer, a non-public subsidiary of a publicly traded company, was not a covered employer subject to SOX's whistleblower provisions. The complainant failed to name the parent company in the complaint, and the ALJ refused to permit an amendment to add the parent because the parent was not given notice of the action prior to expiration of the 90-day statute of limitations. The ALJ further ruled that, even if the parent had been timely named, complainant was unable to provide sufficient evidence of commonality of management and purpose to justify piercing the corporate veil and holding the parent liable for the subsidiary's actions. The ALJ reasoned that there was no indication that the subsidiary was acting as an agent for its parent company "with respect to employment practices towards Complainant or any other employee," e.g., the parent took no part in hiring or terminating complainant and had no role in payment of complainant's salary, and complainant had no interaction with the parent's employees.
7. Individual Liability
Section 806's prohibition of retaliation by "officers, employees, contractors, subcontractors or agents of covered companies" could be construed as providing for individual liability for wrongful retaliation. This conclusion is supported by the summary and discussion in the Final Rule, which provides "the definition of 'named person' will implement Sarbanes-Oxley's unique statutory provisions that identify individuals as well as the employer as potentially liable for discriminatory action." 69 Fed. Reg. 52104, 52105 (Aug. 24, 2004).
However, in Williams v. Lockheed Martin Energy Systems, Inc., 1995-CAA-10 (ARB Jan. 31, 2001), a case dealing with liability under CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9610) and SDWA (Safe Drinking Water Act, 42 U.S.C. § 300j-9(I)), the ALJ dismissed individual supervisors from the case because they were not the complainant's employer despite statutory language providing that no "person" shall discriminate against whistleblowers. The complainant did not appeal, nor did the ARB decision address this issue.
The only decision to date addressing this issue under SOX found that Section 806 does provide for individual liability. In Gallagher v. Granada Entertainment USA, 2004-SOX-74 (ALJ Oct. 19, 2004), an ALJ, citing the above Federal Register quote, permitted amendment of the complaint to add as respondents the executives who terminated the complainant's employment. However, the ALJ rejected complainant's effort to join "any person or business entity . . . whose acts in concert with or at the direction of the Employer . . . lead to" his termination. The ALJ reasoned that "[o]nly individuals who were Complainant's superiors . . . could discriminate against him 'in the terms or conditions of his employment' . . ." The ALJ concluded that "[t]he availability of damages does not convert this statutory proceeding into a common law tort action, permitting joinder of persons or entities who were not the Complainant's superiors as if they were joint tortfeasors."
D. What Employees are Covered Under SOX?
29 C.F.R. § 1980.101 defines "employee" as "an individual presently or formerly working for a company or . . . an individual applying to work for a company or . . . whose employment could be affected by the company. . . ." As discussed in Section III.B., supra, courts and ALJs generally have included employees of subsidiaries within this definition. Whether the following other categories of persons fall within Section 806's definition of "employee" also has been addressed:
1. Former Employees
In Robinson v. Shell Oil Co., 519 U.S. 337 (1997), the U.S. Supreme Court held that the term "employees" as used in Title VII's retaliation provisions includes former employees. There is no reason to believe this holding will not be adopted under SOX.
Yet, in Harvey v. The Home Depot, Inc., 2004-SOX-36 (ALJ May 28, 2004), the ALJ refused to allow a complaint by a former employee to proceed where the protected activity occurred after plaintiff's termination. The complaint alleged that the employer violated SOX's whistleblower provision where, after the complainant had filed a professional responsibility complaint against the company's attorney, the attorney's representative filed a response to the state committee contending that the complainant's grievances were "part of an ongoing campaign by Mr. Harvey to harass Home Depot and its employees." The complainant no longer was employed by the company when this statement was made. The ALJ found that "with the exception of blacklisting or other active interference with subsequent employment, the SOX employee protection provisions essentially shelter an employee from employment discrimination in retaliation for his or her protected activities, while the complainant is an employee of the respondent." (Emphasis in original; footnote omitted). Compare Anderson v. Jaro Transp. Serv., 2004-STA-2 & 3 (ARB Nov. 30, 2005) (assuming that blacklisting in retaliation for protected activity which occurred while complainant was employed by respondent is prohibited under the STAA, but rejecting claim where complainant provided no evidence that his employer had provided information to a potential employer).
2. Independent Contractors
In Bothwell v. American Income Life, 2005-SOX-57 (ALJ Sept. 19, 2005), respondent argued that complainant was not protected under Section 806 because he was an independent contractor, not an employee. In evaluating whether complainant was an independent contractor, the ALJ adopted the common law agency test, which, as set forth in Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318 (1992), focuses on the hiring party's right to control the manner and means by which the product is accomplished. The ALJ refused to grant summary decision for the respondent on this issue because complainant presented evidence demonstrating that respondent retained control over the means by which his work was performed. For instance, there was evidence that complainant was required to report to his superiors every day at a specific time, was given a specific list of daily contacts and appointments, was not allowed to alter his sales presentation or decide how to accomplish any tasks without first receiving input, had no control over his work hours or appointment schedule, and was required to complete all of his work at respondent's office.
3. Officers and Directors
In Vodicka v. DOBI Medical Int'l, Inc., 2005-SOX-111 (ALJ Dec. 23, 2005), respondent moved for summary decision on the grounds that complainant was a member of its board of directors and therefore was not an employee protected under Section 806. The ALJ noted that, although corporate officers have been held to be employees under SOX, whether directors are "employees" under SOX was an issue of first impression. While an "interesting and difficult issue," the ALJ was able to resolve the case on other grounds.
4. Third Parties
In Davis v. United Airlines, Inc., 2001-AIR-5 (ALJ Apr. 23, 2002), an ALJ denied derivative protection to spouses of whistleblowers based solely upon their status as a spouse.
E. What Constitutes Protected Activity?
1. Scope of Protected Activity
The scope of protected activity under the statute has been narrowly construed. In Marshall v. Northrup Gruman Synoptics, 2005-SOX-0008 (ALJ June 22, 2005), the Administrative Law Judge granted summary judgment against a plaintiff who had complained about violations of internal ethics policies and financial accounting methods. The ALJ interpreted the statute to mean that "an element of intentional deceit that would impact shareholders or investors is implicit" in a claim. Id. at 4. Thus, since the complainant had failed to raise any issues of fraud (but only violations of internal policies), he had not engaged in protected activity under the statute. Id. at 4-5. In Getman v. Southwest Securities, Inc., ARB Case No. 04-059 (ARB July 29, 2005), the Administrative Review Board reversed a finding that the Respondent had retaliated against the complainant. The ARB held that an equity research analyst had not engaged in protected activity by refusing to change a recommendation on a stock. Id. at 9. Rather, because she never complained that she had been pressured to change her recommendation, she did not engage in "whistleblowing." Id.
"General inquires" have been found insufficient to support a claim for protected activity under the statute. See Lerbs v. Buca Di Beppo, Inc., 2004-SOX-8 (ALJ June 15, 2004), at 11. See generally Fraser v. Fiduciary Trust Co., 2006 WL 399468 (S.D.N.Y.) (Feb. 16, 2006). In Fraser, the court found that certain emails and memos written and distributed by complainant involving financial losses to the company that he believed could have been avoided were mere complaints that his advice or recommendations were not followed. Since the complainant failed to specify allegations of conduct that would alert Defendants that he believed the company was violating any federal rule or law related to fraud on shareholders the court found these complaints inadequate. In contrast, the court found that other complaints by the same plaintiff, though they did not particularly specify concerns about illegality, when taken in context, were sufficient to constituted protected activity. Fraser v. Fiduciary Trust Co., 2006 WL 399468 (S.D.N.Y.) (Feb. 16, 2006).
Efforts to bring complaints about a company's employment practices under the protection of the statute have failed. In a recent case the ALJ found that an employees complaints about longstanding institutional discriminatory practices, accompanied by warnings that if corrective action was not taken the employee would report the company to the EEOC, Department of Labor and other agencies, did not constitute protected activity because it was not a violation of federal law directly related to fraud against shareholders. Smith v. Hewlett Packard, 2005-SOX-88 to 92 (ALJ Jan. 19, 2006). See also Harvey v. The Home Depot, Inc., 2004 SOX 20 (ALJ May 28, 2005) (finding that neither general allegations of a violation of federal labor law, nor specific allegations of racial discrimination, are covered by the Act). In another case, the ALJ held that a plaintiff seeking protection for complaints that his salary did not comply with the requirements of the Fair Labor Standards Act did not constitute protected activity under the Act. Harvey v. Safeway Inc., 2004 SOX 21 (ALJ Feb. 11, 2005). However, the ALJ in this case also noted that, "complaints of systemic violations of the FLSA might reach the necessary magnitude to effectively perpetrate a fraud on shareholders because of the potential for influencing shareholder value." Id.
In May 2007, the ARB determined that an employee who reported his employer's deviation from generally accepted accounting practices (GAAP) and other industry standards was not necessarily engaging in protected activity under SOX because such deviations are not inherently violations of securities laws. Welch v. Cardinal Bankshares Corporation, ARB No. 05-064, ALJ No. 2003-SOX-15 (ARB May 31, 2007)
David Welch, a certified public accountant and MBA, who served the Chief Financial Officer of Cardinal Bankshares Corp. brought a SOX claim against the company. Welch believed that Cardinal violated GAAP and rules set forth by the Federal Financial Institutions Examination Council (FFIEC) because the company allowed employees with no special accounting skills to make ledger entries. GAAP standards provide that only individuals with accounting expertise should be permitted to make ledger entries. Welch also had concerns that during the second and third quarters of 2001, Cardinal's CEO, Ronald Moore, recorded two loan recoveries, totaling $195,000, as forms of income. Welch believed that this also violated GAAP and the FFIEC rules. As a result of this accounting entry, the company's third quarter 10-QSB report to the SEC included this $195,000 in year-to-date income. In addition, Welch complained that the CEO had generally been rejecting his accounting advice and excluding him from important meetings with the outside auditor where accounting issues were discussed. Welch himself was investigated for improper conduct and eventually terminated.
Welch then filed a SOX whistleblower complaint. The Occupational Safety and Health Administration investigated his complaint and determined that it had no merit. Welch requested a hearing before a Labor Department ALJ who concluded that Cardinal had violated SOX and recommended that Welch be reinstated and receive back pay and other relief. Cardinal appealed this decision to the Labor Department's Administrative Review Board.
The ARB reversed the ALJ's conclusion holding that Welch had not engaged in protected activity. The ARB based its decision on the following four conclusions:
1) An experienced CFO could not have reasonably believed that Cardinal's third quarter SEC report presented potential investors with a misleading picture of the company's financial condition.
2) Welch's complaint about his lack of access to the outside auditor did not constitute protected activity under SOX. The ARB emphasized that Welch failed to demonstrate that the complaint related in any way to fraud statutes, any SEC rule or regulation, or any federal law relating to fraud against shareholders.
3) Cardinal's rejection of Welch's recommendations on accounting matters was not inherently a violation of federal securities laws. Again pointing to the lack of legal authority and failure to establish how the complaints about inadequate internal controls could reasonably be held to implicate federal securities laws, the ARB concluded that Welch's allegations did not constitute protected activity.
4) Welch's concerns about the fact that Cardinal misclassified loan recoveries as income and allowed employees without accounting expertise to make financial transaction entries violated GAAP accounting standards and accounting rules by the FFIEC did not, in itself, violate SOX. The ARB rejected this contention because SOX's section 1514A expressly provides that SOX protects whistleblowers who report employer conduct that specifically violates federal fraud statutes, SEC rules or regulations or federal laws relating to shareholder fraud. The ARB also pointed to the intent of Congress in passing SOX by maintaining that if Congress had intended for standards such as GAAP and rules promulgated by the FFIEC to be included in SOX's employee protection provisions, it would have articulated such an intent in the law.
In light of this decision, accounting professionals should be aware that without a showing of a reasonable belief that federal fraud statutes and/or SEC rules are being violated by their employer, protesting an employer's accounting practices and failure to follow GAAP or other related codes of conduct in the accounting and finance industry may not be deemed to be protected under SOX.
This narrowing scope of protected activity under the whistleblower provision of SOX extends beyond the accounting industry. On August 20, 2007, a federal judge in the Southern District of New York dismissed a SOX retaliation lawsuit brought by a project manager who complained that his employer failed to comply with a Consent Decree issued by the Food and Drug Administration ("FDA") and various other federal regulations governing good manufacturing practices ("GMP") generally accepted in the pharmaceutical industry. Portes v. Wyeth Pharmaceuticals, Inc., Slip Copy, 2007 WL 2363356 (S.D.N.Y. 2007).
Portes involved a Consent Decree that had been issued by the FDA in 2000 against Wyeth Pharmaceuticals, Inc. for failing to comply with various federal regulations, as well as GMP for the production of pharmaceutical and biological products. To comply with the Consent Decree, the company implemented a program called the Sustainable Compliance Initiative ("SCI") to improve its operations. In September 2003, Wyeth hired Portes as a principal project manager for the SCI department in one of its facilities. Id. at *1. In this capacity, Portes discovered several problems that led him to believe that Wyeth's operations were in violation of the Consent Decree, federal regulations, EU regulations and provisions of the Barr Mandate. Id.
Portes complained about these possible violations to Wyeth's Director of Quality, but was berated for raising these concerns, placed on a Performance Improvement Plan, and eventually terminated. Id., at *2. Portes filed a SOX whistleblower complaint with OSHA in March 2005. Because the Department of Labor made no final determination on his claim within 180 days, Portes availed himself of SOX's "kick out" provision and filed his claim in federal court. The court concluded that Portes' allegations that Wyeth violated the Consent Decree, FDA regulations, EU regulations and other drug manufacturing guidelines were not sufficiently related to shareholder fraud.
The court determined that there was no way to derive Portes' concern for potential fraud against Wyeth shareholders from his actual allegations, the circumstances of his disclosures to the company or his position at the company. Portes' allegations were exclusively concerns with violations of regulations and guidelines pertaining to the manufacture of pharmaceuticals; the circumstances of his disclosures did not suggest that he was concerned that such violations could lead to or demonstrate fraud against investors but rather that the company was not adhering to standards promulgated by the FDA. Further, the court emphasized that Portes was employed as a chemist and project manager, not an investment analyst, which led the court to conclude that no inference that Portes was concerned about shareholder fraud could be derived from his job responsibilities. Therefore, the court held that Portes' complaints to Wyeth fell outside the scope of protected activity under SOX. Id., at *5.
The holdings in Portes v. Wyeth Pharmaceuticals, Inc. and Welch v. Cardinal Bankshares Corp., demonstrate that a specific showing that an employee had a reasonable belief that federal fraud statutes and/or SEC rules were being violated by their employer is of paramount importance when asserting a claim under the whistleblower protection provision of SOX.
2. Reasonable Belief Requirement
In order gain protection under the whistleblower provisions of Sarbanes-Oxley, an employee must act upon a "reasonable belief" that a specified federal securities or fraud law was violated.4 ALJs have found that the belief must be objectively reasonable and it must be the actual belief of the complainant. See, e.g., Grant v. Dominion E Ohio Gas, 2004 SOX 63 (ALJ March 10, 2005). The belief must also pertain to federal law violations. In one case involving state insurance law violations, where no evidence of related federal law violations was presented, an employee's refusal to participate and provide allegedly false answers in a random telephone interview conducted by the California Department of Insurance did not constitute protected activity supportive of a SOX claim. Williams v. Sirva, Inc., 2006-SOX-6 (ALJ Feb. 13, 2006). While an employee who acts on a reasonable belief is protected even if that belief later turns out to be wrong, where the complainant's belief is unreasonable from the outset, the complainant's activity will not be protected. Bechtel v. Competitive Technologies, Inc., 2005-SOX-33 (ALJ Oct. 5, 2005) (finding the employee's belief - based on advance knowledge of the outcome of a lawsuit based on a draft press release, an overheard portion of a telephone conversation, and rumor - that his employer was attempting to purchase company stock insufficient basis for a reasonable belief).
For example, in Tuttle v. Johnson Controls Battery Div., 2004-SOX-76 (ALJ Jan. 3, 2005), an ALJ explained:
Protected activity is defined under SOX as reporting an employer's conduct which the employee reasonably believes constitutes a violation of the laws and regulations related to fraud against shareholders. While the employee is not required to show the reported conduct actually caused a violation of the law, he must show that he reasonably believed the employer violated one of the laws or regulations enumerated in the Act. Thus, the employee's belief "must be scrutinized under both subjective and objective standards." Melendez v. Exxon Chemicals Americas, ARB No. 96-051 (July 14, 2000).
The "reasonable belief" standard has generated some anomalous results to date in several cases in which some ALJs have required that the plaintiff show that the reasonable belief was about "fraud" of shareholders and not simply about violations of any rule or regulations of the SEC or any provision of Federal law relating to fraud against shareholders. See the following:
Grant v. Dominion East Ohio Gas, 2004-SOX-63 (ALJ Mar. 10, 2005) (ALJ held that raising concern about mere "day-to-day accounting irregularities" could not support a SOX claim without some reasonable belief the company was committing fraud against its shareholders. The ALJ explained that the complainant's belief "must be scrutinized under both subjective and objective standards, i.e., he must have actually believed the employer was in violation of the relevant laws or regulations and that the belief must be reasonable." Reasonableness is "determined on the basis of the knowledge available to a reasonable person in the circumstances with the employee's training and experience." The ALJ also explained that the mere fact that a company investigates a complaint does not establish that complainant had a reasonable belief of unlawful conduct. Additionally, the ALJ rejected plaintiff's expert testimony on the reasonableness of plaintiff's belief that fraud occurred. The ALJ stated that SOX protects only "employees who report reasonable beliefs based in articulable fact of illegal activity designed to defraud shareholders."
Walton v. Nova Information Systems and Bancorp., 2005-SOX-107 (Mar. 29, 2006), relied on a N.D. GA decision, Collins v. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365 (N.D. Ga. 2004) (disclosures alleging attempts to circumvent the company's systems of internal accounting controls violate Section 13 of the Security Exchange Act and are protected by SOX). In Walton, the plaintiff, a former database administrator for NOVA, the third largest credit card processor in the United States, complained that she was terminated in retaliation for raising concerns about "security lapses" in the company's data bases which could "foreseeably result in large scale criminal fraud against cardholders, merchants and their banks, customers and shareholders." She further contended that the security lapses violated the company's obligation to comply with statutory and regulator requirements mandated by SOX and other federal laws. The Company filed a 12(b)(6) motion to dismiss, arguing that the complaint merely reported violations of internal procedures and did not implicate fraud against a company's shareholders. The Company argued that it is not enough to report a violation of a rule or regulation of the SEC - that the rule or regulation of the SEC that is reported must relate to fraud against the shareholder.
The ALJ rejected this argument, concluding that SOX does in fact protect a whistleblower who has provided information of a violation of a rule or regulation of the SEC. The AlJ also concluded that the filing of SOX complaint is in fact protected activity; and declined to limit the Act's protection for whistleblowers "who do nothing more than perform the job for which they were hired.
In Lerbs v. Buca Di Beppo, Inc., 2004-SOX-8 (ALJ June 15, 2004), an ALJ granted the employer's motion for summary decision because the complainant, a "cash manager" for the restaurant chain, failed to show he engaged in protected activity, largely because he did not show he reasonably believed the employer engaged in illegal activity that misled investors or potential investors. The ALJ found that although the employee may have felt that certain practices "compromised the validity of the annual audit, which shareholders rely on to make investment decisions," he did not have an actual belief at the time of the complaint that the practice was illegal. The complainant also contended that the company inappropriately attempted to inflate the sales of one of its restaurants, which provided reduced-price lunches to employees at corporate headquarters, by increasing the prices of the lunches, thereby inflating its "same store sales" figures released to shareholders. The ALJ found that complainant failed to show it was reasonable to believe this practice was illegal, as "there is simply nothing unlawful or improper about a decision by Buca to adjust upward the amount it paid for employees' meals to bring the cost into line with the cost of meals for non-employee consumers." Id. at 13.
In Harvey v. Safeway, Inc., 2004-SOX-21 (ALJ Feb. 11, 2005), complainant contended that his complaints about discrepancies in his weekly paychecks violating the FLSA constituted protected activity. The ALJ found that the employee's "personal experience over the course of a couple of weeks with Safeway and an anecdotal report of one other employee's wage concerns did not provide an objectively reasonable factual foundation for a . . . complaint about systematic wage underpayment."
In Barnes v. Raymond James & Assoc., 2004-SOX-58 (ALJ Jan. 10, 2005), complainant voiced concerns that her supervisor was conducting improper "switches" of mutual fund accounts in order to generate unnecessary client fees. The ALJ held that complainant's belief that her supervisor engaged in improper switches was not reasonable in light of the absence of any evidence of such transactions, the fact that complainant failed to raise her complaints earlier, a subsequent company investigation concluding no improper switches occurred, and her own sworn statements stating that her supervisor engaged in more "exchanges" than switches.
In Allen v. Stewart Enter. Inc., 2004-SOX-60 (ALJ Feb. 15, 2005), complainant inquired into whether respondent was taking steps to comply with securities regulations. The ALJ found that complainant did not have a reasonable belief that respondent had violated a SEC rule where the relevant documents were internal working documents not intended for submission to the SEC and complainant admitted that she was not aware of any law making the SEC rule applicable to those internal documents. Additionally, the ALJ reasoned that respondent already knew about the problem before complainant reported it and was making it a priority to remedy the problem.
In Nixon v. Stewart & Stevenson Services, Inc. , 2005-SOX-1 (ALJ Feb. 16, 2005), an ALJ granted summary decision for respondent because there was no evidence that complainant reasonably believed the conduct he reported could have been mail fraud. The ALJ reasoned that not only was there was no evidence that the letters to which complainant referred, even if false, were part of a scheme or artifice to obtain money or property, but also there was no evidence that complainant actually considered respondent's conduct to constitute mail fraud, because the first mention of mail fraud was made before the ALJ. The ALJ also found that there was no evidence that complainant reasonably believed the conduct he reported could have been a violation of SEC Rule S-K. The ALJ reasoned that there was no evidence of any pending legal proceeding or that governmental authorities were contemplating any legal proceeding that would have needed to have been reported under Rule S-K.
In Bechtel v. Competitive Technologies Inc., 2005-SOX-33 (ALJ Oct. 5, 2005), an ALJ found that reporting alleged insider trading was not protected activity because his conclusions were not "objectively supported" and because he failed to act in a way that would lead one to believe he thought fraud was taking place. The ALJ noted that complainant did not report the alleged conduct to any authority and did not follow the company's procedures for making allegations regarding insider trading. The ALJ concluded that this "failure to bring such a serious allegation to anyone's attention is inconsistent with his expressed concerns for how his disclosure would affect shareholders and the company's compliance with SOX disclosure rules." However, the ALJ did find that complainant's refusal to sign disclosure forms and his expressed concerns about the disclosure committee were protected activities under Section 806.
In contrast, in Platone, 2003-SOX-27, the ALJ ruled that a former airline labor relations manager engaged in protected activity by raising concerns about financial irregularities within the company. Specifically, the complainant complained of discrepancies in the "flight loss" pay system, an arrangement which effectively shifted the cost of paying pilots from the company to the union by requiring the union to reimburse the company for portions of a pilot's pay when the pilot was called away from flight duty to attend to official union business. Complainant reported that some members of the union leadership were improperly taking advantage of the flight loss system for their own monetary gain. After her reports went unheeded, complainant concluded that members of company management, who needed bargaining leverage to obtain concessions from the union in upcoming negotiations, had devised a plan to improperly funnel the airline's money to members of the union through the flight loss compensation arrangement.
Despite an absence of evidence reflecting that the company was ever reimbursed by the union or that this purported arrangement ever resulted in any financial loss to the company, the Platone ALJ determined that the complainant's "suspicions were reasonable, and that she had good grounds to believe that a fraud was being perpetrated" on the company and its stockholders. Curiously, the ALJ did not address the materiality requirement and did not specify which predicate federal fraud or securities provision may have been violated.
Similarly, in Welch v. Cardinal Bankshares Corp., 2003-SOX-15 (ALJ Jan. 28, 2004), an ALJ found that complainant had a reasonable belief that improper entries totaling $195,000 on the company's financial statements were improper, were material and could mislead potential investors.
In Kalkunte v. DVI Financial Servs. Inc., 2004-SOX-56 (ALJ July 18, 2005), complainant, an attorney, alleged that respondent improperly commingled funds and its senior management altered delinquency reports and incorporated those altered reports into disclosure statements made to the public. The ALJ determined that complainant had a reasonable belief that the alleged conduct constituted a covered violation. The ALJ reasoned that the alleged conduct plainly violated SEC rules and regulations and constituted fraud against shareholders and, therefore, an attorney with complainant's experience and background "would easily discern these activities as potential violations of the Sarbanes-Oxley Act." The ALJ also noted that complainant had documentary evidence to support her allegations.
In Jayaraj v. Pro-Pharmaceuticals, Inc., 2003-SOX-32 (ALJ Feb. 11, 2005), complainant alleged that respondent was using an unregistered broker to solicit investors in exchange for a commission. Under the Exchange Act, it is unlawful for any "broker or dealer" to use interstate commerce to "effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security" unless the individual is registered as a broker/dealer. The ALJ found that complainant's belief that respondent's conduct violated the Exchange Act was reasonable. The ALJ reasoned that complainant was aware that the broker was not a licensed broker, knew that one could not sell securities unless one were registered as a broker or broker dealer, knew the broker was trying to bring private investors to the company, knew he would not assist the company without payment for his efforts, overheard company officials discuss paying him a commission, participated in a call in which the broker asked for a commission, and, unbeknownst to complainant, the company had entered into a consulting agreement with the broker.
In Taylor v. Wells Fargo, Texas, 2004-SOX-43 (ALJ Feb. 14, 2005), an ALJ found that complainant reasonably believed that her supervisor's practice of backdating letters of credit could have involved mail, wire and bank fraud. Although respondent argued that there was no specific evidence that it was committing fraud, the ALJ noted that an actual violation of the law is not required. The ALJ reasoned that complainant reasonably believed that backdating the letters of credit constituted falsifying a bank document, which she believed "would constitute an illegal and criminal act," and when complainant raised her concern, respondent "admitted it must be careful to not deceive any government regulators or creditors of the applicant when backdating letters of credit."
See also Gonzalez III, 2004-SOX-39 (complainant's persistence in his concerns, including multiple conversations with company officials, demonstrated his reasonable belief); Henrich v. Ecolab, Inc., 2004-SOX-51 (ALJ Nov. 23, 2004) (complainant reasonably believed that company's shareholders may be subjected to fraud by alleged "cheating" in accounting for inventory, material losses and labor costs) aff'd 2004-SOX-51 (ARB June 29, 2006) (finding that the ALJ properly focused on whether complainant had a reasonable belief that the practice was a violation of a law or regulation listed in the SOX provisions); Halloum v. Intel Corp., 2003-SOX-7 (ALJ Mar. 4, 2004) (complainant reasonably believed that he had been asked to commit an illegal activity even though a subsequent investigation concluded otherwise).
Sometimes, a complainant may have initially engaged in protected conduct by raising concerns about fraud or violations of SEC rules, but intervening circumstances caused continued concern regarding such violations to become unreasonable. For example, in Williams v. U.S. Dep't of Labor, 2005 U.S. App. LEXIS 25011 (4th Cir. Nov. 18, 2005) (per curiam), the Fourth Circuit, addressing a complaint filed with the DOL under various environmental protection statutes, agreed with the DOL that the complainant engaged in protected activity in raising concerns about lead in schools, but after respondent, in response to those concerns, undertook significant activity to ensure that the environment was safe, that any potential problems were corrected, and that a plan was in place to ensure the safety of students and staff, "it was no longer reasonable for her to continue claiming that these schools were unsafe . . ." Accordingly, the court concluded that "her activities lost their character as protected activity."
To constitute protected activity, the subject matter of a SOX complaint must implicate a purported violation of "section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders." 18 U.S.C. § 1514A(a). SOX's legislative history reflects that fraud is an integral element of a cause of action under the whistleblower provision. See, e.g., Cong. Rec. S7418 (daily ed. July 26, 2002) (statement of Sen. Leahy) (whistleblower provision to protect "those who report fraudulent activity that can damage innocent investors in publicly traded companies"); S. Rep. No. 107-146, 2002 WL 863249 (May 6, 2002) (the relevant section "would provide whistleblower protection to employees of publicly traded companies who report acts of fraud to federal officials with the authority to remedy the wrongdoing or to supervisors or appropriate individuals within their company").
While some ALJs have narrowly interpreted the scope of Sarbanes-Oxley to protect only complaints relating to matters of potential securities fraud, other ALJs have found the statute, as it language would appear to mandate, to cover a broader range of fraudulent activity including mail and wire fraud.5 Some ALJs have upheld claims on this basis. See, e.g., Taylor v. Wells Fargo Texas, 204 SOX 43 (ALJ Feb. 14, 2005) (complaints that a coworker has been backdating letters of credit are protected activity under the Act, since mail fraud, wire fraud, and bank fraud may be implicated.)
The ARB recently addressed this issue in Platone v. FLYi, Inc., ALJ No. 2003-SOX-27, ARB No. 04-154 (ARB Sept. 29, 2006), holding that, "when allegations of mail or wire fraud arise under the employee protection provision of the Sarbanes-Oxley Act, the alleged fraudulent conduct must at least be of a type that would be adverse to investors' interests." See also, Mozingo v. S. Financial Group, Inc., 2007-SOX-4, slip. op. at 11 (ARB Dec. 6, 2006)(claim dismissed where complainant unable to show that the transfer of a customer's account, even if fraudulent, would have adverse impact on shareholders).
a. Violation of Enumerated Fraud Provisions
Section 806 protects against retaliation for reports implicating the enumerated federal fraud statutes (mail, wire, bank or securities fraud), SEC rules, or federal law "relating to fraud against shareholders." For example, in Allen v. Stewart Enterprises, Inc., 2004-SOX-60, 61 & 62 (ALJ Feb. 15, 2005), complainant raised concerns about possible violations of state laws which could result in sanctions and revocation of respondent's state licenses. The ALJ found that this was not protected activity because Section 806 only provides protection for reporting violations of the enumerated fraud provisions.
Similarly, in Rogus v. Bayer Corp., 2004 U.S. Dist. LEXIS 17026 (D. Conn. Aug. 25, 2004), plaintiff asserted causes of action for common law wrongful discharge and violation of the state whistleblower statute. Plaintiff contended that she suffered retaliatory discharge for internally complaining that her supervisor allowed production yields to be over-reported and production workers were overpaid bonuses that would not have been paid had the true number been reported. The court stated in a footnote that plaintiff's complaint would not be protected under SOX "because the conduct she complained of did not 'constitute a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.'"
Merely raising complaints about violations of internal policy is not protected activity. For example, in Reddy v. Medquist, Inc., 2004-SOX-35 (ARB Sept. 30, 2005), the complainant, a medical transcriptionist, had expressed concerns to management by e-mail regarding management's policy of decreasing line counts in her transcriptions thereby reducing her rate of pay. In one e-mail, complainant referred to this policy as an "Enron-type" accounting practice. The ARB held that complainant failed to show she engaged in protected activity where the evidence demonstrated that the complaints concerned internal company policy as opposed to actual violations of federal law.
In Marshall v. Northrup Gruman Synoptics, 2005-SOX-8 (ALJ June 22, 2005), complainant alleged that he reported to management his supervisor's misclassification of internal expenses, use of company contractors to provide personal home remodeling, and falsification of internal reports. The ALJ found that complainant did not engage in protected activity because his allegations merely implicated violations of internal company policies and ethical standards rather than SOX's enumerated laws or regulations related to fraud against shareholders. Although some of his allegations related to accounting irregularities, there was no evidence of misrepresentation of the company's financial situation or fraudulent conduct. The ALJ concluded that "[t]he fact that the concerns involved accounting and finances in some way does not automatically mean or imply that fraud or any other illegal conduct took place."
In Minkina v. Affiliated Physician's Group, 2005-SOX-19 (ALJ Feb. 22, 2005), an ALJ granted summary decision, concluding that complainant's reports concerning air quality were unrelated to fraud or the protection of investors. The ALJ rejected complainant's contention that poor air quality could result in financial loss to respondent, reasoning that SOX "was enacted to address the specific problem of fraud in the realm of publicly traded companies and not the resolution of air quality issues, even if there is a possibility that poor air quality might ultimately result in financial loss."
In Heaney v. GBS Properties LLC d/b/a Prudential Gardner Realtors, 2004-SOX-72 (ALJ Dec. 2, 2004), complainant, on separate occasions, expressed concerns over a purchaser's use of an unlicensed home inspector and concerns over a condominium project which he thought a developer had built in violation of certain codes. The ALJ found that neither communication constituted protected activity under SOX.
In Barnes, 2004-SOX-58, complainant voiced concerns that her supervisor was conducting improper "switches" of mutual fund accounts in order to generate unnecessary client fees. The ALJ found that complainant did not engage in protected activity, in part because complainant acknowledged that she raised the issue of improper switches only as an example of unethical conduct and not as an example of fraud against shareholders or investors.
In Armstrong v. Wal-Mart Stores, Inc. (OSHA Jan. 27, 2006),6 complainant alleged that he reported that managers were having workers perform personal services while on the clock, that a supervisor was using company resources for personal use, that employees falsified financial reports to increase employee bonuses, and that managers misappropriated money raised for charity. OSHA concluded that complainant's reported evidence of favoritism by managers, violations of company policy, and other issues, was not protected activity under 806.
In contrast, in Morefield v. Exelon Servs. Inc., 2004-SOX-2 (ALJ Jan. 28, 2004), an ALJ broadly construed the catchall "any provision of Federal law relating to fraud against shareholders." The ALJ held that this provision "may provide ample latitude to include rules governing the application of accounting principles and the adequacy of internal accounting controls implemented by the publicly traded company in compliance with such rules and regulations." Id. at 5.
Likewise, in Mann v. United Space Alliance, LLC, 2004-SOX-15 (ALJ Feb. 18, 2005), an ALJ denied summary decision to respondents on the issue of protected activity because complainant's allegation of a perpetuation of a fraud on NASA by improperly favoring certain vendors in violation of federal acquisition regulations, although less than direct, could also perpetrate a fraud on shareholders under certain circumstances. See also Kalkunte v. DVI Financial Servs. Inc., 2004-SOX-56 (ALJ July 18. 2005) (where complainant alleged that respondent improperly commingled funds and its senior management altered delinquency reports and incorporated those altered reports into disclosure statements filed to the public, ALJ found that these activities "plainly violate SEC rules and regulations, and constitute fraud against shareholders").
b. Intent to Deceive or Defraud
Some ALJs have held that, because an essential element of fraud is an intent to defraud or deceive, a Section 806 complaint must allege a degree of intentional deceit or fraud. For example, in Hopkins v. ATK Tactical Systems, 2004-SOX-19 (ALJ May 27, 2004), an ALJ found that a complaint that did not address any kind of fraud and did not allege that the activities involved intentional deceit or resulted in a fraud against shareholders or investors did not fall within the purview of the SOX whistleblower provision. The employee's complaint questioned whether the employer's systems illegally resulted in the release of sludge water into the ground water system due to poor maintenance and overdue inspections. The ALJ found that such an activity failed to state a cause of action because "an element of intentional deceit that would impact shareholders or investors is implicit" under the SOX whistleblower provision.
In Allen, 2004-SOX-60, 61 & 62, an ALJ found that complainants did not engage in protected activity by reporting accounting irregularities because they did not actually believe that the respondent had acted intentionally when an unintentional mistake within the computing system resulted in incorrect interest calculations. The ALJ observed that a complainant must reasonably believe the reported activity was fraudulent, and "a fraudulent activity cannot occur without the presence of intent."
Similarly, in Grant, 2004-SOX-63, complainant voiced concerns that her supervisor was conducting improper "switches" of mutual fund accounts in order to generate unnecessary client fees. The ALJ held that complainant did not engage in protected activity where none of his expressed concerns "contained any reference to fraud or implication that the company had acted intentionally to mislead shareholders or misstate the company's bottom line."
c. Effect on Shareholders or Investors
ALJs have noted that, although the fraud provisions enumerated in Section 806 go beyond those specifically relating to securities fraud, to constitute protected activity, the alleged conduct must impact shareholders or investors. For example, in Tuttle, 2004-SOX-76, complainant alleged he was terminated because he complained that significant numbers of its batteries were defective. The ALJ granted summary decision because complainant did "not address any kind of fraud or any transactions relating to securities. Moreover, there has been no allegation that the activities complained of involved intentional deceit or resulted in a fraud against shareholders or investors." The ALJ reasoned that, although fraud under SOX is broader than merely securities fraud, "an element of intentional deceit that would impact shareholders or investors is implicit."
In Stojicevic v. Arizona-American Water Co., 2004-SOX-73 (ALJ Mar. 24, 2005), an ALJ found that complainant did not engage in protected activity when he complained about poor project decisions and that the company's sub-par year-end earnings were caused by failure to make necessary capital investments. The ALJ reasoned that "[a]n allegation that Respondent made financially unsound choices . . . is quite distinct from an allegation that Respondent engaged in fraud." The ALJ noted that complainant offered no evidence that respondent made any false statements to shareholders or investors regarding its earnings such that its conduct could constitute fraud.
Under section 806, employees need only demonstrate, by a preponderance of the evidence, that they had a "reasonably belief" that they were reporting a violation of securities fraud statutes or SEC rules. This "reasonable belief" standard under section 806 has generated anomalous results in several cases in which the employer defended on the ground that the alleged fraud complained about by employees did not satisfy the "materiality" standard under federal securities law. The ARB in Platone, ARB No. 04-154, stated "A fact is material if there is a substantial liklihood that a reasonable shareholder would consider it important in deciding how to vote."
While "materiality" is an element of the predicate fraud provisions, see, e.g., Neder v. United States, 527 U.S. 1, 4 (1999), some ALJs have applied a materiality element under the "any rule or regulation of the Securities and Exchange Commission" and "any provision of Federal law relating to fraud against shareholders" provisions of the SOX whistleblower provision.
Other ALJs have placed little emphasis on the materiality requirement. For example, in Morefield, 2004-SOX-2, an ALJ denied respondent's motion to dismiss despite the fact that the amounts involved totaled less than .0001% of the annual revenues of the parent company. The ALJ reasoned that "[w]hether or not 'materiality' is a required element of a criminal fraud conviction as Respondents contend, we need be mindful that Sarbanes-Oxley is largely a prophylactic, not a punitive measure." Id. at 5. Therefore, "[t]he mere existence of alleged manipulation, if contrary to a regulatory standard, might not be criminal in nature, but it very well might reveal flaws in the internal controls that could implicate whistleblower coverage for seemingly paltry sums." Id.; Halloum v. Intel Corp., 2003-SOX-7 (ALJ Mar. 4, 2004) (complainant reasonably believed that he had been asked to commit an illegal activity even though a subsequent investigation concluded otherwise.)
In Halloum, the plaintiff worked in the accounts payable department and alleged that he had been instructed to delay payments of invoices until later quarters of the fiscal year. The employer used the accrual method of accounting, which meant that invoices were reflected on the company's books at the time the invoices were received, not when they were paid. The Company argued that it was therefore legally impossible for there to have been any securities fraud, because delaying the payments of the invoices until later quarters could not have had any effect on the financial statements of the Company. The ALJ rejected this argument, finding that the employee had satisfied his burden of proving that he had a "reasonable belief" that a violation of the statute or regulation had occurred.
Yet, others have stressed the need for some degree of materiality, particularly in the context of cases involving the issue of whether traditional employment discrimination or FLSA wage and hour claims can constitute fraud against shareholders and therefore give rise to a Section 806 cause of action. For example, in Harvey v. Home Depot, Inc., 2004-SOX-20 (ALJ May 28, 2004), an ALJ discussed the materiality requirement under 18 U.S.C. § 1514A(a)(1)'s catchall, "any provision of Federal law relating to fraud against shareholders." The ALJ concluded that an employee complaint about alleged race discrimination that had "a very marginal connection with" (e.g., did not materially affect) a corporation's accurate accounting and financial condition did not constitute activity protected under SOX. Initially, the ALJ found that the only federal law directly related to fraud against shareholders that could possibly be implicated was the SOX statute itself, which requires certification that a financial disclosure is accurate and does not contain any untrue statement of material fact. The ALJ concluded that, although a reported incident of discrimination within a publicly traded company that represents itself to be non-discriminatory may conceivably adversely affect the accuracy of corporate disclosures, "the connection becomes tenuous upon close examination of SOX." Id. For example, the ALJ found that individual discrimination does not reach the "materiality threshold in terms of a corporation's financial condition." Id. at 13. Additionally, the ALJ noted that the discrimination complaints at issue centered on the alleged existence of discrimination, not the company's failure to report such discrimination to the public. However, the ALJ suggested that "[p]erhaps, the failure to disclose a class action lawsuit based on systemic racial discrimination with the potential to sufficiently affect the financial condition of a corporation might become the subject of a SOX protected activity if an individual complained about the failure to disclose that situation." Id.
Similarly, in Smith v. Hewlett Packard, 2005-SOX-88 (ALJ Jan. 19, 2006), complainant, an employee relations staffer, alleged that he engaged in protected activity when he threatened to take allegations of a potential race discrimination class action to the EEOC. The ALJ rejected this argument, reasoning that "[m]ere knowledge that an employee-evaluation process adversely affected minorities (without knowing whether this result was intentional), coupled with an insider's access to disgruntled employees' conversations about 'external' resolutions, is not enough." The ALJ noted that, although there was a rumor of a class-action lawsuit, there was no such litigation, therefore there was nothing for the company to disclose to its shareholders. The ALJ did note, however, that a disclosure of company-wide discrimination could form the basis of SOX whistleblower claim, explaining: "[h]ad such a suit actually been filed, and if HP had prevented that information from reaching its shareholders, and if the Complainant learned of this omission and if he had reported it, then he would have engaged in protected activity under the Act."
In Harvey v. Safeway, Inc., 2004-SOX-21 (ALJ Feb. 11, 2005), the ALJ found that an employee's reports of discrepancies in his weekly paychecks, even if they violated the FLSA, were not protected activities under SOX because they did not involve violations of a federal law relating to fraud on the shareholders. The ALJ reasoned that a single employee's shortages did not rise to the requisite level of materiality, particularly where respondent remedied the shortfalls, because "its financial reports were not likely affected by the temporary wage shortages" and the effect on the financial reports "would have been microscopic." The ALJ noted, however, that although the complainant did not make any factually viable complaints of company-wide wage underpayments, systemic violations of FLSA could alter the accuracy of a company's financial disclosures mandated by SOX and therefore "might reach the necessary magnitude to effectively perpetuate a fraud on shareholders."
F. What Retaliation is Prohibited?
1. Retaliation Defined
This statute prohibits such companies and their officers, employees and agents, from discharging, demoting, suspending, threatening, harassing, "or in any other matter discriminat[ing] against an employee because of any lawful act done by the employee" relating to such alleged violations. 18 U.S.C. § 1514A(c); see generally "Sarbanes-Oxley Act of 2002," H. Rept. No. 107-610 (July 24, 2002). Successful claimants can obtain make-whole relief, including reinstatement, along with back pay with interest, and compensation for special damages, including litigation costs, expert witness fees, and reasonable attorney's fees. Id.
2. Adverse Action Requirement
Department of Labor ALJs have differed as to whether an adverse action sufficient to support a Sarbanes-Oxley whistleblower claim, must produce some tangible job consequence. Some ALJs have required such tangible job actions. See, e.g., Bechtel v. Competitive Technologies, Inc., 2005-SOX-33 (ALJ Oct. 5, 2005) (finding that the Respondent had not engaged in adverse action when it removed the Complainant's status as an officer of the company and failed to conduct an employment evaluation where there was no evidence of a loss of pay, raises, bonus, benefits, or other negative impact on employment conditions). Other ALJs have used a broader approach to the adverse action requirement, finding actions that are "reasonably likely to deter employees from making protected disclosures," sufficient. See Halloum v. Intel Corp., 2003 SOX 7, 15-16 (ALJ Mar. 4, 2004) (dismissed on other grounds and affirmed by the ARB).
In a case arising not under Sarbanes-Oxley but under the employee-protection provisions of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century ("AIR 21"), 49 U.S.C. § 42121, the ARB issued a ruling that expressly adopted the broad definition of retaliatory acts that the U.S. Supreme Court enunciated in Burlington Northern & Santa Fe Ry. Co. v. White, --- U.S. ---, 126 S. Ct. 2405, 2409 (June 22, 2006). In Burlington Northern, the Supreme Court held that in order to trigger a violation of Title VII's anti-retaliation provision, "the employer's actions must be harmful to the point that they could well dissuade a reasonable worker from making or supporting a charge of discrimination." The ARB applied this standard in a case arising under AIR 21, and suggested in doing so that the broader standard would apply in cases arising under the employee-protection provisions of SOX and the other statutes enforced by the DOL. See Hirst v. Southeast Airlines, Inc., ALJ No. 2003-AIR-47, ARB Nos. 04-116, 04-160, (ARB Jan. 31, 2007), slip op. at 9 - 11. In a more recent case, the ARB applied the same standard to a case arising under Sarbanes-Oxley and the Environmental Acts. Powers v. Paper, Allied-Industrial Chemical & Energy Workers Int'l Union (PACE) , ARB No. 04-111, ALJ No. 2004-AIR-19 (ARB Aug. 31, 2007) (finding Burlington Northern applicable, but ultimately holding that there were insufficient facts to determine that the employer's actions could have dissuaded a reasonable worker in complainant's position from making or supporting a whistleblower complaint).
G. The Litigation Process
1. Arbitration and Settlement Agreements
As with other federal employment law statutes, employers may seek to avoid civil suit in federal court under Sarbanes-Oxley through settlement agreements releasing all claims and/or agreements to arbitrate. See, e.g., Ulibarri v. Affiliated Computer Services, 2005-SOX-46 and 47 (ALJ Jan. 13, 2006); Boss v. Salomon Smith Barney Inc., 263 F. Supp. 2d 684, 685 (S.D.N.Y. 2003) (nothing in the text or legislative history of the SOX evinces an intent to preempt the FAA); Moldauer v. Canadaigua Wine Co., ARB No. 04-022, ALJ No. 2003-SOX-26 (ARB Dec. 30, 2005) ( case dismissed on timeliness grounds, but one board member but wrote separately that the severance agreement releasing all claims against the respondent should control the outcome).
2. Filing a Claim
To qualify for relief under the statute, the employee must file a complaint with OSHA within 90 days after the alleged violation. The 90 day requirement is strictly enforced and begins once the employee either experiences or has notice of an adverse action. See, e.g., Rollins v. American Airlines, ARB No. 04-140, ALJ No. 2004-AIR-9 (ARB Apr. 3, 2007) (counting the 90 day period as beginning with an advisory letter which provided "final and unequivocal" notice of termination to the complainant, not the actual termination letter issued 5 days later, and finding the complaint untimely because complainant failed to file his complaint within 90 days of the advisory letter); Halpern v. XL Capital, Ltd., ARB No. 04-120, ALJ No. 2004-SOX-54 (ARB Aug. 31 2005) (rejecting complainants argument that he was entitled to tolling because he was unaware of unlawful motive for retaliatory action within the limitations period); but see, Corbett v. Energy East Corp., 2006-SOX-00065 (ALJ Nov. 03, 2006) (finding that the tolling of the statute of limitations began when plaintiff was terminated rather than when plaintiff lost his job benefits because his complaint was based on his termination, not his removal as Director of Human Relations, even though the judge ultimately found the two happened on the same day). An Administrative Law Judge has recently dismissed a case as untimely holding that a tolling agreement entered into by the parties in furtherance of settlement negotiations was ineffective. See Szymonik v. TyMetrix Inc., Case No. 2006-SOX-50, (March 8, 2006). There is no written form required, but the complaint must be in writing and should include a full statement of the allegations, with relevant dates.
3. The Litigation Process
After a claim has been filed, OSHA will then conduct an investigation if it determines that the employee has stated a prima facie case that his protected conduct was a contributing factor in an unfavorable employment action, and the employer has failed to rebut the claim by clear and convincing evidence. Otherwise, OSHA will dismiss the complaint.
Either party may appeal an adverse decision by OSHA to the Department of Labor's Office of Administrative Law Judges, which then conducts an administrative hearing preceded by discovery. The ALJ's decision can be appealed by the unsuccessful party to the Department of Labor's Administrative Review Board, with further appeal to the U.S. Circuit Court of Appeals for the circuit in which the employee resided or the violation allegedly occurred.7 This statutory enforcement scheme is comparable to those of other federal whistleblower statutes administered by the U.S. Department of Labor, with one significant exception: a party can remove the claim to federal court if the Department of Labor does not resolve the claim within 180 days.8 Jurisdiction vests with the district court when the case is filed. Stone v. Duke Energy Corp., 432 F.3d 320 (4th Cir.2005) (case below 2003-SOX-12).
4. Department of Labor Reporting to SEC
One key provision of Sarbanes-Oxley is that the Department of Labor must supply the details of the employee's charge to the Securities & Exchange Commission (SEC), to allow that agency the opportunity to conduct its own investigation. See 29 C.F.R. § 1980.1034(a). This provision provides a powerful incentive for the employer to settle a claim before it is filed with the Department of Labor.
5. Burdens of Proof
The statute provides that the burdens of proof in a Sarbanes-Oxley whistleblower case are identical to the burdens in cases arising under AIR 21's whistleblower provisions.9 The ARB reiterated the procedures and burdens of proof applicable to an AIR21 whistleblower complaint in Brune v. Horizon Air Industries, Inc., ARB No. 04-037, ALJ No. 2002-AIR-8 (ARB Jan. 31, 2006). In Brune the Administrative Review Board differentiated the approach taken by OSHA at the investigatory stage, where a complainant need only raise an inference of the violation, from the approach at the hearing stage, where a complainant must prove by a preponderance of the evidence that protected activity contributed to the adverse action. If the complainant establishes a claim by a preponderance of evidence, the employer then faces a burden of proof and can avoid liability if it demonstrates by "clear and convincing evidence" that it would have taken the same adverse action absent the protected activity.
Several recent SOX decisions have reached results in favor of employees that appear to have been driven by these differing burdens of proof. In Platone v. Atlantic Coast Airlines, 2003-SOX-27, at 28 (ALJ Apr. 30, 2004) and Welch v. Cardinal Bankshares Corp., 2003 SOX 15, at 47 (ALJ Jan. 28, 2004), the employees were found to have met their burdens by providing by a preponderance of the evidence that they had a reasonable, good-faith belief that they had raised concerns about financial fraud. The defendants were found not to have satisfied the "clear and convincing" standard. In both cases, the defendants argued that they had good reasons to terminate the plaintiffs.
In Platone, the plaintiff's job was to represent management's position in dealings with the company's labor unions. The defendant argued that Ms. Platone was terminated because she had concealed that she was having a romantic relationship with a representative of the union. The ALJ ruled that the defendant had failed to demonstrate by clear and convincing evidence that the romantic relationship was the true reason for the termination.
In Welch, the plaintiff was the chief financial officer of a small bank who raised concerns about potential financial fraud. The bank terminated his employment when the plaintiff refused to talk with the bank about his concerns unless his attorney was present. The ALJ ruled that the plaintiff had proven by a preponderance of the evidence that he had a good faith belief in his report. The ALJ further ruled that the defendant bank had not proven its defense of failure to cooperate in the bank's investigation by clear and convincing evidence. But see, Leak v. Dominion Resources Serv., Inc., 2006-SOX-12 (ALJ Jan. 26, 2007)(holding that a causal connection was not established because the plaintiff's refusal to attend a meeting that his employer had told him he had to attend but could not tape-record constituted an "intervening event that independently could have caused the adverse action." The key inquiry was "whether the employee has upset the balance that must be maintained between protected activity and shop discipline").
Further supporting the "proponderance of evidence standard, Klopfenstein, 04-SOX-11 (ARB May 31, 2006), emphasized that "a complainant is not required to prove pretext, because a complainant alternatively can prevail by showing 'that the defendant's reason, while true, is only one of the reasons for its conduct, and another "motivating factor" is the plaintiff's protected activity.'" (Citing Rachid v. Jack in the Box, Inc., 376 F.3d 305, 312 (5th Cir. 2004). The "ultimate question" is whether the complainant can prove that the protected activity was a contributing factor in the adverse employment action. Id.
6. Limitations on Coverage
Most Sarbanes-Oxley whistleblower cases are litigated through Department of Labor Administrative Courts. The Department of Labor provides the latest ALJ decisions at Whistleblower Decisions SARBANES-OXLEY ACT, § 806 2006-SOX and Whistleblower Decisions SARBANES-OXLEY ACT, § 806 2007-SOX . Among early decisions of the Administrative Law Judges (ALJ) of the Department of Labor were rulings that Sarbanes-Oxley did not apply retrospectively, see Gilmore v. Parametric Tech. Corp., ALJ No. 2003-SOX-1 (ALJ Feb. 6, 2003), and where the alleged protected activity occurred prior to its effective date, see Kunkler v. Global Futures & Forex, Ltd., ALJ No. 2003-SOX-12 (ALJ Apr. 24, 2003); see generally "ALJ Rejects Retroactive Application of New Corporate Whistleblower Protections," BNA Daily Labor Report, Mar. 10, 2003, at A-1; but see Lerbs v. Buca di Beppo Inc., 2004 SOX 68 11 (ALJ June 15, 2004) (claim actionable where retaliation occurred after enactment of SOX but protected activity occurred before enactment). More recently, ALJ decisions have dismissed claims where the complainant has failed to name the public parent of a non-public subsidiary. See e.g., Dawkins v. Shell Chem., LP, ALJ No. 2005-SOX-41 at 4 (ALJ May 16, 2005); see also Minkina v. Affiliated Physician's Group, ALJ No. 2005-SOX-00019 at 5-6 (ALJ Feb. 22, 2005) (discussing the Act's definition of "covered entity" and the publicly traded requirement).
Sarbanes-Oxley covers large and small publicly traded companies.10 See Jayaraj v. Pro-Pharmaceuticals, Inc., 2003 SOX 32 (ALJ Feb. 11, 2005) (holding that high-tech start-up company with only five employees is covered by the Act since it has registered and its shares are traded on the OTC market). Numerous efforts to bring SOX whistleblower claims where the respondent is not a publicly traded company have been unsuccessful. See e.g., Judith v. Magnolia Plumbing Co., Inc., 2005-SOX-99 and 100 (ALJ Sept. 20, 2005) (contracts with municipal and federal governments insufficient); Goodman v. Decisive Analytics Corp., 2006-SOX-11 (ALJ Jan. 10, 2006) (engineering consulting contracts with publicly traded companies insufficient), Smith v. Hewlett Packard, 2005-SOX-88 to 92 (ALJ Jan. 19, 2006) (direct mail service provider for publicly traded company not covered). See also Brady v. Calyon Securities (USA), 406 F. Supp. 2d 307 (S.D. N.Y. Nov. 8, 2005) (granting defendants motion to dismiss SOX claims brought by research analyst at non-publicly traded securities broker-dealer that acts as an agent or underwriter for publicly traded companies in limited financial contexts), Roulett v. American Capital Access, 2004 SOX 78 (ALJ Dec. 22, 2004) (a publicly traded company's reliance on services purchase of products from non-publicly traded company insufficient to support SOX claim by employee of non-publicly traded company against publicly traded company).
It is important to note that corporate parent liability may attach in SOX cases under some circumstances. Kalkunte v. DVI Fin. Servs., Inc., No.2004-SOX-56 (ALJ July 18, 2005) (non-publicly traded company was hired to operate a publicly traded company and was deemed an agent of the publicly traded company for SOX liability where main principal acted as non-publicly traded company's Executive Officer and admitted that he had made the decision to fire the claimant). However, dismissal is likely where there is insufficient evidence of commonality of management and purpose presented to justify parent liability for actions of subsidiary. McIntyre v. Merrill Lynch, Pierce, et. al. and Merrill Lynch & Co., 2003-SOX-23 (ALJ Sept. 4, 2003) sets out criteria for determining whether a parent company is actually covered by the act including, enterprise "are: 1) interrelation of operations; 2) common management; 3) centralized control of labor relations; and 4) common ownership." Id. at 511.
H. What are the Available Remedies?
Some recent cases illustrate the range of remedies made available by the Department of Labor in successful cases. In one case, the ALJ awarded, back pay, expenses of commuting to the new job, pre-judgment interest, expenses of finding a new job, and the cost of an air conditioner needed while living close to the new job. See Welch v. Cardinal Bankshares Corp., 2003 SOX 15 (ALJ Supplemental Recommended Decision, Feb. 15, 2005). In another, the ALJ noted that successful plaintiffs may be entitled able to recover the value of lost stock options if pled with specificity. See Jayaraj v. Pro-Pharmaceuticals, Inc., 2003 SOX 32 (ALJ Feb. 11, 2005). Punitive damages are not available under Sarbanes-Oxley. Murray v. TXU Corp., No. Civ.A.3:03-CV-0888-P, 2005 WL 1356444, at *4 (N.D. Tex. June 7, 2005) (reviewing the legislative history and noting that the omission of punitive damages from the statute is clear and unequivocal).
I. Problems with Remedies and Reinstatement Enforcement
In Welch v. Cardinal Bankshares Corp., 2005 WL 990535 (U.S. Dept. of Labor), 22 IER Cases 1197 2003-SOX-15 (Feb 15, 2005), which was one of the first SOX whistleblower cases to issue a reinstatement order, the claimant was to receive a range of relief including, reinstatement, back pay, costs associated with his job search, and other expenses. The respondents' attempt to avoid reinstatement by re-electing the board and re-terminating the employee on the grounds of poor performance was rejected. However, this success on the administrative level was recently deflated by a Virginia federal district court decision granting the employer's motion to dismiss the plaintiff's complaint without prejudice, which sought to enforce the AJJ's reintstatement order. Welch v. Cardinal Bankshares Corp., 407 F. Supp. 2d 773 (2006). The Court did not comment on the appropriateness of the reinstatement itself, but rather based its decision on the ALJ's failure "to follow technical requirements that would indicate that his [Supplemental Recommended Decision and Order] was a preliminary order of reinstatement at the time it was filed." Id. At 776. The Court was particularly concerned that the defendant had no notice that the ALJ intended the reinstatement to be effective during the ARB's review of the board's appeal. Id.
In March 31, 2006, the ARB in the Welch case entered an order that ALJ's Order was clear on reinstatement but gave the employer ten (10) days to seek a stay of the order of reinstatement because of the confusion. Then on June 9, 2006, the ARB denied the motion for a stay and issued an order that Welch should be reinstated, although it still had not ruled on the merits of the case. Welch v. Cardinal Bankshares, Inc., ARB Case No. 06-062 (June 9, 2006).
After still not receiveing reinstatement, the plaintiff in Welch filed another petition in Virginia federal district court to enforce the reinstatement. The Court again denied this petition by granting the defendant's motion to dismiss, holding that it did not have jurisdiction over the matter because the reinstatement order was not final. Welch v. Cardinal Bankshares Corp., 2006 WL 2838894 (W.D. Va. Oct. 5, 2006). In coming to this decision, the court relied on traditional rules of statutory interpretation, finding that congressional intent was clear in the language of the statute and that it overrides the CFR provision providing for judicial enforcement. Id. at 3-4. The Court acknowledged that this ruling resulted in "a departure from the adjudication scheme envisioned by Congress," but it put the blame for this departure on the Department of Labor and the delay in the administrative process. Id. at 5. The Court also noted that the plaintiff still had remedy in this situation because the statute grants the district court de novo review to overcome a Secretary's delay in reviewing a case. Id. at 6; 18 U.S.C. § 1514A(b)(1) (confering jurisdiction to federal courts "if the Secretary has not issued a final decision within 180 days of the filing of the complaint and there is no showing that the delay is due to the bad faith of the complainant").
J. Some Notable Cases
While federal district courts have had little opportunity to issue substantive decisions on Sarbanes-Oxley claims, some early decisional law is emerging. One court denied the employer's motion for summary judgment, since the two-week gap between the employee's complaints and her termination were sufficient to show causation, i.e., that her protected activity was a contributing factor for the employer's termination, and there were factual issues relating to whether the employer would have terminated her anyway, thereby precluding summary judgment. Collins v. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365 (N.D. Ga. 2004). The court found that plaintiff's allegations that her employer was overpaying invoices to a company owned by a friend of the president of her employer, was overpaying sales agents based on personal friendships, and that kickbacks were paid for the purchase of lumber, thereby "circumvent[ing] the company's system of internal accounting controls in violation of Section 13 of the Exchange Act," was sufficient to set forth a claim that she engaged in protected activity. Id. at 1376-77. Moreover, the burden on defendants in a Sarbanes-Oxley case is to show, by "clear and convincing evidence that they would have fired Plaintiff absent her participation in protected activity," which is a higher standard than the ordinary preponderance of the evidence standard. Id. at 1380 (citing Stone & Webster Eng'g Corp. v. Herman, 115 F.3d 1568, 1572 (11th Cir. 1997)); see also Romaneck v. Deutsche Asset Mgmt., et al., 2006 WL 2385237 (N.D. Cal. Aug. 17, 2006) (holding that summary judgment on the basis of lack of causation was inappropriate when it was up to the jury whether to believe plaintiff's story that he was fired because of his anticipated testimony before the SEC). A court has held that the retaliatory removal of an employee's job responsibilities is sufficient to state a claim. Willis v. Vie Fin. Group, Inc., No. Civ.A. 04-435, 2004 WL 1774575, at *6 (E.D. Pa. Aug. 6, 2004).
1. SOX's "Kick-Out" Provisions - Removal to Federal Court on or after 180 Days
If the DOL has not issued a final decision within 180 days and the delay is not a result of the complainant's bad faith, the complainant may withdraw his or her administrative complaint and file an action for de novo review in federal district court. 18 U.S.C. § 1514A(b)(1)(B). See Nixon v. Stewart & Stevenson Services, Inc. , ARB No. 05-066, ALJ No. 2005-SOX-1 (ARB Sept. 28, 2007) (a complainant may bring a de novo action in federal district court if the DOL had not made a final decision in his case within 180 days of the filing of the complaint with OSHA; the complainant is not required to withdraw the complaint in the DOL proceeding before filing de novo in the district court); Roulett v. American Capital Access Corp., ARB No. 05-045, ALJ No. 2004-SOX-78 (ARB Aug. 30, 2005); Allen v. Stewart Enterprises, Inc., ARB No. 05-059, ALJ Nos. 2004-SOX-60, 61 & 62 (ARB Aug. 17, 2005); McIntyre v. Merrill Lynch, ARB No. 04-055, ALJ No. 2003-SOX-23 (ARB July 27, 2005); Heaney v. GBS Properties LLC, d/b/a/ Prudential Gardner Realtors, ARB No. 05-039, ALJ No. 2004-SOX-72 (ARB May 19, 2005). The district court has jurisdiction without regard to the amount in controversy. Moreover, the same burdens of proof that apply before the ALJ apply in the district court. 18 U.S.C. § 1514A(b)(2)(C).
In Hanna v. WCI Cmtys., Inc., 2004 U.S. Dist. LEXIS 25651 (S.D. Fla. Nov. 18, 2004), a federal district court in Florida explained that OSHA's "preliminary findings" do not constitute a "final" order even if issued within 180 days, rather a "final" order is obtained only when the ARB issues a final decision or if the plaintiff fails to appeal the preliminary order.
In Nixon v. Stewart & Stevenson Services, Inc. , 2005-SOX-1 (ALJ Feb. 16, 2005), complainant's delay constituted "bad faith," and his motion to withdraw his complaint and stay the proceedings was denied. First, complainant requested the proceeding be delayed for financial reasons. The ALJ granted that request over respondent's objections, explaining to complainant the 180-day limitations period would be tolled. Complainant was granted another delay for incomplete discovery. The ALJ again explained the tolling of the limitations period. Respondent then delayed the proceeding because of the unavailability of a witness, and again the limitations period was tolled. Complainant asked to withdraw his complaint to file the action in district court and filed a motion to stay the proceeding, pending filing with the district court. The ALJ refused both motions stating, "his attempt to invoke the 180 limit after having informed the parties he waived such a right and obtaining a delay based on that representation, constitutes bad faith under the regulations."
In Murray v. TXU Corp., 279 F. Supp. 2d 799 (N.D. Tex. 2003), a federal district court in Texas held that the defendant bears the burden of showing that the Secretary's failure to timely issue a final decision was due to the claimant's bad faith. See also Collins v. Beazer Homes USA, Inc., 334 F. Supp.2d 1365 (N.D. Ga. September 2, 2004) (evidence that plaintiff did not fully cooperate with OSHA investigators and that delay in issuance of OSHA's final determination was due in some part to settlement negotiations alone was insufficient to defeat federal court jurisdiction based on plaintiff bad faith; plaintiff's ability to file in federal court is not premised on showing of good faith, but on a failure to show that delay in OSHA's final determination was a result of bad faith).
Fifteen (15) days in advance of filing an action in district court, the complainant must file a notice with the ALJ or ARB of his or her intention to file such a complaint, and serve such notice upon all parties. 29 C.F.R. § 1980.114(b). Standard pleading requirements apply in district court actions. For instance, in Stone v. Duke Energy Corp., No. 3:03-CV-256 (W.D.N.C. Feb. 11, 2004), the court dismissed the plaintiff's SOX complaint for failure to contain "a short and plain statement of the claim" and failure to present claims in separate counts for clear presentation of the matters set forth. The court reasoned that it would "not waste its time searching through Plaintiff's disorganized and indefinite Complaint for a prima facie case."
In Stone v. Duke Energy Corp., 432 F.3d 320 (4th Cir. 2005), the plaintiff filed a SOX complaint in district court after 180 days had passed following his filing of an administrative complaint with DOL. While the district court action was pending, the ALJ entered an order in the administrative proceeding stating that the district court had assumed jurisdiction and the case no longer was before the OALJ. Subsequently, the district court dismissed the complaint for failing to meet pleading requirements. Rather than amend his complaint to satisfy those requirements, the plaintiff filed a new complaint. The employer argued that the ALJ order had been a "final order" so that the plaintiff's new complaint was, in actuality, an appeal of a final decision of the DOL and, thus, had to be brought in the circuit court. The district court agreed, and dismissed the complaint for lack of subject matter jurisdiction. The Fourth Circuit disagreed, and remanded the case back to the district court. It found the ALJ's order was not a final decision. Rather, the ALJ simply was stating the administrative complaint no longer was before him. Moreover, the new complaint really was just a restatement of the prior complaint, and the prior complaint had been filed before the ALJ issued his order.
Complainants must exhaust their administrative remedies before filing a complaint in federal court. 18 U.S.C. § 1514A(b)(1)(A). In McClendon v. Hewlett-Packard Co., 2005 WL 2847224 (D. Idaho Oct. 27, 2005), plaintiff's complaint alleging defendant took away his job duties was untimely under OSHA's 90-day administrative filing period. Plaintiff opted out of the DOL forum and filed an action in the district court, alleging he was not time-barred from asserting other adverse employment actions. The court stated each discriminatory act starts the clock for filing an OSHA complaint. Since plaintiff's additional adverse employment actions were not asserted in his OSHA complaint, the court could not review them.
2. Issues Relating To Removal
An issue that is just beginning to be addressed is whether a complainant may remove an action to district court after receiving an adverse decision from an ALJ, but before completing the appeals process to the ARB, if the ARB has not issued its ruling within 180 days after the filing of the complaint. The DOL suggests that if the administrative process has resulted in a decision by an ALJ or the ARB even if after the expiration of 180 days, courts should apply the principles of collateral estoppel or res judicata in order to prevent the waste of resources resulting from duplicative litigation. 69 Fed. Reg. 52111. Similarly, the DOL suggests that where an administrative hearing has been completed and a matter is pending before an ALJ or the ARB for a decision, a district court should treat a complaint as a petition for mandamus and order the DOL to issue a decision under appropriate time frames. Id.
In Hanna v. WCI Cmtys., Inc., 2004 U.S. Dist. LEXIS 25651 (S.D. Fla. Nov. 18, 2004), OSHA issued its preliminary order after the expiration of 180 days but prior to the filing of the plaintiff's district court lawsuit. While acknowledging the DOL's concerns regarding waste of resources resulting from duplicative litigation, the court held that the plaintiff was not required to exhaust his administrative appeals prior to filing a lawsuit in federal district court. The court reasoned that the plaintiff had not yet even reached the ALJ stage of the administrative process. The result may have been different had the complainant proceeded further through the administrative process.
In Barron v. Duke Energy Corp., No. 3:03-CV-256 (W.D.N.C. June 10, 2003), a federal district court in North Carolina acknowledged the availability of a stay or writ of mandamus in such a case. See also Corrada v. McDonald's Corp., No. 04-1029 (D.C.P.R. Jan. 22, 2004) (granting plaintiff's motion to stay the administrative proceedings and ordering ALJ to demonstrate whether the failure of the DOL to issue a final decision within 180 days was due to the bad faith of the complainant).
However, in Allen v. Stewart Enters., Inc., No. 05-4033 (E.D. La. Apr. 6, 2006) (granting defendant's petition for mandamus to reinstate administrative proceedings in the ARB to issue a ruling on the Rule to Show Cause and to rule on the merits of appeal), a Louisiana federal district court acknowledged its authority to stay federal proceedings and to reinstate the proceedings to the Department of Labor. In doing so, the Court looked beyond the statute's plain language to traditional legal principles of issue preclusion to avoid the absurd result of re-litigating an entire case where the plaintiffs had already fully litigated the matter before the ALJ and had requested a review.
A related issue arises when a complainant pursues claims in other fora based on the same facts and seeking similar relief as the SOX claim. This issue is particularly relevant in the SOX context because SOX retaliation claims potentially give rise to other securities-related or shareholder derivative litigation as well as related actions under state whistleblower protection statutes. The text of SOX suggests that its whistleblower provisions do not preempt such state laws. See 18 U.S.C. § 1514A(d).
In Gonzalez v. Colonial Bank, 2004-SOX-39 (ALJ Aug. 9, 2004) (Gonzalez I), complainant filed a SOX whistleblower complaint with OSHA and several days later a state whistleblower action seeking similar relief on the same facts, which the respondent removed to a federal district court in Florida. The ALJ rejected respondent's argument that complainant was precluded from pursuing his OSHA claim because allowing the SOX case to proceed would have constituted impermissible "claim-splitting." The ALJ held that complainant's case was not barred by res judicata or claim-splitting as there was no prior judgment, the SOX claim was filed first, and most significantly, because the SOX action differed materially from the Florida whistleblower action.
In Hanna v. WCI Cmtys., Inc., 2004 U.S. Dist. LEXIS 25651 (S.D. Fla. Nov. 18, 2004), the court held that OSHA's preliminary findings are not entitled to res judicata (claim preclusion) or collateral estoppel (issue preclusion) treatment in federal district court.
In Radu v. Lear Corp., 2005 WL 2417625 (E.D. Mich. Sept. 30, 2005), the court dismissed plaintiff's SOX claim for failing to meet SOX's procedural requirements. Ninety-one (91) days after plaintiff's termination, he filed his SOX claim (among others) in state court. Shortly after the action was removed to federal court, plaintiff filed a complaint with OSHA. The complaint was dismissed as untimely and plaintiff appealed that determination, requesting the court stay its proceedings. The court refused, ruling that filing a complaint in state court does not satisfy or toll SOX's statute of limitations.
3. Reputational Injury and Right to Jury Trial
There is already conflict over whether the Sarbanes-Oxley Act provides damages for reputational injury. Compare Hanna v. WCI Communities, Inc., 348 F. Supp. 2d 1332, 1334 (S.D. Fla. 2004) (holding that reputational injury is compensable under the provision of the act authorizing all relief "necessary to make the employee whole" and denying the respondent's motion to strike), with Murray v. TXU Corp., No. Civ.A.3:03-CV-0888-P, 2005 WL 1356444, at *3 (N.D. Tex. June 7, 2005) (finding that reputational injury is not compensable). See also Bechtel v. Competitive Technologies, Inc., 2005-SOX-33 (ALJ Oct. 5, 2005) (granting "normal compensatory damages" including damages for reputational harm).12 Another district court held that the Sarbanes-Oxley Act did not preempt an employee's mandatory arbitration provision, pursuant to the employment contract. See Boss v. Salomon Smith Barney, Inc., 263 F. Supp. 2d 684 (S.D.N.Y. 2003).
SOX does not expressly provide for a jury trial. Its legislative history reflects that at least some of its drafters intended that a jury trial be available for whistleblower actions. See 148 Cong. Rec. § 7418, 7420 (comments by Sen. Leahy). The courts, however, remain divided on the issue.
In Hanna v. WCI Cmtys., Inc., 2004 U.S. Dist. LEXIS 25650 (S.D. Fla. Dec. 2, 2004), a federal district court in Florida acknowledged that SOX is silent as to whether a plaintiff may demand a jury trial, and that the issue was one of first impression. The court, however, refused to address the issue until and unless the parties' dispositive motions were denied, so that "the court might have the benefit of guidance from other courts that have considered the availability of jury trials under the Sarbanes-Oxley Act."
In Murray v. TXU Corp., 2005 U.S. Dist. LEXIS 10945, 2005 WL 1356444 (N.D. Tex. June 7, 2005), the court granted defendants' Motion to Strike Plaintiff's Demand for a Jury Trial (but would consider an advisory jury if requested). The court determined SOX does not provide remedies for reputational injury nor does it provide for punitive damages, both of which plaintiff was seeking from a jury. In addition, the court rejected the contention that SOX's reference to an "action at law" implied a right to a jury trial. The court stated the legislative history, specifically Senator Leahy's comments in favor of a jury trial, were unpersuasive.
On August 14, 2007, a federal judge in the Eastern District of Tennessee decided that the remedies provision of Section 806 of the Sarbanes-Oxley Act ("SOX") does not give SOX plaintiffs the right to a jury trial or non-economic damages, also referred to as legal damages, to provide redress for harm to reputation, emotional, mental or physical distress and anxiety.
In Walton v. Nova Information Systems, the plaintiff alleged that after she voiced concerns about the failure of Nova Information Systems to comply with certain statutory and regulatory requirements, the company retaliated against her by refusing to give her unpaid medical leave or reasonable accommodations for her medical condition and, ultimately, by terminating her employment. She filed a complaint and jury demand in federal court asserting claims under state common law, the Americans with Disabilities Act, the Family Medical Leave Act and the Sarbanes-Oxley Act. Nova Information Systems filed a motion to strike the plaintiff's demand for a jury trial as it related to her SOX retaliation claim and her claims for non-economic damages which included harm to her career and reputation, emotional, mental and physical distress and anxiety and punitive damages.
The court granted the company's motion, ruling that Walton was not entitled to a jury trial or non-economic damages under the remedies provision of Section 806 of SOX. First, the court emphasized that the express language of the remedies provision of Section 806 does not include wording regarding legal damages. This provision provides for limited types of damages that are primarily "restitutionary" including: reinstatement, back pay, and any damages "sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorneys fees." Since the provision makes no direct mention of non-pecuniary damages, the court determined that the plaintiff could not demand such damages.
Second, the court rejected the plaintiff's argument that her claim for back pay damages was a legal remedy entitling her to a jury trial. Emphasizing that the back pay provision of SOX is intended to "make the employee whole," the court held that back pay damages cannot be considered a legal remedy because they are "restitutionary" or equitable in nature. The fact that back pay damages are an equitable remedy and not a legal remedy precluded Walton from asserting entitlement to a jury trial. The court also determined that because the plaintiff did not specifically state any items of special damages (i.e. litigation costs, attorneys' fees), which are typically considered a legal remedy, she could not assert a general request for special damages as a basis of entitlement to a jury trial.
Third, the court declined to accept Walton's argument that the "action at law" phrase in the enforcement provision of SOX made jury trials available for Section 806 retaliation claims. The court again looked to the text of the statute and determined that since no express right to a jury trial was outlined in the statute, Congress did not intend for SOX retaliation claims to be decided by juries.
The court concluded its analysis by emphasizing that SOX was enacted primarily to protect the public - all current or potential investors generally - and was not enacted to create individual, private rights of action. The court added that "Congress deemed an action under Section 806 to be so closely integrated with the public regulatory scheme that it made the resolution of such a claim appropriate for administrative agency resolution prior to resolution by the judiciary." Because Congress intended that the objectives and provisions of SOX be enforced and principally adjudicated by the Department of Labor, retaliation claims under this law that have been removed from that agency after the 180 day time period should be resolved by courts of equity. Therefore, the court concluded that Congress's designation of an administrative agency as the primary vehicle for enforcing SOX precluded the plaintiff from entitlement to a jury trial.
Walton v. Nova Information Systems is the latest in a limited line of cases considering the issue of whether SOX grants a right to jury trial. Judges' decisions on the issue are currently split which suggests that this may be an increasingly litigated issue for SOX claimants.
4. A Few Challenges in Final Rules
On August 24, 2004, OSHA promulgated its final rules for handling these complaints, codified at 28 C.F.R. Part 1980. See 69 Fed. Reg. 52,113-52,117 (Aug. 24, 2004). OSHA has been criticized for its handling of whistleblower complaints under the fourteen whistleblower statutes that it handles, which may arise from the agency's limited resources. See E. Byerrum, "Protections for Job Safety Whistleblowers Among Weakest of Those Overseen by OSHA," 72 U.S.L.W. 2211 (Oct. 21, 2003); J. Scalia, "A Note of Caution; Whistleblower Provisions are Making Labor Judges Wrestle with Securities Law," Legal Times, Apr. 19, 2004, at 46.
II. RETALIATION CLAIMS
Workplace retaliation claims - in which the plaintiff alleges that he or she was retaliated against for having exercised his or her rights under the anti-discrimination statutes - are an increasingly important component of employment discrimination litigation. Retaliation claims are comparable to, but distinct from, statutory discrimination and harassment claims.
Section 704 of Title VII protects employees from retaliation for opposing discriminatory or harassing practices or for participating in an inquiry into discriminatory or harassing practices. The "opposition" clause makes it unlawful to discriminate against a person who "has opposed any practice made an unlawful employment practice by this subchapter," and the "participation" clause similarly makes it unlawful to discriminate against a person who "has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this subchapter." 42 U.S.C. § 2000e-3(a) (emphasis added).
The references to "this subchapter" means that this statute protects only those who have opposed or participated in any matter under Title VII; equivalent statutory protections are available under the Americans with Disabilities Act ("ADA"), the Age Discrimination in Employment Act ("ADEA"), and the Equal Pay Act ("EPA"), but not other anti-discrimination statutes, including Section 1981. Nonetheless, several federal courts have allowed plaintiffs to allege retaliation under Section 1981. See, e.g., Carney v. American Univ., 151 F.3d 1090, 1094-95 (D.C. Cir. 1998) (collecting cases); Hawkins v. 1115 Legal Serv. Care, 163 F.3d 684, 693 (2d Cir. 1998) (Section 1981 plaintiff must allege retaliation "in response to the claimant's assertion of rights that were protected by § 1981").
Public employees may also be able to invoke the First Amendment, through a Section 1983 claim, 42 U.S.C. § 1983, to protect their workplace speech or conduct from retaliatory actions. Whistleblower statutes, state or federal, may provide yet another remedy for public or private employees. See generally E.S. Callahan & T.M. Dworkin, "The State of Whistleblower Protection," 38 Am. Bus. L.J. 99 (2000) (collecting state statutes and case law); S.M. Kohn, Concepts and Procedures in Whistleblower Law (2001) (collecting federal statutes and case law); R.G. Vaughn, "State Whistleblower Statutes and the Future of Whistleblower Protection," 51 Admin. L. Rev. 581 (1999). Detailed discussion of these topics is beyond the scope of this chapter, except for the Sarbanes-Oxley Act of 2002, which is discussed in Part J, infra. Practitioners should determine their availability for any given plaintiff.
Most states have state anti-retaliation statutes, many of which are modeled after Title VII, and which may cover employees who are not covered by Title VII (such as those who work for employers with fewer than 15 employees). Two recent, high-profile cases from the Supreme Court of California illustrate the broad scope of some state statutes. Miller, involved discrimination, harassment, and retaliation claims brought by several female employees at a state prison who alleged that the warden engaged in sexual favoritism by promoting a co-worker who was also his mistress. The Court held it was not necessary for plaintiffs to "elaborate to their employer on the legal theory underlying the complaints they are making." Rather, all they had to do to state their retaliation claim was to show that they made a complaint "of sexual favoritism in the workplace," and suffered consequences as a result. Miller v. Dep't of Corrections, 36 Cal. 4th 446, 115 P.3d 77, 30 Cal. Rptr. 3d 797, 821 (2005); see also B. Egelko, "State High Court Rules on Sex with the Boss; 'Casting Couch' Way to the Top can be Deemed Harassment," San Francisco Chronicle, July 19, 2005 at B-1. More recently, in Yanowitz, which involved a sales manager for a cosmetics company who alleged that her employer took adverse actions against her after she repeatedly refused to comply with a supervisor's demands that she fire a dark-skinned female sales associate and replace her with "somebody hot," or "one who looks just like," a young, blond customer, the Court held that the plaintiff had set forth sufficient facts to survive summary judgment. Yanowitz v. L'Oreal USA, Inc., No. S115154, 2005 WL 1903591 (Cal. Aug. 11, 2005). The court further held that refusal to follow a supervisor's discriminatory directive can constitute protected activity under the state anti-retaliation statute, even if the employee does not tell the supervisor why she so refused. The Court further held that the plaintiff could use the continuing violation doctrine to show the totality of circumstances relating to the retaliatory actions. Id.; see also B. Egelko, "Woman's Suit Against L'Oreal to go to Trial; Court Rules Alleged Retaliatory Actions a Civil Rights Matter," San Francisco Chronicle, Aug. 12, 2005, at B-4; M. Dolan, "Court Widens Protections for Workers Sensing Bias," L.A. Times, Aug. 12, 2005.
Retaliation claims are an increasingly important component of litigation and EEOC charges. In fiscal year 1992, 15.3% of all charges filed with the EEOC included a retaliation claim; this increased to 29.8% of all charges in fiscal year 2006. See EEOC, Charge Statistics FY 1997 Through FY 2006 (Feb. 26, 2007).
In 1998, the EEOC issued a revised version of its Compliance Manual section on "Retaliation" which provides a useful overview of the EEOC's guidelines and analytical framework for investigating retaliation claims. See EEOC Compliance Manual, Section 8, Retaliation (May 20, 1998). This Manual acknowledges, in several areas, that the EEOC disagrees with the current case law, or that the EEOC has adopted a position not taken by a majority of the courts. Thus, this Manual is, in part, a statement of what the EEOC believes the law should be.
The courts have recognized that a plaintiff can succeed on her retaliation claim, even if the underlying discrimination or harassment is found not to be actionable, so long as the plaintiff had a reasonable belief that she was engaged in protected conduct, or that the employer was engaged in illegal conduct:
An employee does not need to demonstrate that the action he protests is actually a violation of Title VII, instead he need only to have a good faith belief that his behavior is protected conduct. Moreover, in order to prevail on a retaliation claim, a plaintiff need not prove the merits of the underlying discrimination complaint. A verdict, therefore, can contain both a finding against a plaintiff on his Title VII claim, but for a plaintiff on his Title VII retaliation claim.
Bianchi v. Philadelphia, 183 F. Supp. 2d 726, 739 (E.D. Pa. 2002) (internal citations omitted); see also Evans v. Port Auth. of N.Y. & N.J., 192 F. Supp. 2d 247, 278 (S.D.N.Y. 2002) ("If anything, the evidence supporting a finding of retaliation is stronger than the evidence supporting a finding of discrimination because the jury need not take the logical step from plaintiff's [protected conduct] to his race.").
The Tenth Circuit addressed the question of "whether a plaintiff may maintain a retaliation claim based on a subjective good-faith belief that the challenged conduct violated Title VII." Crumpacker v. Kansas Dep't of Human Resources, 338 F.3d 1163, 1171 (10th Cir. 2003). The Tenth Circuit noted that several prior circuit cases had allowed such claims, but the Supreme Court's intervening decision in Clark County Sch. Dist. v. Breeden 532 U.S. 268 (2001) (per curiam), had rejected that approach, to the extent that it was based on a plaintiff's unreasonable belief. "The Supreme Court, however, recently rejected by implication any interpretation of Title VII that would permit plaintiffs to maintain retaliation claims based on an unreasonable good-faith belief that the underlying conduct violated Title VII." Crumpacker, 338 F.3d at 1171 (citing Clark County, 532 U.S. at 269). Thus, "the Supreme Court's decision in Clark supercedes and overrules this court's prior decisions, to the extent they interpreted Title VII as permitting retaliation claims based on an unreasonable good-faith belief that the underlying conduct violated Title VII." Id. However, a reasonable good-faith belief remains protected under the anti-retaliation statute. "By permitting plaintiffs to maintain retaliation claims based on a reasonable good-faith belief that the underlying conduct violated Title VII, employees are able to report what they reasonably believe is discriminatory conduct without fear of reprisal. Strong policy supports allowing plaintiffs to maintain such claims." Id. at 1172.
Recently, the Fourth Circuit further expounded upon what constitutes a reasonable good faith belief regarding the underlying conduct in a retaliation claim. In Jordan v. Alternative Resources Corp., 458 F.3d 332 (4th Cir. 2006), plaintiff heard a coworker, who was watching television exclaim "they should put those two black monkeys in a cage with a bunch of black apes and the let the apes f-k them." Id. The coworker was speaking to the television set in response to a report about the D.C. snipers. Id. at 336. Plaintiff complained about the coworker's comments to various supervisors and alleges that he was retaliated against after having complained. Id. at 337. Relying on the holding in EEOC v. Navy Federal Credit Union, 424 F.3d 397, 406 (4th Cir. 2005), which established the objective-reasonableness inquiry, the court held that an employee could not have reasonably believed that the conduct he complained about - a racially hostile work environment - violated Title VII when such conduct was isolated, not directed at him and there was no suggestion of any plan in motion to create a hostile work environment or that a hostile work environment was likely to occur as a result of one co-worker's singular racist comment. Jordan, 458 F.3d at 340-341. Denying the plaintiff's petition for rehearing en banc, the Fourth Circuit summarily affirmed its prior holding which maintained that "as the law stands, Title VII does not create a claim for every employee who complains about the potential for Title VII violations or about other employees' isolated racial slurs." Jordan v. Alernative Resources Corp., --- F.3d ---, 2006 WL 2925641, at *3 (4th Cir. October 13, 2006). The court reasoned that despite an employee's contention that a single isolated incident might eventually lead to a Title VII violation, the law does not protect employees in connection with their complaints about potential or future violations. Id., at *2. Therefore, an employee's retaliation claim should be based on an "objectively reasonable belief that a violation is actually occurring based on circumstances that the employee observes and reasonably believes." Jordan, 458 F.3d at 341. A petition for certiorari has been filed in this case. See Doug Huron, "Report Racism, Get Fired", Legal Times, May 22, 2006.
Title VII discrimination and harassment claims can be based on a "mixed motive" element allowing the plaintiff to recover when she "demonstrates that race, color, religion, sex, or national origin was a motivating factor for any employment practice, even though other factors also motivated the practice." 42 U.S.C. § 2000e-2(m). However, the federal appellate courts have consistently held that this statutory "mixed motive" element is not available for Title VII retaliation claims, since the statute does not include retaliation for engaging in protected conduct in its listing of five categories of protected status. See Pennington v. City of Huntsville, 261 F.3d 1262, 1269 (11th Cir. 2001); Matima v. Celli, 228 F.3d 68, 81 (2d Cir. 2000); Kubicko v. Ogden Logistics Servs., 181 F.3d 544, 552 n.7 (4th Cir. 1999); McNutt v. Board of Trustees of the Univ. of Ill., 141 F.3d 706, 707-09 (7th Cir. 1998); Woodson v. Scott Paper Co., 109 F.3d 913, 932-36 (3d Cir. 1997); Tanca v. Nordberg, 98 F.3d 680, 682-85 (1st Cir. 1996). The Fifth and D.C. Circuits have refrained from deciding this question. Rubinstein v. Administrators of the Tulane Educ. Fund, 218 F.3d 392, 403 (5th Cir. 2000); Borgo v. Goldin, 204 F.3d 252, 255 n.6 (D.C. Cir. 2000); see also Porter v. Natsios, 414 F.3d 13, 19 (D.C. Cir. 2005) (citing Borgo).
Against this backdrop, the impact of the Supreme Court's decision in Desert Palace, Inc. v. Costa, 539 U.S. 90 (2003), remains unclear. In Desert Palace, the Court held that direct evidence of unlawful motivation is not required to proceed under a mixed-motive theory. Id. at 101. The Court based its decision largely on the language of § 2000e-2(m), which would suggest that its holding applied only to the discrimination claims within the section's orbit. Yet at least one court has held that because of Desert Palace, the mixed-motive scheme of § 2000e-2(m) applies to retaliation claims as well. See Warren v. Terex Corp., 328 F. Supp. 2d 641, 646 (N.D. Miss. 2004). But see Bozeman v. Per-Se Technologies, Inc. , 456 F.Supp.2d 1282, 1338 n.143 (N.D. Ga. 2006) (rejecting plaintiff's contention that Desert Palace's mixed-motive theory applies to retaliation claims); Funai v. Brownlee, 369 F. Supp. 2d 1222, 1228 (D. Haw. 2004) (holding that Desert Palace does not apply to retaliation claims and applying Price Waterhouse defense).
It seems likely, however, that employers will continue to have a full mixed-motive defense under Price Waterhouse v. Hopkins, 490 U.S. 228 (1989) for retaliation claims. The D.C. Circuit explained the consequences of this defense:
Where, on the other hand, the plaintiff argues that the [retaliatory] action resulted from mixed motives, a slightly different model operates. A plaintiff asserting mixed motives must persuade the trier of fact by a preponderance of the evidence that unlawful retaliation constituted a substantial factor in the defendant's action. Price Waterhouse, 490 U.S. at 276 (O'Connor, J., concurring); id. at 259 (White, J., concurring). When the plaintiff successfully shows that an unlawful motive was a substantial factor in the employer's action, the defendant may seek to prove in response that it would have taken the contested action even absent the discriminatory motive. See id. at 244-45 (Brennan, J.). If the defendant fails to persuade the trier of fact by a preponderance of the evidence that it would have taken the action even absent the discriminatory motive, the plaintiff will prevail. See id. at 276 (O'Connor, J., concurring).
This burden on a defendant in a mixed-motives case has been characterized both as an affirmative defense, id. at 246 (Brennan, J.) and as a shifting burden of persuasion, id. at 274 (O'Connor, J., concurring). The question of characterization is "semantic," and need not be definitively resolved. See id. at 259 (White, J., concurring). What is noteworthy, however, is that under Price Waterhouse a defendant who is guilty of acting pursuant to an unlawful motive may nonetheless escape liability by proving that it would have made the same decision in the absence of the unlawful motivation. In short, the ultimate burden of persuasion as to the facts constituting the defense properly falls on the defendant in a mixed-motives case, because the plaintiff has proven that unlawful motivation constituted a substantial factor in the defendant's action.
Thomas v. National Football League Players Ass'n, 131 F.3d 198, 202-03 (D.C. Cir. 1997) vacated on other grounds, 1998 WL 988451 (C.A.D.C. Feb. 25, 1998); see also Rose v. New York City Bd. of Educ., 257 F.3d 156, 161-62 (2d Cir. 2001); Kubicko, 181 F.3d at 552-53 & n.8 (collecting cases).
B. Elements of the Claim: Direct Evidence Framework
If the employee has direct evidence of retaliation, then the McDonnell Douglas burden shifting framework does not apply. As the Seventh Circuit concisely explained, summary judgment should be denied if the employee has direct evidence of retaliation, unless the employer can show, by unrebutted evidence, that it would have made the same adverse employment action against the plaintiff:
The plaintiff in a retaliation case should have two (and only two) distinct routes to obtaining/preventing summary judgment. One, the more straightforward, the one that is unrelated to McDonnell Douglas, is to present direct evidence (evidence that establishes without resort to inferences from circumstantial evidence) that he engaged in protected activity (filing a charge of discrimination) and as a result suffered the adverse employment action of which he complains. If the evidence is uncontradicted, the plaintiff is entitled to summary judgment. If it is contradicted, the case must be tried unless the defendant presents unrebutted evidence that he would have taken the adverse employment action against the plaintiff even if he had had no retaliatory motive; in that event the defendant is entitled to summary judgment because he has shown that the plaintiff wasn't harmed by retaliation.
Stone v. City of Indianapolis Public Utilities Div., 281 F.3d 640, 644 (7th Cir. 2004). If the plaintiff does not have direct evidence of retaliation, courts should apply the McDonnell Douglas burden shifting framework, as discussed in the next section.
C. Elements of the Claim: Burden-Shifting Framework
Retaliation claims are typically brought under the McDonnell Douglas burden shifting framework; thus, there are three components to the case. First, the plaintiff must prove her prima facie retaliation claim. Second, the burden then shifts to the defendant to provide a "legitimate, nondiscriminatory reason" for the action(s) taken. McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802 (1973). Third, if the defendant has satisfied its burden of production, then the plaintiff must be "afforded a fair opportunity" to show that the defendant's proffered reason is pretextual. Id. at 804.
The Supreme Court clarified the level of proof required at each stage and the consequences for a party's failure to satisfy its burden, while keeping the tripartite framework. See St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 509-19 (1993); Texas Dep't of Cmty. Affairs v. Burdine, 450 U.S. 248, 253-56 (1981). Under Hicks, if the plaintiff makes a prima facie case, then the defendant's burden is not discharged unless the defendant "introduces evidence which, taken as true, would permit the conclusion that there was a nondiscriminatory reason for the adverse action." Hicks, 509 U.S. at 509 (emphasis in original). If the defendant meets its burden, then the trier of fact proceeds to the ultimate question - instead of going through the third McDonnell Douglas step - and decides whether to reject defendant's proffered reasons. Id. at 511. If the trier of fact rejects these reasons, then the ultimate burden of persuasion remains with the plaintiff. Id. Alternatively, if the defendant fails to rebut plaintiff's prima facie case, then "the court must award judgment to the plaintiff as a matter of law." Id. at 509.
Courts have consistently recognized three elements to plaintiff's prima facie retaliation claim: "(1) opposition to discrimination or participation in covered proceedings; (2) adverse action; (3) causal connection between the protected activity and the adverse action." See EEOC Compliance Manual, Section 8, at 3. The exact wording used by the various circuits differs somewhat. The Sixth Circuit requires four elements, although its additional element (defendant's knowledge) is inherent in the "causal connection" element of the traditional three-element test. The following cases represent recent statements of the circuit courts for retaliation under Title VII.
District of Columbia Circuit. The plaintiff "must show that (1) she engaged in statutorily protected activity; (2) her employer took an adverse personnel action against her; and (3) a causal connection exists between the two." Carney v. American Univ., 151 F.3d 1090, 1095 (D.C. Cir. 1998); see also Broderick v. Donaldson, 338 F. Supp. 2d 30, 38 (D.D.C. 2004).
First Circuit. The plaintiff "must demonstrate that (1) he engaged in protected conduct under Title VII; (2) he suffered an adverse employment action; and (3) the adverse action is causally connected to the protected activity." Hernandez-Torres v. Intercontinental Trading, Inc., 158 F.3d 43, 47 (1st Cir. 1998); see also Higgins v. TJX Cos., Inc., 331 F. Supp. 2d 3, 6 (D. Me. 2004).
Second Circuit. The plaintiff "must show (1) participation in a protected activity known to the defendant; (2) an employment action disadvantaging the plaintiff; and (3) a causal connection between the protected activity and the adverse employment action." Quinn v. Green Tree Credit Corp., 159 F.3d 759, 769 (2d Cir. 1998); see also Olle v. Columbia Univ., 332 F. Supp. 2d 599, 619 (S.D.N.Y. 2004).
Third Circuit. The plaintiff "must show that: (1) he or she engaged in a protected employee activity; (2) the employer took an adverse employment action after or contemporaneous with the protected activity; and (3) a causal link exists between the protected activity and the adverse action." Weston v. Pennsylvania, 251 F.3d 420, 430 (3d Cir. 2001); Meyer v. Nicolson, 441 F.Supp.2d 735, 741 (W.D. Pa. 2006).
Fourth Circuit. The plaintiff must prove "that (1) plaintiff engaged in a protected activity, such as filing an EEO complaint; (2) the employer took adverse employment action against plaintiff; and (3) a causal connection existed between the protected activity and the adverse action." Causey v. Balog, 162 F.3d 795, 803 (4th Cir. 1998); see also Anderson v. G.D.C, Inc., 281 F.3d 452, 458 (4th Cir. 2002); Schamann v. O'Keefe, 314 F. Supp. 2d 515, 528 (D. Md. 2004).
Fifth Circuit. The plaintiff "must show that: (1) he engaged in an activity protected by Title VII; (2) he was subjected to an adverse employment action; and (3) a causal link exists between the protected activity and the adverse employment action." Davis v. Dallas Area Rapid Transit, 383 F.3d 309, 319 (5th Cir. 2004).
Sixth Circuit. This circuit requires four elements, with the additional element (defendant's knowledge) interposed between the first and second elements of the traditional three-element test. The plaintiff "must show that: (1) he engaged in activity protected by Title VII; (2) this exercise of protected rights was known to defendant; (3) defendant thereafter took adverse employment action; and (4) there was a causal connection between the protected activity and the adverse employment action." Hafford v. Seidner, 183 F.3d 506, 515 (6th Cir. 1999); accord Allen v. Michigan Dep't of Corrections, 165 F.3d 405, 412 (6th Cir. 1999); see also Bukta v. J.C. Penny Co., Inc., 359 F. Supp. 2d 649, 671 (N.D. Ohio 2004). Since the discussion in this chapter is based on the three-element test, practitioners in the Sixth Circuit should refer to these two cases, and the earlier cases cited therein, for guidance on interpreting the unique aspects of the Sixth Circuit's retaliation test.
Seventh Circuit. The Seventh Circuit reformulated its framework for retaliation cases based on indirect evidence by requiring a "similarly situated" analysis, which requires the plaintiff to show that after engaging in protected conduct, "only he, and not any similarly situated employee who did not file a charge [or other protected conduct], was subjected to an adverse employment action even though he was performing his job in a satisfactory manner." Stone, 281 F.3d at 644; Sylvester v. SOS Children's Villages Illinois, Inc., 453 F.3d 900, 902 (7th Cir. 2006). The court explained that "If the defendant presents no evidence in response, the plaintiff is entitled to summary judgment. If the defendant presents unrebutted evidence of a noninvidious reason for the adverse action, he is entitled to summary judgment. Otherwise there must be a trial." Id.
Eighth Circuit. The plaintiff "must show that (1) she engaged in statutorily protected conduct; (2) suffered an adverse employment action; and (3) there is a causal connection between her protected conduct and the adverse employment action." Zhuang v. Datacard Corp., 414 F.3d 849, 856 (8th Cir. 2005).
Ninth Circuit. The plaintiff "must show that: (1) he or she engaged in a protected activity; (2) suffered an adverse employment action; and (3) there was a causal link between the two." Pardi v. Kaiser Found. Hospitals, 389 F.3d 840, 849 (9th Cir. 2004); Gribben v. United Parcel Serv., Inc., Slip Copy, 2006 WL 616645 *4 (D. Ariz. Mar. 8, 2006).
Tenth Circuit. The plaintiff "must show: (1) she engaged in protected activity; (2) she suffered an adverse employment action; and (3) there was a causal connection between the protected activity and the adverse action." Duncan v. Manager, Dep't of Safety, 397 F.3d 1300, 1314 (10th Cir. 2005); see also Medlock v. Ortho Biotech Inc., 164 F.3d 545, 549-550 (10th Cir. 1999) (using direct evidence method instead of burden-shifting framework).
Eleventh Circuit. The plaintiff "must show that (1) she engaged in protected activity, (2) she suffered an adverse employment action, and (3) there was a causal link between the protected activity and the adverse employment action." Stavropoulos v. Firestone, 361 F.3d 610, 616 (11th Cir. 2004).
1. Protected Activity
The EEOC has provided four generic examples of opposition activity, all of which must be read, pursuant to the statute, as involving unlawful discrimination: (1) "threatening to file a charge or other formal complaint alleging discrimination;" (2) "complaining to anyone about alleged discrimination against oneself or others;" (3) "refusing to obey an order because of a reasonable belief that it is discriminatory;" and (4) "requesting reasonable accommodation or religious accommodation." See EEOC Compliance Manual, Section 8, at 4-6. The fourth provision does not apply to racial or sexual harassment plaintiffs, although some may also have a claim related to their religion or disability.
Participation activity essentially tracks the statutory definition, i.e., having "made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under [Title VII]." 42 U.S.C. § 2000e-3(a).
The retaliation cases referenced below provide the following non-exhaustive examples of what the courts have considered to be protected activity:
(1) Plaintiff "complained to  management about what she believed constituted discriminatory practices" and was fired "after she failed to appear for the [in-house] deposition concerning [another plaintiff's] employment at Cort Furniture." Aman v. Cort Furniture Rental Corp. , 85 F.3d 1074, 1085 (3d Cir. 1996).
(2) Plaintiff filed "various grievances against [defendant]" with the EEOC and the Michigan Civil Rights Commission. Allen, 165 F.3d at 412.
(3) Plaintiff filed two EEOC charges alleging discrimination. Berman v. Orkin Exterminating Co., 160 F.3d 697, 702 (11th Cir. 1998).
(4) Plaintiff's letter to outside investigators "purports to complain of racism, sexism, and retaliation." Douglas v. DynMcDermott Petroleum Operations Co., 144 F.3d 364, 373 (5th Cir. 1998).
(5) Plaintiff filed a complaint with the New York Department of Human Rights. Quinn, 159 F.3d at 769.
(6) Plaintiff was terminated one month after his deposition in his Title VII case; defendants' termination letter stated that their decision was "a result of issues raised in your deposition." Medlock, 164 F.3d at 550.
(7) Plaintiff informed defendant by letter that she intended "to file suit" regarding her discrimination claims. Carney, 151 F.3d at 1095; see also Jones v. Washington Metro. Area Transit Auth., 205 F.3d 428, 433 (D.C. Cir. 2000) (supervisor retaliated against plaintiff "for protected activity, namely the 1985 letter . . . complaining of Department discrimination"); Ferguson v. Small, 225 F. Supp. 2d 31, 38 (D.D.C. 2002) ("Accordingly, the Court finds that the [plaintiff's attorney's] letter to defendant's General Counsel constituted protected activity.").
(8) Plaintiff complained to supervisors and to corporate headquarters about racial harassment. Roberts v. Roadway Express, Inc., 149 F.3d 1098, 1103 (10th Cir. 1998).
(9) Plaintiff provided information to the employer during its internal investigation of another employee's sexual harassment charge. Clover v. Total Sys. Servs., Inc., 176 F.3d 1346, 1353 (11th Cir. 1999).
(10) Plaintiff conducted investigation of sexual harassment claim against the head of his employee's union, who then retaliated by denying him a promotion. McMenemy v. Rochester, N.Y., 241 F.3d 279, 284-85 (2d Cir. 2001).
(11) Plaintiff actively participated in an internal diversity program "aimed at promoting the hiring of people of color and fostering relationships with minority firms," after which his supervisors increasingly criticized his work, downgraded his evaluations, and transferred him to another project. Garrett v. Hewlett-Packard Co., 305 F.3d 1210, 1214, 1220-21 (10th Cir. 2002).
(12) Plaintiff testified at a deposition in a reverse-race discrimination lawsuit, after which he was involuntarily demoted and lost his monthly stipend. Marra v. Philadelphia Hous. Auth., 497 F.3d 286, 292 (3d Cir. 2007).
(13) Plaintiff complained to her supervisor, the CEO of the company, about the CFO's discriminatory and harassing behavior in an email, after which she was terminated. Flitton v. Primary Residential Mortg., Inc., Slip Copy, 2007 WL 2218886, at *7 (10th Cir. 2007).
Although defendants may argue that participation in an employer's internal investigation pursuant to an EEOC charge should not be treated as protected activity, the Eleventh Circuit rejected that argument:
Here, we recognize that, at least where an employer conducts its investigation in response to a notice of charge of discrimination, and is thus aware that the evidence gathered in that inquiry will be considered by the EEOC as part of its investigation, the employee's participation is participation "in any manner" in the EEOC investigation. Accordingly, by participating in her employer's investigation conducted in response to an EEOC notice of charge of discrimination, Clover engaged in statutorily protected conduct under the participation clause.
Clover, 176 F.3d at 1353.
The district courts are split as to whether resisting a supervisor's sexual advances constitutes protected activity, although a majority of the courts that have ruled on this issue "have held that an employee's refusal to submit to sexual advances constitutes protected activity." Little v. National Broadcasting Co., 210 F. Supp. 2d 330, 385-86 (S.D.N.Y. 2002) (collecting cases). The Second, Third and Seventh Circuit have all noted the existence of this issue but did not rule upon it. Id. at 385 (collecting cases). In Little, the district court held that "rejecting sexual advances from an employer does constitute protected activity," on the grounds that "sexual harassment by an employer or supervisor is an unlawful practice, and an employee's refusal is a means of opposing such unlawful conduct." Id. at 386.
Protected opposition to unlawful discrimination may come in the form of protests, including informal expressions of one's views through an established grievance procedure, employer-wide meetings, etc. But the clause does not protect insubordinate or non-productive behavior. Matima v. Celli, 228 F.3d 68, 78-79 (2d Cir. 2000) ("The law protects employees in the filing of formal charges of discrimination as well as in the making of informal protests of discrimination . . . . But not all forms of protest are protected . . . . For instance, Title VII does not constitute a license for employees to engage in physical violence in order to protest discrimination."). Thus, federal appellate courts have held "that disruptive or unreasonable protests against discrimination are not protected activity under Title VII and therefore cannot support a retaliation claim." Id. at 79 (collecting cases).
Nor does the clause protect employees who assist their employer during a Title VII investigation, when the employee alleges that he is subsequently retaliated against by his supervisors for having taken the employer's side against the employee. Twisdale v. Snow, 325 F.3d 950, 952 (7th Cir. 2003) (Title VII's retaliation provision is "for the protection of the discriminated against, and not their opponents."). In Twisdale, the plaintiff's supervisors were upset that the plaintiff had not sided with the employee who complained of discrimination.
In contrast, the alleged harasser may be protected under the participation clause, if the harassed employee is able to elicit deposition or trial testimony from the harasser that corroborates her claims, and the employer then retaliates against the harasser solely because of his testimony which increased the employer's liability. Merritt v. Dillard Paper Co., 120 F.3d 1181 (11th Cir. 1997). This latter scenario may be less problematic for the employer, since the employer can still fire the accused harasser for his conduct, independent of the harasser's testimony. Id. at 1191 ("Dillard could have fired Merritt after he gave his deposition testimony, as well, so long as it did not fire him because he 'testified, assisted, or participated in any manner' in a Title VII investigation or proceeding."). Further, the employer may be able to invoke the mixed-motives defense, which would preclude the fired harasser from obtaining monetary damages (other than attorney's fees) or reinstatement. 42 U.S.C. § 2000e-5(g)(2)(B).
It is not necessary that the employee actually prove that the harassment or discrimination complained about was unlawful: "She need only demonstrate that she had a good faith, reasonable belief that the underlying challenged actions of the employer violated the law." Quinn, 159 F.3d at 769; see Elston v. UPMC-Presbyterian Shadyside, 2007 WL 3120291, at *9 (W.D. Pa.2007) (citing Aman v. Cort Furniture Rental Corp. , 85 F.3d 1074, 1085 (3d Cir.1996). Even if a plaintiff does not have a valid claim under Title VII, he could still prevail on his retaliation claim if the complaint was based upon a good-faith reasonable belief of a Title VII violation. Id. If a plaintiff complains that the employer failed to give her a promotion and pay increase, but does not attribute that failure to gender or other status-based discrimination, then the plaintiff was not engaged in protected activity. Hunt v. Nebraska Public Power Dist., 282 F.3d 1021, 1028-29 (8th Cir. 2002).
The Fifth Circuit has recognized an important limitation by holding that the protected activity must itself constitute lawful conduct; "any betrayal of a client's confidences that breaches the ethical duties of the attorney places that conduct outside Title VII's protections." Douglas, 144 F.3d at 376 (plaintiff, an attorney, violated Louisiana State Bar Rules of Professional Conduct by her unauthorized disclosure of confidential information about her employer to third party). But see Willy v. Administrative Review Board, 423 F.3d 483, 500 (5th Cir. 2005) (rejecting as a matter of federal common law that the "attorney-client privilege is a per se bar to retaliation claims under federal whistleblower statutes").
The state courts are split as to whether in-house counsel can reveal client confidences to her attorney in order to prove a wrongful discharge or other discrimination claim. Courts from Connecticut, Montana, Utah, and Tennessee have recently held that attorneys can reveal client confidences in such circumstances, contrary to an older decision from Illinois. Compare Meadows v. KinderCare Learning Centers, Inc., No. Civ. 03-1647-HU, 2004 WL 2203299, at *2-*4 (D. Or. Sept. 29, 2004) (in-house counsel could bring state wrongful discharge claims based on refusal to implement discriminatory employment practices, but did not state Title VII retaliation claims) and Spratley v. State Farm Mut. Auto. Ins. Co. 78 P.3d 603, 610 (Utah 2003) (in-house counsel "may, consistent with their duties under the Rules of Professional Conduct, disclose matters relating to their representation of State Farm in a suit against State Farm, so long as those disclosures are reasonably necessary to that claim") and O'Brien v. Stolt-Nielsen Transp. Group, Ltd., 838 A.2d 1076, 1080-82 (Conn. Super. Ct. 2003) (collecting cases) and Crews v. Buckman Laboratories Int'l, Inc., 78 S.W.3d 852 (Tenn. 2002) (allowing plaintiff to bring wrongful discharge claim based on her refusal to violate her ethical obligations) and Burkhart v. Semitool, Inc., 300 Mont. 480, 5 P.3d 1031 (Mont. 2000) (plaintiff can reveal confidential attorney-client information to establish her employment discrimination claim) with Balla v. Gambro, Inc., 145 Ill. 2d 492, 584 N.E.2d. 104 (Ill. 1991) (in-house counsel cannot bring action for retaliatory discharge).
A recent Maryland decision explained the contrary approach of the Illinois courts as turning on the fact that in Maryland (and some other states), Rule 1.6, Md. Rules Prof. Conduct, allows an attorney to reveal confidential information "to the extent the lawyer reasonably believes necessary ... to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client." Hoffman v. Baltimore Police Dep't, 379 F. Supp. 2d 778, 782 (D. Md. 2005). In Hoffman, the court also found that the employer had waived the attorney-client privilege as to numerous documents that the employer had submitted to the EEOC as part of its response to the employee's charge of discrimination. Id. at 784-85.
An intermediate appellate court in Florida held that an in-house counsel's attorney in a whistleblower suit could not be disqualified on the basis that the client made reasonably necessary disclosures to her attorney to help prove her claims. Alexander v. Tandem Staffing Solutions, Inc., 881 So.2d 607, 21 IER Cases 1148 (Fla. Dist. Ct. App. 2004), reh'g den., Sept. 22, 2004; accord Fox Searchlight Pictures, Inc. v. Paladino, 89 Cal. App. 4th 294, 310-11, 106 Cal. Rptr. 2d 906, 920 (Cal. Ct. App. 2001).
The American Bar Association has explored this issue and concluded that in some circumstances, in-house counsel can bring a wrongful discharge claim. See American Bar Ass'n, Formal Ethics Opinion 01-424, "A Former In-House Lawyer may Pursue a Wrongful Discharge Claim Against her Former Employer and Client as long as Client Information Properly Is Protected" (Sept. 22, 2001) (collecting cases); see generally B. Marshall, "In Search of Clarity: When Should In-House Counsel Have the Right to Sue For Retaliatory Discharge?," 14 Geo. J. Legal Ethics 871 (2001) (same). The California legislature passed a government attorney whistleblower bill that "would authorize an attorney who learns of improper governmental activity, as defined, in the course of representing a governmental organization to urge reconsideration of the matter and to refer it to a higher authority in the organization." Assembly Bill 363 (Aug. 28, 2002). However, Governor Gray Davis vetoed this bill on the grounds that it would have interfered with the need for candor and confidentiality in the attorney-client relationship. See "California Governor Unexpectedly Vetoes Government Attorney Whistleblower Bill," 71 U.S.L.W. 2243 (Oct. 15, 2002). Thus, practitioners who are faced with this situation will need to ascertain the applicable case law and state ethical rules and opinions, bearing in mind that not all states have addressed this issue. See also R. Adams & D. S. Katz, "Lawyers Who 'Tell' Risk All," Nat'l L.J., Mar. 29, 2004, at 22; J. Gibeaut, "Telling Secrets: When In-House Lawyers Sue Their Employers, They Find Themselves in the Middle of the Debate on Client Confidentiality," ABA J., Nov. 2004, at 38-44, 73; M. Lyons & P.F. Butcher, "Too Many Loyalties," Legal Times, Apr. 19, 2004, at 49; S. Reisinger, "Every Lawyer's Nightmare," Legal Times, Oct. 20, 2003, at 25.
By passing the Civil Rights Act of 1991 ("1991 Act"), Pub.L. No. 102-166, 105 Stat. 1071, Congress expanded the definition of the phrase "make and enforce contracts" for § 1981 claims. Since this new subsection was created, the majority of federal circuits that have addressed the issue have held that § 1981 retaliation claims are actionable. See, e.g., Humphries v. CBOCS West, Inc., 474 F.3d 387 (7th Cir. 2007) (retaliation actionable under Section 1981); Welzel v. Bernstein, 436 F. Supp. 2d 110, 117-18 (D.D.C. 2006), Hawkins v. 1115 Legal Service Care, 163 F.3d 684, 693 (2d Cir. 1998); Andrews v. Lakeshore Rehabilitation Hosp., 140 F.3d 1405, 1412-13 (11th Cir.1998); Carney v. American Univ., 151 F.3d 1090, 1094-95 (D.C.Cir.1998) (assuming without deciding that a retaliation claim is cognizable under § 1981). The 1991 Act's legislative history is "replete with expressions of Congress's intent to broaden section 1981 specifically to cover race-based retaliation in all phases of contractual relations." Andrews, 140 F.3d at 1412-13. The McDonell Douglas burden-shifting framework applies equally to Title VII and § 1981 claims, and, thus, the particular elements of a § 1981 retaliation claim are that plaintiff (1) was engaged in a statutorily protected activity, (2) plaintiff's employer took an adverse personnel action against her, and (3) a causal connection existed between the two. See Glymph v. District of Columbia, 211 F. Supp. 2d 152, 154 (D.D.C. 2002); Carney, 151 F.3d at 1092-93, 1095. Any § 1981 claim, including retaliation claims, must contain some race-based connection, but courts have held that membership in a protected class is not an element of a prima facie retaliation claim. See, e.g., Glymph, 211 F. Supp. at 154 (holding that a former white employee, who complained about race discrimination within the company, was not required to allege membership in protected class to state § 1981 retaliation claim). The race-based element must lie in the protected activity, not in the race of the plaintiff. Id.; see also Farmer v. Lowe's Companies, Inc., 188 F. Supp. 2d 612, 618 (W.D.N.C. 2001) (holding that a female director's complaints that women and racial minorities were under represented at corporation and that corporation engaged in discrimination were "protected activity" under § 1981) Furthermore, a successful § 1981 retaliation claim requires that the activity in question involve vindication of contractual equality. See Welzel, 436 F.Supp.2d at 118 (holding that plaintiff admonishing an executive for derogatory racial comments made at closed door meeting was not a vindication of any contractual rights, precluding a § 1981 retaliation action).
2. Adverse Employment Action
The second element of plaintiff's prima facie retaliation case is that he or she has experienced an adverse employment action. The EEOC has proposed a broad universe of adverse actions:
The most obvious types of retaliation are denial of promotion, refusal to hire, denial of job benefits, demotion, suspension, and discharge. Other types of adverse actions include threats, reprimands, negative evaluations, harassment, or other adverse treatment.
Suspending or limiting access to an internal grievance procedure also constitutes an "adverse action."
EEOC Compliance Manual, Section 8, at 11. The EEOC's definition was a critical response to several circuits in which courts had generally limited retaliation to ultimate employment actions as being "unduly restrictive" given that the statutes "prohibit any adverse treatment that is based on a retaliatory motive and is reasonably likely to deter the charging party or others from engaging in protected activity." See EEOC Compliance Manual, Section 8, at 13-14 (collecting cases).
The Supreme Court decided this issue in Burlington Northern & Santa Fe Railway Co. v. White, 126 S.Ct. 2405 (2006), by unanimously adopting a broad objective standard of adverse employment actions similar to the one found in the expansive proposal recommended by the EEOC. Prior to Burlington Northern, there was a significant split in the circuits as to what constitutes adverse employment action for retaliation claims under Title VII. The Fifth and Seventh Circuits recognized only adverse actions rising to the level of an ultimate employment decision. Johnson v. Cambridge Indus., Inc., 325 F.3d 892, 902 (7th Cir. 2003); Krause v. City of La Crosse, 246 F.3d 995, 1000-01 (7th Cir. 2001); Mattern v. Eastman Kodak Co., 104 F.3d 702, 708 (5th Cir. 1997) abrogated by Burlington Northern, 126 S.Ct. 2405, ("To hold otherwise would be to expand the definition of "adverse employment action" to include events such as disciplinary filings, supervisor's reprimands, and even poor performance by the employee -- anything which might jeopardize employment in the future. Such expansion is unwarranted."); see also McGuire v. City of Springfield, Ill., 280 F.3d 794, 797 (7th Cir. 2002) ("An employer's action can be called 'retaliation' only if it makes the employee worse off on account of the protected activity.").
The Supreme Court, however, rejected the view that Title VII's anti-retaliation provision was limited to an employer's actions affecting the terms and conditions of employment and, thus, abrogated these circuit courts' prior decisions limiting the definition of adverse actions to ultimate employment decisions. Instead, the Supreme Court held that the Title VII anti-retaliation protections extend to actions by an employer that are not employment related or that take place outside of the workplace. Burlington Northern, 126 S. Ct. at 2412-2414. The Court further emphasized that "the standard for judging harm must be objective" and interpreted this standard broadly. Id. at 2407. It only requires the plaintiff to show that "a reasonable employee would have found the challenged action materially adverse" and that challenged action "might well have dissuaded a reasonable worker from [protected conduct]." Id. at 2415.
In Burlington Northern, the plaintiff was transferred to a less desirable position in the company after complaining about gender discrimination and the suspended for insubordination after complaining about the transfer. Burlington Northern, 126 S. Ct. at 2406. The Court found that these discriminatory acts fell within the definition of "adverse action" under anti-retaliation laws, but, in expanding the definition, it emphasized an employee is not protected from any trivial act by an employer that creates a minor annoyance. Id. at 2415. Instead, it is the context that matters; "the significance of any act of retaliation will often depend upon the particular circumstances." Id. For example, "a supervisor's refusal to invite an employee to lunch is normally trivial, a nonactionable petty slight. But to retaliate by excluding an employee from a weekly training lunch that contributes significantly to the employee's professional advancement might well deter a reasonable employee from complaining about discrimination." Id. at 2415-16.
The courts have been quick to adopt the Burlington Northern broad "adverse action" standard in application to a variety of non-ultimate employer actions. See Williams v. W.D. Sports, N.M., Inc., 497 F.3d 1079, 1090 (10th Cir. 2007) (denying summary judgment because defendants' threats to ruin plaintiff's family and marriage and opposition to her employment benefits constituted adverse actions that would have dissuaded a reasonable person from engaging in protected activity); Carmona-Rivera v. Puerto Rico, 2006 WL 2612231, at *4-5 (1st Cir. 2006) (adopting the Burlington standard despite the finding that the employer's delays in fulfilling the plaintiff's request for accommodation were not sufficient to prove adverse action); Kessler v. Westchester County Dept. of Social Servs., 2006 WL 2424705, at *10 (2d Cir. 2006) (holding that plaintiff "presented sufficient evidence to create a genuine triable issue as to whether the reassignment to which he was subjected could well have dissuaded a reasonable employee in his position from complaining of unlawful discrimination."); Moore v. City of Philadelphia, 2006 WL 2492256, at *14 (3d Cir. 2006) (finding "that a reasonable jury could conclude that a lateral transfer from the district where a police officer had earned goodwill and built positive relations with the community over time is the kind of action that might dissuade a police officer from making or supporting a charge of unlawful discrimination within his squad."); Pryor v. Wolfe, 2006 WL 2460778, at *2 (5th Cir. 2006) (finding that the plaintiff met the Burlington standard for adverse action where the defendant withheld his paycheck); Pegues v. Mineta, 2006 WL 2434936, at *7 (D.D.C. 2006) (finding that the plaintiff's retaliation claims were not "trivial," "petty," or "minor" where the defendant's actions directly impinged on his ability to be promoted.); Storey v. Illinois State Police, 2006 WL 2385283, at *23 (S.D. Ill. 2006) (holding that a jury could find that the defendant's various actions of taking away the plaintiff's responsibilities, giving her a "needs improvement" evaluation and a "constructive transfer," and denying her an open position for which she applied "would dissuade a reasonable individual from pursuing her rights under Title VII"); Gentry v. Wells Fargo, 2006 WL 2319987, at *16 (S.D. Ohio 2006) (adopting the Burlington standard despite the fact that plaintiff's retaliation claim failed because an employer requiring an employee to comply with reasonable performance requirements and disciplining for noncompliance does not constitute an adverse employment action). On the other hand, a few courts have tried to remain more favorable to the employer by placing emphasis on enforcing a higher standard for proving that the alleged action taken against the employee be "significant" rather than "trivial." See Clark v. Potter, 2006 WL 2520348, at *11 (N.D. Ga. 2006) (holding that although the new standard for adverse actions "falls short of ultimate employment decisions," the plaintiff must still demonstrate "some threshold level of substantiality," finding that employer's denial of FMLA leave, a letter of warning, and a 7-day suspension did not meet the threshold) (internal quotes omitted); Martin v. Merck & Co., Inc., 2006 WL 2468518, at *21 (W.D. Va. 2006) (holding that the defendant removing plaintiff "from the relief operator position fails to support a prima facie case of retaliation because it would not dissuade a reasonable worker from making or supporting a charge of discrimination" by emphasizing that trivial incidents are still insufficient to support a claim of retaliation under the Burlington standard). Despite this more conservative interpretation made by some courts, the new standard in Burlington is still a marked victory for proponents of employee protections.
3. Causal Connection
The final element is that there must be a causal connection, or nexus, between the protected activity and the adverse action. "[A] causal connection is established where the plaintiff presents evidence of circumstances that justify an inference of retaliatory motive, such as protected conduct closely followed by adverse action." Williams v. W.D. Sports, N.M., Inc., 497 F.3d at 1091 (quoting MacKenzie v. City and County of Denver , 414 F.3d 1266, 1279 (10th Cir.2005) (internal quotations omitted). In Williams, the court found that the defendant's statement, "[i]f you will drop your Human Rights claim, I won't fight you on your unemployment," created a reasonable inference of direct causal link between plaintiff's complaint and the adverse action taken against her. Id. at 1092.
In Clark County Sch. Dist. v. Breeden, 532 U.S. 268 (2001) (per curiam), the Supreme Court held that there was no evidence of causation when the employer had already initiated adverse employment action, but had not fully implemented it at the time of the protected conduct. The lower federal courts have recognized this defense to retaliation claims. See, e.g., Warren v. Ohio Dep't of Public Safety, 24 Fed. Appx. 259, 266 (6th Cir. 2001); Bates v. Variable Annuity Life Ins. Co., 200 F. Supp. 2d 1375, 1383 (N.D. Ga. 2002); Ianetta v. Putnam Investments, Inc., 183 F. Supp. 2d 415, 426-27 (D. Mass. 2002); McFadden v. State Univ. of N.Y., College at Brockport, 195 F. Supp. 2d 436, 455 (W.D.N.Y. 2002); Kaplan v. City of Arlington, 184 F. Supp. 2d 553, 564 (N.D. Tex. 2002).
As one district court concluded, "an employee who knows that some adverse action is in the works cannot manufacture a claim for retaliation, based solely on the anticipated adverse action itself, merely by complaining of discrimination before the action is finally taken." McFadden, 195 F. Supp. 2d at 455.
In Clark County Sch. Dist. v. Breeden, 532 U.S. 268 (2001) (per curiam), the Supreme Court reversed the Ninth Circuit and upheld summary judgment for the employer, concluding that the employer either did not know that the plaintiff had filed an EEOC charge or knew about the filing of the charge 20 months earlier before the proposed adverse employment action, thereby defeating the causation element.
In 1994, Ms. Breeden, a School District employee, met with her supervisor and another male employee to review the psychological evaluation reports of four job applicants. The report of one applicants disclosed that the applicant had once commented to a co-worker, "I hear making love to you is like making love to the Grand Canyon." The supervisor read the statement aloud, and, looking at Breeden, said, "I don't know what that means." The male employee said, "Well, I'll tell you later," upon which both men laughed. Ms. Breeden complained about the comment to the employee who made it, to her supervisor, and to two Assistant Superintendents. Id. at 269-70.
In August 1995, Ms. Breeden filed a charge of discrimination with the EEOC. In April 1997, several months after receiving the right-to-sue letter, Ms. Breeden filed a Title VII retaliation lawsuit in which she alleged that she was punished for these complaints, including being transferred to a different position. Id. at 269, 271-72. The Ninth Circuit held that Ms. Breeden's opposition was protected "if she had a reasonable, good faith belief that the incident involving the sexually explicit remark constituted unlawful sexual harassment." Id. at 270.
In a per curiam opinion issued without hearing oral argument, the Supreme Court reversed, concluding that no reasonable person could have believed that the single incident violated Title VII's standard. The comment and chuckling by Breeden's co-worker "cannot remotely be considered 'extremely serious' as our cases require." Id. at 271. Secondly, Breeden was unable to show a causal connection between her protected activities and her transfer as the employer was "contemplating" the transfer before Breeden filed suit. Id. at 272. "Employers need not suspend previously planned transfers upon discovering that a Title VII suit has been filed, and their proceeding along lines previously contemplated, though not definitively determined, is no evidence whatever of causality." Id. Further, the Court held that even if the employer did know about the employee's filing of an EEOC charge, it knew 20 months prior to the adverse action, thereby negating an inference of causality. Id. at 273. The Court rejected the employee's claim that the EEOC's issuance of a right-to-sue letter could support temporal causation, since the employee took no part in that action. Id.
The lower federal courts have applied Breeden's holdings to retaliation claims with respect to (1) the temporal gap between the protected activity and the adverse employment action and (2) protected activity that occurs after the employer has already decided to initiate adverse employment activity (discussed in Part C, supra).
In Breeden, the Supreme Court held that 20 months was too long a gap between protected conduct and adverse employment action to prove temporal proximity, which is consistent with prior holdings of the lower courts, and the subsequent case law has similarly recognized that temporal gaps of 8 to 24 months cannot support temporal proximity. See, e.g., Mayers v. Laborers' Health & Safety Fund of North America , 478 F.3d 364, 369 (D.C.Cir.2007) (finding an eight-month gap between the protected activity and the adverse employment action too long to infer causation); Grosz v. The Boeing Co. , 455 F.Supp.2d 1033, 1044 (C.D. Cal. 2006) (finding a 10 months separation between a plaintiff's termination and her protected activity insufficient temporal proximity to prove a causal connection between the two); Shanklin v. Fitzgerald, 397 F.3d 596, 604 (8th Cir. 2005) (10 months); Vasquez v. County of Los Angeles, 349 F.3d 634, 646 (9th Cir. 2003) (13 months); Bishop v. Bell Atl. Corp., 299 F.3d 53, 60 (1st Cir. 2002) (12-30 months); Bernales v. County of Cook, 37 Fed. Appx. 792, 797-98 (7th Cir. 2002) (22 months); Scurto v. Commonwealth Edison Co., 37 Fed. Appx. 213, 216-17 (7th Cir. 2002) (10 months); Warren, 24 Fed. Appx. at 266 (11 months); Taylor v. Procter & Gamble Dover Wipes, 184 F. Supp. 2d 402, 417 (D. Del. 2002) (one to two years); Adams v. Calvert County Public Sch., 201 F. Supp. 2d 516, 520 (D. Md. 2002) (24 months); Hill v. Taconic Developmental Disabilities Servs. Office, 181 F. Supp. 2d 303, 322 (S.D.N.Y. 2002) (1.5 years); Figueroa v. City of New York, 198 F. Supp. 2d 555, 570 (S.D.N.Y. 2002) aff'd 118 Fed. Appx. 524 (2d Cir. 2004) ("Due to the passage of time [over a year] between the filing and these actions, there is no basis for inferring a causal connection."); see also Delk v. Arvinmeritor, Inc., 179 F. Supp. 2d 615, 624 (W.D.N.C. 2002) (4 months probably too long), aff'd 40 Fed. Appx. 775 (4th Cir. 2002) (per curiam).
In contrast, where the employee made repeated complaints during the same year as the adverse action, then temporal proximity existed to support causation. See Singfield v. Akron Metro. Hous. Auth., 389 F.3d 555, 563 (6th Cir. 2004) (holding that plaintiff could establish prima facie causation element based on three-month gap between complaint and retaliatory action); Calero-Cerezo v. U.S. Dep't of Justice, 355 F.3d 6, 25-26 (1st Cir. 2004) (finding one month sufficient to establish prima facie temporal connection); Winarto v. Toshiba Am. Electronics Components, Inc., 274 F.3d 1276, 1287 & n.10 (9th Cir. 2001) ("Winarto's several complaints . . . closely preceded the [adverse] evaluation."); see also Turner v. Housing Auth. of Jefferson County, 188 F. Supp. 2d 1066, 1079 (S.D. Ill. 2002) ("The fact that the plaintiff was fired two weeks after his complaints to management is a short enough time to establish the necessary causal link."); Elries v. Denny's, Inc., 179 F. Supp. 2d 590, 599 (D. Md. 2002) ("[P]laintiff shows retaliatory conduct that began shortly after filing a complaint, thus showing prima facie causation, even though actual termination came much later."); Little v. National Broadcasting Co., 210 F. Supp. 2d 330, 386 (S.D.N.Y. 2002) ("Muro engaged in protected activity when he filed a complaint with the NBC Ombudsperson in June 1998. His assignment two months later to undesirable shifts . . . raises a genuine issue of fact as to whether Muro's protected activity was followed so closely by discriminatory treatment as to establish causation by temporal proximity.").
The First Circuit rejected the employer's claim that an eleven month temporal gap between the employee's filing of a complaint and his demotion, since "temporal proximity is but one method of proving retaliation." Che v. Massachusetts Bay Transp. Auth., 342 F.3d 31, 38 (1st Cir. 2003). There was "ample evidence of disparate and discriminatory treatment from which a jury could find a causal connection between Che's demotion and his earlier lawsuits," id., particularly disparate disciplinary actions and racist remarks. For example:
. . . after Johnson disciplined Che for the argument, Che fainted and his union representative asked Johnson to call for help. In response, Johnson said "I think the chink is faking it." There was evidence at trial that Johnson and another MBTA supervisor referred to Che as a "chink" on other occasions. In sum, this evidence of discriminatory and disparate treatment is sufficient to meet "the relatively low threshold showing necessary to establish a prima facie case."
Id. at 39. The First Circuit found that the employer's proffered non-discriminatory reasons were pretextual in light of the strong evidence of disparate treatment. Id. at 40. ("In light of the evidence described above, we agree with the district court that there was sufficient evidence from which a jury could find that the MBTA's stated reason for Che's demotion was pretextual."). The First Circuit also found that the plaintiff suffered a retaliatory hostile work environment. Id.
The Seventh Circuit reversed the district court's determination that a three month gap between plaintiff's complaint and her termination was insufficient to state a retaliation claim, since temporal proximity was only one aspect of causation. Sitar v. Indiana Dep't of Transp., 344 F.3d 720, 728 (7th Cir. 2003). Critically, "Here, a trier of fact could find that the causal relationship existed from much more. Baker was visibly upset upon receiving Price's findings and recommendations against him. He decided almost immediately, at the same meeting, that he would terminate Sitar." Id. Thus, the deposition testimony of the supervisor was sufficient to prove causation: "Sitar's complaint, legitimized by Price's findings, cast a shadow over Baker's performance, and he was embarrassed when he learned about Price's report in the presence of his supervisors. A reasonable jury could find that Baker punished Sitar for complaining about his misconduct, and not because her performance was allegedly unsatisfactory. Therefore, we find that Sitar has established a prima facie case of retaliation under the direct method." Id. at 729. Moreover, even under the indirect method, it is not necessary for the plaintiff to prove causation. Id. ("Lack of causation should not have been the district court's sole basis for granting summary judgment. In Stone, we held that for a plaintiff proceeding under the indirect method, causation would no longer be a part of her prima facie burden.") (citing Stone v. City of Indianapolis Pub. Util. Div., 281 F.3d 640 (7th Cir.2002)).
The Ninth Circuit emphasized that since Breeden was an appeal from a grant of summary judgment, its standard is not directly applicable to a post-trial motion, in which the court must decide whether the plaintiff's "evidence allowed the jury to draw a reasonable inference of retaliatory motive." Winarto, 274 F.3d at 1287 n.10 ("Breeden does not control this case."). In such circumstances, the Ninth Circuit emphasized that the timing of events and the supervisor's known animus could support the jury's verdict for the plaintiff on her retaliation claim:
[Plaintiff's] several complaints, any one of which or combination of which could have triggered [the supervisor's] low evaluation of [plaintiff], closely preceded the evaluation. The evidence of timing of the events in this case and the evidence of [the supervisor's] hostility toward [plaintiff] could support a jury's reasonable inference that [the supervisor] had a retaliatory motive.
Thus, a factor that courts look at in determining the presence of retaliatory motive are negative or hostile remarks made, or actions taken, by the supervisor upon learning of the employee's protected conduct. These remarks and actions, even if anecdotal, can constitute direct evidence of retaliation. See, e.g., Azzaro v. County of Allegheny, 110 F.3d 968, 974 (3d Cir. 1997) ("[A] reasonable juror could infer that Braun knew Azzaro was for some reason on a 'hit list,' and that he sought to aid the efforts to 'get' Azzaro by including her discharge as part of his reorganization plan."); Lee v. New Mexico State Univ. Bd. of Regents, 102 F. Supp. 2d 1265, 1277, 1280 (D.N.M. 2000) (plaintiff "was subject to heightened scrutiny and surveillance" and her "colleagues were also asked to monitor her actions" in order to provide "negative feedback regarding plaintiff"). In Williams v. W.D. Sports, N.M., Inc., the defendant made several threats to the plaintiff to expose rumors about her sexual activity and threatened to oppose her application for unemployment benefits, saying, "If you will drop your Human Rights [discrimination] claim, I won't fight you on your unemployment." Id. at 1084. The court denied defendants' motion for summary judgment, finding that these statements should go to the jury and permit an inference of direct causal link. Id. at 1092.
Another factor is whether the decision-maker was the "cat's paw" - i.e. an apparently neutral person whose actions were impermissibly influenced by those who had a retaliatory motive. For example, the Fifth Circuit, in a Title VII gender retaliation case, stated that the alleged innocence of a final decision maker cannot insulate the company from liability, "when the person conducting the final review serves as the 'cat's paw' of those who were acting from retaliatory motives, [then] the causal link between the protected activity and adverse employment action remains intact." Gee v. Principi, 289 F.3d 342, 346 (5th Cir. 2002) (reversible error to grant summary judgment where decision maker was improperly influenced by others).
Courts also look to whether an employer has punished the plaintiff more seriously than other employees for the same alleged infractions. See, e.g., Smith v. Riceland Foods, Inc., 151 F.3d 813, 820 (8th Cir. 1998) (plaintiff "presented evidence that management at Riceland confronted her about filing her charge and that other employees who had not filed charges of discrimination were not investigated as closely or punished as severely as she was"); Marx v. Schnuck Markets, Inc., 76 F.3d 324, 329 (10th Cir. 1996) (plaintiff was "written up" after filing retaliation complaint); Weaver v. Casa Gallardo, Inc., 922 F.2d 1515, 1525 (11th Cir. 1991) superseded by statute on other grounds Civil Rights Act of 1991, Pub.L. No. 102-166, § 101, 105 Stat. 1071 (1991) ("The pronounced increase in negative reviews and the careful scrutiny of Weaver's performance, coupled with testimony suggesting that management personnel were acutely aware of Weaver's EEOC charge, is sufficient to establish a causal link for Weaver's prima facie case of retaliatory discharge."); Sumner v. U.S. Postal Serv., 899 F.2d 203, 209 (2d Cir. 1990) ("The causal connection between the protected activity and the adverse employment action can be established indirectly with circumstantial evidence, for example, . . . through evidence of disparate treatment of employees who engaged in similar conduct . . ."); Lee, 102 F. Supp. 2d at 1280 ("Such heightened scrutiny and differential treatment indicates that [supervisor] was acting out of a retaliatory mind set and intended to create a difficult work environment for plaintiff.").
Jury findings of retaliation are commonly affirmed based on evidence that the employer's stated reason was incorrect, particularly so where the stated reason is potentially mendacious. See, e.g. King v. Preferred Technical Group, 166 F.3d 887, 894 (7th Cir. 1999) (stated reason that plaintiff was fired for failure to produce missing doctor's slips belied by evidence that the reason was false and potentially mendacious). Reasons that are intertwined with an employee's conduct during the resulting investigation of her complaint may also be suspect. See Gilooly v. Missouri Dep't of Health & Senior Services, 421 F.3d 734 (8th Cir. 2005) (reversing summary judgment on retaliation claim in which plaintiff was terminated for a "lack of credibility" during the investigation of his complaints and holding that "questions related to the very substance of the investigation are 'not sufficiently independent' and therefore within the scope of the protected activity").
The failure of the employer to follow established protocols or procedures can also constitute evidence of retaliatory motive. McClam v. Norfolk Police Dep't, 877 F. Supp. 277, 283 (E.D. Va. 1995) ("The most telling evidence of pretext here is proof that the articulated reason for refusing to transfer McClam based on his disciplinary record was not consistently applied in the past" to other employees).
Direct evidence of causation is not necessary since the plaintiff may use circumstantial evidence to demonstrate causation. See, e.g., Aman, 85 F.3d at 1086 (five items of circumstantial evidence sufficient to prove causation); Goldsmith v. City of Atmore, 996 F.2d 1155, 1163 (11th Cir. 1993) ("The defendant's awareness of the protected statement, however, may be established by circumstantial evidence."); Russell, 160 F. Supp. 2d at 264 ("Thus, where direct evidence of causation is missing temporal proximity may provide the necessary nexus to meet the third element of the plaintiff's case."). However, "conclusory statements" alone are insufficient to prove causation. Tarin, 123 F.3d at 1265.
Causation is not susceptible to simple rules or line-drawing; the Seventh Circuit has stated the plaintiff "must demonstrate that the [defendant] would not have taken the adverse action 'but for' the protected expression." Adusumilli, 164 F.3d at 363 (citations and internal quotation marks omitted). The Eleventh Circuit has taken a slightly more lenient reading by holding that causation "is satisfied if the evidence shows that the protected activity and the adverse action are not totally unrelated." Berman, 160 F.3d at 701 (collecting cases). The Sixth Circuit has recognized that "no one factor is dispositive" but evidence of differential treatment "or that the adverse action was taken shortly after the plaintiff's exercise of protected rights is relevant to causation." Allen, 165 F.3d at 413. The District of Columbia Circuit has required both knowledge of the protected activity and temporal proximity. Carney, 151 F.3d at 1095 (citing Mitchell v. Baldrige, 759 F.2d 80, 86 (D.C. Cir. 1985)).
The Seventh Circuit concluded that where the plaintiff in a sexual harassment and retaliation case was herself terminated because she engaged in "highly inappropriate" workplace conduct towards male employees, that the plaintiff could not maintain a retaliation claim based on having reported harassment by another co-worker. Hall v. Bodine Elec. Co., 276 F.3d 345, 359 (7th Cir. 2002) ("[A]n employee's complaint of harassment does not immunize her from being subsequently disciplined or terminated for inappropriate workplace behavior."). Here, the plaintiff admitted that she had engaged in sexual bantering, but claimed that it did not rise to the level of Title VII harassment. The Seventh Circuit rejected this argument, concluding that "Bodine was still permitted to terminate her. In fact, the company's failure to do so would have most likely constituted a Title VII violation (i.e., sex discrimination against Lopez), as well as subjecting the company to future liability if another complaint of harassment was filed against Hall." Id. at 359.
D. Retaliatory Lawsuits Against Employees
1. Declaratory Judgment Lawsuits By Employers
Recently, some employers have used the Declaratory Judgment Act, 28 U.S.C. § 2201, in an attempt to obtain a court ruling that they have not discriminated against employees who have complained of discriminatory or harassing conduct or have filed charges with the EEOC. See, e.g., L. Bernabei, "Reverse Litigation (SLAPP) Lawsuits and Employment Discrimination Law: Impermissible Retaliation Against Employees," 2 J. Empl. Discr. L. 269 (2000); D. S. Hilzenrath, "MicroStrategy Hit by Bias Complaint; Discrimination, Overtime Abuse Alleged," Wash. Post, May 6, 2000, at E1; J. Richardson, "MicroStrategy's Strategy: Sue or Be Sued," Legal Times, May 1, 2000, at 20; S. Siwolop, "Recourse or Retribution? Employers are Taking on Disgruntled Workers in Court," N.Y. Times, June 7, 2000, at C1.
However, the courts may view such preemptive actions as constituting retaliation against employees for having raised concerns or filing charges, particularly where the employer's lawsuit was filed before the completion of the EEOC investigation, or under circumstances where the employee is unaware of its filing.
For example, MicroStrategy was a "reverse" or "SLAPP" [Strategic Lawsuit Against Public Participation] lawsuit filed by an employer against a female employee and her attorney regarding their use of information about stock options in her pending EEOC charge of discrimination and her future Title VII litigation. MicroStrategy, Inc. v. Convisser, Civ. A. No. 00-453-A, 2000 WL 554264 (E.D. Va. May 2, 2000). Ms. Lauricia, the Vice President for Corporate Development Operations at MicroStrategy, an Internet start-up company in northern Virginia that had recently gone public, alleged that while she was only granted 7,500 stock options, "another [male] vice president, hired four months before her, was granted 125,000 stock options." See Richardson, supra.
Ms. Lauricia filed her EEOC charge of discrimination in early 2000; MicroStrategy "received her complaint on March 13," called Ms. Lauricia to a meeting on March 14 after which "she was placed on administrative leave." Id. Three days later, MicroStrategy filed its reverse lawsuit in federal court against both Ms. Lauricia and her attorney, Claude Convisser. In its complaint, MicroStrategy averred that information about its employee compensation, including stock options, constituted trade secrets as well as privileged attorney-client information; thus, MicroStrategy alleged that the use of this information by Ms. Lauricia and her attorney (through her EEOC charge and, presumably, any future litigation) constituted theft of trade secrets and misuse of confidential attorney-client information. Complaint for Declaratory Relief, ¶¶ 42-50. MicroStrategy also alleged that Ms. Lauricia had breached her fiduciary duty to her employer through using this information, id., ¶¶ 51-56, and further requested a declaratory judgment that MicroStrategy had not violated the anti-retaliation provisions of the Fair Labor Standards Act, 29 U.S.C. § 215(a)(3), in its proposed termination of Ms. Lauricia. Id. at ¶¶ 37-41.
The district court dismissed MicroStrategy's lawsuit - which was filed before MicroStrategy had responded to the EEOC charge, let alone before Ms. Lauricia had even exhausted her administrative remedies through the EEOC - on the grounds that judicial intervention at this stage in an employer's suit against an employee was unwarranted:
There is good reason why federal courts have not accepted jurisdiction in employment disputes under the Declaratory Judgment Act as plaintiff would have us do. In effect, MicroStrategy is asking this court to place an imprimatur upon a proposed employment action. If we were to accept this role, a federal court would become a super-personnel advisor to wary employers. Moreover, by exercising jurisdiction over this complaint we would encourage pre-emptive strikes by employers against dissatisfied employees, potentially undercutting Congress's very clear direction that such disputes be addressed through the administrative process. To take a step in this direction would be a step towards the involvement of federal courts in the workplace of unprecedented magnitude. We decline to impose such a role on the federal judiciary.
MicroStrategy, 2000 WL 554264, at * 4, 2000 U.S. Dist. LEXIS 6094, at *14 (internal citation omitted). MicroStrategy filed an unsuccessful emergency appeal with the Fourth Circuit; undeterred, it promptly filed a parallel lawsuit in the Alexandria Circuit Court, "seeking the return of numerous documents the company claims are confidential," Richardson, supra, and the parties were subjected to a gag order, with the documents in the custody of the court. See MicroStrategy, Inc. v. Lauricia, 82 FEP Cases 1568 (Va. Cir. Ct. 2000).
Meanwhile, Ms. Lauricia filed a Title VII, ADEA and FLSA federal lawsuit that also sought declaratory relief. See MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 247-48 (4th Cir. 2001) (discussing history of case). MicroStrategy sought to compel arbitration, and the district court denied its motion on the grounds that "by virtue of its 'remarkably aggressive' course of litigation against Lauricia, MicroStrategy had waived its right to insist on arbitration." Id. at 248 (quoting Lauricia v. MicroStrategy, Inc., 114 F. Supp. 2d 489, 492 (E.D. Va. 2000)). The Fourth Circuit reversed, and dismissed Ms. Lauricia's complaint, on the grounds that there was a valid arbitration agreement, and MicroStrategy's litigation activities were not so burdensome as to constitute a waiver. Id. at 254.
2. "SLAPP" Statutes
At least thirteen states have "SLAPP" statutes, which "allow the defendant in a SLAPP lawsuit to file a counterclaim or an expedited motion to dismiss, or to institute a separate proceeding against the plaintiff (the so-called SLAPP-back lawsuit) on the grounds that the SLAPP lawsuit constitutes illegal retaliation for having engaged in protected conduct." See L. Bernabei, 2 J. Empl. Discr. L., supra, at 270 & n.6 (California, Delaware, Georgia, Indiana, Maine, Massachusetts, Minnesota, Nebraska, Nevada, New York, Rhode Island, Tennessee, and Washington). In 2001, several additional states enacted comparable statutes, although legislative compromises may limit their effectiveness. See "Business Opposes Anti-SLAPP Laws," Nat'l L.J., Dec. 10, 2001, at A17 (discussing statutes enacted in Oregon, New Mexico and Utah, and statutes vetoed or withdrawn in Arkansas, Colorado and Texas).
California's SLAPP statute, Cal. Code Civ. Proc. § 425.16, is probably the most frequently litigated statute. The California Supreme Court, in three decisions issued in August 2002, clarified the scope of this statute. In all three decisions, the Court held that the defendant (e.g., employee or community activist group) does not have to show that the action was brought with the intent to chill the defendant's exercise of the constitutional rights of free speech or to petition the government for redress of grievances in order to obtain dismissal of the action under the California SLAPP statute. Instead, the defendant only has to show that the targeted cause of action arose from the protected activity. See City of Cotati v. Cashman, 29 Cal. 4th 69, 52 P.3d 695, 124 Cal. Rptr. 2d 519 (2002); Equilon Enter's, LLC v. Consumer Cause, Inc., 29 Cal. 4th 53, 52 P.3d 685, 124 Cal. Rptr. 2d 507 (2002); Navellier v. Sletten, 29 Cal. 4th 82, 52 P.3d 703, 124 Cal. Rptr. 2d 530 (2002). Thus, these three decisions will enhance the SLAPP defendant's (i.e., employee's) ability to prevail on a motion to dismiss the SLAPP suit. If the defendant is the employer, the employer benefits rather than the employee by the lower evidentiary standard.
For example, one panel of the California Court of Appeals, in Kibler, rejected a SLAPP retaliation claim brought by a hospital physician after he was suspended allegedly for criticizing the hospital's management. The Court upheld the hospital's motion to dismiss the SLAPP suit, reasoning that the physician employee's lawsuit "constituted an effort to chill defendants' exercise of free speech as related to an official proceeding authorized by law," the "official proceeding" referred to being the legally-mandated peer review process. Kibler v. Northern Inyo County Local Hospital, 24 Cal. Rptr. 3d 220, 222 (2005), affirmed, 138 P.3d 193 (Cal. Jul 20, 2006). However, another panel in the same judicial district, in a SLAPP lawsuit also involving a physician, reached the opposite result, holding that the hospital's peer review process did not constitute an "official proceeding." O'Meara v. Palomar-Pomerado Health Sys., 125 Cal. App. 4th 1324, 23 Cal. Rptr. 3d 406 (2005). Evidently as a result of this split, on April 27, 2005, the California Supreme Court granted review of these two cases to decide whether employment actions arising out of a hospital peer review process subject to a motion to strike under the SLAPP statute because the review is an official proceeding or implicates a public issue or issue of public interest. The court ultimately affirmed Kibler, holding that the hospital's peer review qualified as "any other official proceeding authorized by law" under the anti-SLAPP statute. 138 P.3d 193 (Cal. 2006).
Once the court concludes the action arises from protected activity, it must then determine whether the plaintiff has "demonstrated a probability of prevailing on the claim." Equilon, 29 Cal. 4th at 67. To prevail on the defendant's motion to strike, the plaintiff "must demonstrate that the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited." Jarrow Formulas, Inc. v. LaMarche, 31 Cal. 4th 728, 74 P.3d 737, 3 Cal. Rptr. 3d 636 (2003) (declining to create exemption from anti-SLAPP motions for malicious prosecution claims); see also Gallant v. City of Carson, 128 Cal. App. 4th 705, 27 Cal. Rptr. 3d 318 (2005) (denying employer's motion to strike an employee's lawsuit against the employer for wrongful termination and defamation because the employer waived evidentiary objections that would otherwise have prevented the employee from proving that the defamatory statements were false).
3. Retaliatory Lawsuits and Counterclaims
After an employee files a lawsuit against his or her current or former employer, which alleges discriminatory or retaliatory conduct, the employer may then, as part of its answer, file counterclaims against the employee. Or, an employer may file a lawsuit against the employee while the employee's charge is still pending with the EEOC. Typical claims against the employee might include breach of contract (arising from an employment contract or a severance agreement), theft of trade secrets, violation of a non-compete agreement, or breach of fiduciary duty. Can the plaintiff then bring a retaliation claim which alleges that the counterclaim is itself retaliatory? The majority of courts that have addressed this issue have held that a plaintiff can base her retaliation claim on an allegedly bad faith counterclaim or lawsuit brought against her.
The courts have recognized that "'a lawsuit . . . may be used by an employer as a powerful instrument of coercion or retaliation' and that such suits can create a 'chilling effect' on the pursuit of a discrimination claim." EEOC v. Outback Steakhouse of Florida, Inc., 75 F. Supp. 2d 756, 758 (N.D. Ohio 1999) (quoting Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 740-41 (1983)). For example, the Tenth Circuit held that "the filing of charges against a former employee may constitute adverse action" under Title VII. Berry v. Stevinson Chevrolet, 74 F.3d 980, 986 (10th Cir. 1996).
Numerous district courts have held that the filing of a lawsuit or a counterclaim motivated by retaliation against an employee can serve as a basis for a retaliation claim under Title VII. See, e.g., Harper v. Realmark Corp., No. 4:04-CV00040-DFH-WGH, 2004 WL 1795392, at *4 (S.D. Ind. July 29, 2004) (denying motion to dismiss a claim based on retaliatory counterclaim). Rosania v. Taco Bell, 303 F. Supp. 2d 878, 887-88 (N.D. Ohio 2004) (reviewing Title VII case law in FMLA retaliation context); Hernandez v. Data Sys. Int'l, Inc., 266 F. Supp. 2d 1285, 1306 (D. Kan. 2003) ("[R]etaliatory civil litigation can constitute an adverse employment action for purposes of a retaliation claim."); Gliatta v. Tectum, Inc., 211 F. Supp. 2d 992, 1009 (S.D. Ohio 2002) ("This Court concludes that the adverse action requirement for a retaliation claim encompasses an allegedly bad faith counterclaim brought by the employer against its former employee"); Ward v. Wal-Mart Stores, Inc., 140 F. Supp. 2d 1220, 1230-31 (D.N.M. 2001) (holding that employer's filing of appeal of former employee's claim for unemployment benefits less than a month after he engaged in protected activity "raises the inference of a retaliatory motive sufficient to establish a causal connection" for a Title VII retaliation claim); Outback Steakhouse, 75 F. Supp. 2d at 1231; Jones v. Ryder Services Corp., No. 95 C 4763, 1997 WL 158329, at *5 (N.D. Ill. Mar. 31, 1997) (denying summary judgment to employer where employer withdrew plaintiff's workers' compensation settlement offer in retaliation for filing EEOC charges); Cozzi v. Pepsi-Cola General Bottlers, Inc., No. 96 C 7228, 1997 WL 312048, at *3, 74 FEP Cases (BNA) 321, 323 (N.D. Ill. June 6, 1997) (holding that filing of retaliatory lawsuit constituted "adverse employment action" under Title VII, but dismissing suit on other grounds); Harmar v. United Airlines, Inc., No. 95 C 7665, 1996 WL 199734, at *1 (N.D. Ill. Apr. 23, 1996); Urquiola v. Linen Supermarket, Inc., No. 94-14-CIV-ORL-19, 1995 WL 266582, at *1 (M.D. Fla. Mar. 23, 1995); EEOC v. Levi Strauss & Co., 515 F. Supp. 640, 643-44 (N.D. Ill. 1981); EEOC v. Virginia Carolina Veneer Corp., 495 F. Supp. 775, 778 (W.D. Va. 1980). The courts have similarly recognized retaliation claims under other labor, employment, and civil rights statutes based on lawsuits or counterclaims against the plaintiff(s). See, e.g., Bill Johnson's Restaurants, 461 U.S. at 743-44 (employer's lawsuit against employees for assertion of labor rights constituted retaliation under the NLRA); Gill v. Rinker Materials Corp., 91 FEP Cases (BNA) 179, 182-83 (E.D. Tenn. 2003) (ADA and ADEA retaliation claims for filing bad faith counterclaim against employee); Zhu v. Countrywide Realty, Co., Inc., 165 F. Supp. 2d 1181, 1199 (D. Kan. 2001) (filing for "petition for a restraining order roughly three weeks after plaintiff filed her HUD complaint raises an inference of causation" under anti-retaliation provision of Fair Housing Act); Blistein v. St. Johns College, 860 F. Supp. 256, 268 (D. Md. 1994) (filing counterclaim against employee, including counterclaim for breach of contract, stated a claim for retaliation under the ADEA).
However, the Fifth Circuit rejected this approach, in a case where the former employer brought a counterclaim for theft (of building materials) against a terminated employee. Hernandez v. Crawford Bldg. Material Co., 321 F.3d 528 (5th Cir. 2003) (per curiam). The Fifth Circuit held that it was reversible error to allow the jury to determine whether this counterclaim was retaliatory, since under Fifth Circuit precedent, only an ultimate employment action can constitute retaliation. Id. at 531-32. Here, since the plaintiff was already terminated at the time of the counterclaim, there was no additional ultimate employment action that could be taken by the former employer. Id. at 533 ("A counterclaim filed after the employee has already been discharged in no way resembles the ultimate employment decisions described in [42 U.S.C.] Section 2000e-2(a)(1)."). The Fifth Circuit did note that two district courts in the Fourth Circuit have allowed lawsuits or counterclaims to be treated as retaliatory employment actions. Id. at 532 (citing Beckham v. Grand Affair of N.C. Inc., 671 F. Supp. 415, 419 (W.D.N.C. 1987); EEOC v. Virginia Carolina Veneer Corp., 495 F. Supp. 775 (W.D. Va. 1980)).
It seems likely that the Fifth Circuit's narrow holding would not be followed in the courts that have held that adverse employment actions that do not rise to the level of "ultimate" actions can be retaliatory.
4. Management Lawsuits Against Unions
The U.S. Supreme Court, in the labor-management context, held that the NLRB could not prosecute an employer for having filed a suit against employees or a union, where that suit was filed with a retaliatory purpose, so long as that lawsuit was not objectively baseless. See BE & K Constr. Co. v. NLRB, 536 U.S. 516 (2002). In BE & K, the employer filed two lawsuits against several unions, alleging that their activities had delayed the employer's construction project, in violation of the Sherman Act and the secondary boycott provision of the Labor-Management Relations Act. Id. at 519-21. After these lawsuits were dismissed, the unions lodged complaints with the NLRB, which determined that the employer's lawsuits "had violated the NLRA because it was unsuccessful and retaliatory." Id. at 523. The Sixth Circuit affirmed, finding that "evidence of a simple retaliatory motive . . . sufficed to adjudge [BE & K] of committing an unfair labor practice." Id.
The Supreme Court reversed, finding that only if the lawsuit was objectively baseless could it be deemed as retaliatory under the labor statutes. Other retaliatory lawsuits, so long as they are not objectively baseless, can continue to be brought without fear of enforcement action by the NLRB. Id. at 536-37. The rationale is that the First Amendment right to petition allows some "breathing space" in seeking judicial relief. Id. at 531. See generally NLRB Office of the General Counsel, Memorandum GC 02-09, "Case Handling Instructions for Cases Concerning Bill Johnson's Restaurants and BE & K Constr. Co." (Sept. 20, 2002), National Labor Relations Board
Although this case arose in the context of NLRB enforcement, since it relied upon Supreme Court precedent regarding retaliatory lawsuits in other contexts, some courts may extend its principles to declaratory judgment and SLAPP lawsuits in the employment context. For example, the Supreme Judicial Court of Massachusetts held, in an age discrimination and retaliation case, that the employer's declaratory judgment complaint was not retaliatory, where the employer only sought a declaratory judgment that the release which the employee signed upon her termination precluded the employee from bringing her statutory claims. Sahli v. Bull HN Info. Sys., Inc., 437 Mass. 696, 704-07, 774 N.E.2d 1085, 1092-94 (2002).
E. The False Complaint
Is an employee who falsely accuses a supervisor or co-worker of discriminatory or harassing conduct protected from retaliation? The Tenth Circuit upheld a district court's determination that the employee's falsified complaint was a legitimate, non-discriminatory reason for terminating the employment of the employee, so that the termination was not retaliatory. Renner-Wallace v. Cessna Aircraft Co., 95 Fed. Appx. 967 (10th Cir. 2004). Here, the two plaintiffs filed sexual harassment claims with the EEOC, alleging that their foreman had harassed them. The company's internal investigation failed to identify sufficient evidence to support their claim, but instead led to information showing that the plaintiffs "may have fabricated the sexual harassment allegation," based on interviews with at least four witnesses. The company then terminated the two employees based on "breach of trust in falsifying reports of sexual harassment." Id. at 968. The Tenth Circuit affirmed the grant of summary judgment to the employer. Id. at 970; see generally "Alleged Fabricators of Harassment Story Who Were Fired Lose Claims Against Cessna," BNA Daily Labor Report, Mar. 25, 2003, at A-1 (discussing district court decision). Employees who bring claims determined to be false may also risk criminal sanctions. In 2004, the Fourth Circuit upheld the conviction of an employee for bringing false sexual harassment claims against her supervisor. United States v. Smith, 105 Fed. Appx. 506, 507 (4th Cir.) (per curiam), cert. denied, 125 S. Ct. 677 (2004). The case was remanded for recalculating the defendant's sentence, resulting in an amended sentence of 21 months, followed by two years' supervised release. United States v. Smith, No. CR-02-313, Amended Judgment (D.S.C. Sept. 17, 2004) (Docket No. 93).
F. The "NO FEAR Act" and Federal Employees
On May 15, 2002, the "Notification and Federal Employee Antidiscrimination and Retaliation Act of 2002" ("NO FEAR Act"), Pub. L. No. 107-174, became law. The NO FEAR Act, which only applies to the federal sector, was passed by Congress after receiving testimony that agencies were neglecting their responsibilities under the anti-discrimination and whistleblower statutes, and that the agencies had little incentive to settle meritorious claims, particularly class actions, in a timely manner, since any monetary judgment against the agency would not come from the agency's own budget, but from the Judgment Fund of the U.S. Department of Justice. See "Notification and Federal Employee Antidiscrimination and Retaliation Act of 2001," S. Rept. No. 107-143 (Apr. 15, 2002); see generally S. Barr, "Making Agencies Pay the Price of Discrimination, Retaliation," Wash. Post, May 16, 2002, at B-2.
Specifically, the U.S. General Accounting Office (GAO) testified that the Judgment Fund "discourages accountability by being a disincentive to agencies to resolve matters promptly in the administrative processes; by not pursuing resolution, an agency could shift the cost of resolution from its budget to the Judgment Fund and escape the scrutiny that would accompany a request for a supplemental appropriation." S. Rep. No. 107-143, at 3.
The NO FEAR Act now requires that agencies reimburse the U.S. Treasury for any judgment or settlement under the federal sector anti-discrimination and whistleblower statutes. Pub. L. No. 107-174, § 201. It remains to be seen whether agencies will be more willing to settle meritorious claims, particularly class actions, instead of insisting on litigating them to the end.
The NO FEAR Act also requires individual agencies, as well as the EEOC, to post annual statistics on their websites, setting forth the numbers of complaints filed, pending, and resolved; the amount paid out on such claims; the number of employees disciplined for discrimination, retaliation, or harassment; and an examination of any trends in those statistics, including a causal analysis, the practical knowledge obtained through this experience, and any actions taken or planned to improve the complaint resolution process in each agency. Pub. L. No. 107-174, §§ 203, 301, 302. This information must also be submitted by each agency to Congress and the Attorney General. Id. at § 203. The EEOC promulgated its "Final Rule" in August 2006, with regulations governing these posting and reporting requirements, codified at 29 C.F.R. § 1614. See Pub. L. 107-174. (Aug. 2, 2006) (Federal Register / Vol. 71, No. 148 / Rules and Regulations ). The EEOC also posts current data on the annual statistics reported by these agencies for EEOC internal complaint activity, government-wide hearings, and government-wide appeals, Equal Employment Opportunity Data Posted Pursuant to the No Fear Act .
G. Exhaustion of Administrative Remedies
An important issue is whether an employee who files an EEOC charge that alleges discrimination or harassment but does not allege retaliation, can later file a lawsuit that includes a retaliation claim, where that claim is based on retaliation for having filed an EEOC charge. If the retaliation is based on conduct prior to the EEOC charge, then the EEOC charge must include a retaliation claim. See, e.g., Eberle v. Gonzales, 2007 WL 1455928, at *5 (5th Cir. 2007) (dismissing plaintiff's retaliation claim because the retaliation occurred before the filing of the EEOC charge; plaintiff should have exhausted his administrative remedies by including the retaliation claim - which he knew about - in the initial charge); Strouss v. Michigan Dep't of Corrections, 250 F.3d 336, 342 (6th Cir. 2001) ("Since those pre-1997 claims of retaliation could have been included in her 1997 EEOC charge, Strouss' failure to do so deprives this court of subject matter jurisdiction over those claims.").
Although defendants usually attempt to dismiss subsequent retaliation claims on the grounds that the plaintiff failed to exhaust her administrative remedies, prior to 2002 the courts increasingly recognized that it would be futile to require an employee to file a new EEOC charge when that retaliation arises from the protected activity of filing the first EEOC charge. In 2001, the First Circuit joined the majority of the federal appellate courts in holding that retaliation claims can be brought in court, even if the plaintiff only included a discrimination or harassment claim in her EEOC charge. Clockedile v. New Hampshire Dep't of Corrections, 245 F.3d 1, 4 & n.3 (1st Cir. 2001) (collecting cases from Second, Third, Fourth, Fifth, Seventh, Eighth, Ninth, Tenth and Eleventh Circuits). The First Circuit concluded that "retaliation claims are preserved so long as the retaliation is reasonably related to and grows out of the discrimination complained of to the agency -- e.g., the retaliation is for filing the agency complaint itself." Clockedile, 245 F.3d at 6. The Sixth Circuit also has allowed retaliation claims if based on events that occurred after the filing of the EEOC charge. Weigel v. Baptist Hosp. of East Tenn., 302 F.3d 367, 380 (6th Cir. 2002).
That line of cases is likely threatened by the Supreme Court's decision in Nat'l R.R. Passenger Corp. v. Morgan, 536 U.S. 101 (2002), which eliminated the continuing violation theory by holding that Title VII precludes recovery for discrete acts of discrimination or retaliation occurring beyond the limitations period. Some courts have applied Morgan to discrete acts of retaliation occurring after a charge has been filed, thus requiring plaintiffs to make the retaliatory actions the subject of an amended or new charge. See Martinez v. Potter, 347 F.3d 1208, 1210-11 (10th Cir. 2003); Romero-Ostolaza v. Ridge, 370 F. Supp. 2d 139, 149 (D.D.C. 2005) ("[I]t makes sense to apply Morgan to bar subsequent discrete acts that a plaintiff fails to exhaust in the administrative process."); Bowie v. Ashcroft, 283 F. Supp. 2d 25, 34 (D.D.C. 2003). The Sixth Circuit, in an unpublished opinion, declined to extend Morgan to subsequent actions by allowing a claim for retaliation that "can be reasonably expected to grow out of the EEOC charge" (internal quotes omitted). See Delisle v. Brimfield Township Police Dep't, 94 Fed. Appx. 247, 252-54 (6th Cir. 2004). Similarly, the Eighth Circuit applies the theory that "reasonably related subsequent acts may be considered exhausted" but has narrowed its view of what later acts are sufficiently related to be considered exhausted along with the original administrative charge. Wedow v. City of Kansas City, Mo., 442 F.3d 661, 673-74 (8th Cir. 2006). The Fifth Circuit has continued to allow retaliation claims to be brought in a lawsuit if the retaliation occurred after the EEOC charge was filed. Eberle, 2007 WL 1455928, at *5 (affirming Gupta v. East Texas State University , 654 F.2d 411 (5th Cir.1981), which held that "it is unnecessary for a plaintiff to exhaust administrative remedies prior to urging a retaliation claim growing out of an earlier charge; the district court has ancillary jurisdiction to hear such a claim when it grows out of an administrative charge that is properly before the court . . . It is the nature of retaliation claims that they arise after the filing of the EEOC charge. Requiring prior resort to the EEOC would mean that two charges would have to be filed in a retaliation case[,] a double filing that would serve no purpose except to create additional procedural technicalities....").
1Debra S. Katz is a partner with Katz, Marshall & Banks, LLP, a plaintiffs' employment and civil rights law firm based in Washington, D.C. The firm specializes in the representation of plaintiffs in employment law, civil rights and civil liberties matters, and whistleblower matters.
2 See, e.g., E. Kaplan & T. Hannapel, "Hear the Whistle Blow: Companies Should Welcome, Not Vilify, Newly Protected Inside Informants," Legal Times, Oct. 7, 2002, at 32; A. Berger, "Taking the Stand: Cops or Confidants? The Role of Lawyers After Sarbanes-Oxley," Washington Lawyer, Mar. 2003, at 34; P. Plitch, "Blowing the Whistle; Sarbanes-Oxley Requires that Companies Treat Internal Complaints - and Complainers - Seriously," Wall St. J., June 21, 2004, at R-6. See generally Connie Bertram and Leslie Pate, "Sarbanes-Oxley: A New Whistle Stop for Whistleblowers", The Labor Lawyer, Vol. 21 number 1 (Summer 2005); Daniel P. Westman, "The Significance of the Sarbanes-Oxley Whistleblower Provision," The Labor Lawyer, Vol. 21 number 2 (Fall 2005).
3 Statistics made available by Director Office of Investigative Assistance, OSHA.
4 See 18 U.S.C. § 1514A(a)(1). The analysis does not hinge upon whether the respondent actually violated provisions of Sarbanes-Oxley, but whether the complainant reasonably believed that a violation occurred and conveyed that belief to the employer before the adverse action occurred. Nixon v. Stewart & Stevenson Services, Inc., ARB No. 05-066, ALJ No. 2005-SOX-1 (ARB Sept. 28, 2007) (finding that the ALJ erred in requiring an actual violation, but upholding the decision because the complainant did not communicate his reasonable belief that a violation had occurred).
5 The statute covers employees who participate in an investigation or proceeding regarding conduct the complainant believes relates to a violation of "section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders." 18 U.S.C. § 1514A (1)&(2). 18 U.S.C. §§ 1341, 1343, 1344, 1348, addresses mail fraud; wire, radio or television fraud; bank fraud; and securities fraud.
6 See 22 Daily Labor Report (BNA), at A-2 (Feb. 2, 2006).
7 The ARB defers to ALJ's factual findings, especially where they are predicated on the ALJ's credibility determinations about the testimony of conflicting witness Halloum v. Intel Corp., ARB No. 04-068, 2003-SOX-7 (ARB Jan. 31, 2006).
8 See 18 U.S.C. § 1514A (b)(1)(B) (Claimant may seek relief, "if the Secretary has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant, [by] bringing an action at law or equity for de novo review in the appropriate district court"). For a discussion of when a preliminary order may become "final," see Hanna v. WCI Communities, Inc., 348 F. Supp. 2d 1332, (S.D. Fla. Nov. 18, 2004), Stone v. Duke Energy Corp., 432 F.3d 320 (4th Cir. 2005) (ALJ's dismissal of employees administrative complaint was not a final decision depriving federal court of jurisdiction).
9 18 U.S.C. § 1514A(b)(2).
10 Coverage includes companies with a class of securities registered under Section 12 of the Securities Exchange Act of 1934 or companies required to file reports under section 15(d) of the Securities Exchange Act of 1934. 15 U.S.C. 781, 15 U.S.C. 780(d); 29 C.F.R. § 1980.101.
11 See generally, Steve Wheeless, SOX Whistleblower Provisions May Apply to Non-Public Subsidiaries, The Corporate Counselor (February 9, 2006).
12 A later decision by the ALJ effectively reversed this decision. Bechtel v. Competitive Technologies, Inc., 2005-SOX-00033 (Oct. 5, 2005) (an appeal has been filed).
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