The disclosure of a whistleblower’s identity to his work colleagues is an adverse action that can trigger liability under the SOX antiretaliation provision, according to the 5th Circuit in Halliburton, Inc. v. Admin. Review Bd., No. 13-cv-60323 (5th Cir. Nov. 12, 2014).
The decision turned on whether the disclosure was a materially adverse action under the standard set forth in Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. 53 (2006)(interpreting the antiretaliation provision of Title VII). The standard for material adversity is met if it is “an action harmful enough that it well might have dissuaded a reasonable worker from engaging in statutorily protected whistleblowing.” Halliburton, slip op. at 10.
According to the 5th Circuit, “[i]t is inevitable that such a disclosure would result in ostracism ….” Id. at 13. The Court also expressed concern that the disclosure from his supervisor was “granting his implied imprimatur on differential treatment of the employee, or otherwise expressing a sort of discontent from on high.” It further identified the unmeasurable effect it could have on his employment. “In an environment where insufficient collaboration constitutes deficient performance, the employer’s disclosure of the whistleblower’s identity and thus targeted creation of an environment in which the whistleblower is ostracized is not merely a matter of social concern, but is, in effect, a potential deprivation of opportunities for future advancement.” Id.
The amount of money at issue in the case was small, with only $30,000 at stake if Halliburton lost. They must have thought they could get a favorable precedent for employers in the future by appealing. Instead, it will require corporations to maintain the confidentiality of whistleblowers in the workplace and be quoted favorably by plaintiffs in the future.
The Risks of Internal Reporting Prior to Whistleblowing
Although not directly related to the opinion, the factual summary does contain an inference that the SEC investigation was caused by Menendez. This is an interesting and concerning area, as corporations have been attempting to deduce if there is a whistleblower once a government investigation begins.
Menendez first circulated a memorandum to his supervisor and colleagues about his concerns that corporate accounting was not according to Generally Accepted Accounting Principles in July. In November, shortly after the company concluded the accounting practices were proper in October, Menendez filed his tip with the SEC.
In February, the SEC contacted Halliburton’s General Counsel to investigate its accounting practices. Only four days prior, Menendez had emailed his concerns to the company’s Board of Directors, and a copy was forwarded to their General Counsel. In the General Counsel’s instruction to individuals to retain documents, it said that “the SEC has opened an inquiry into the allegations of Mr. Menendez.” This email was forwarded by Menendez’s supervisor to his colleagues.
While the identity of whistleblowers is protected by the SEC, an employee that makes an internal report prior to providing information to the U.S. Government risks their employer deducing that they are the origin of any government investigation. This is especially true if the two are closely correlated in time. The curious timing of a government investigation launched a few months after a report to the compliance department from an employee may not go unnoticed.
This is not the only case of an employer inferring whistleblower status recently. A California Court of Appeals recently allowed an employee allegedly fired because of an erroneous belief that she was a whistleblower to proceed with her retaliation lawsuit. In Diego v. Pilgrim United Church of Christ, ___ Cal.App.4th ___ (November 21, 2014), the plaintiff brought a claim of wrongful termination based on a violation of public policy. The defendant claimed that there was “no constitutional or statutory authority extending whistleblower protections to employees merely believed to have engaged in protected activity. Relying on past precedent concluding that firing suspected whistleblowers can discourage the filing of information with the government, the Court concluded that the purpose of its whistleblower statute would be thwarted and the result would be against the public good.
These two instances aren’t traditional, classic cases of retaliation. But if employers continue to search for the identity of whistleblowers, we may see more of them in the future. California handled it by inferring a cause of action in their public policy. Will the False Claims Act and Dodd-Frank be able to provide a remedy for plaintiffs as other cases like these arise at the fringes of retaliation law? We will see.
Other issues discussed by the 5th Circuit in Halliburton include:
The determination of material adversity is not purely a factual determination.
The contributing factor to an adverse employment action does not require a wrongful or retaliatory motive.
SOX allows a remedy for noneconomic compensatory damages such as emotional distress or reputational harm.