The Department of Labor's Administrative Review Board ("ARB") recently held that the Sarbanes-Oxley Act ("SOX") provides greater protections to whistleblowers than Title VII provides to covered employees. Under this new decision, companies face a potential new risk from purported retaliatory actions that they may take towards their employees. Specifically, in Menendez v. Halliburton, Inc., ARB Nos. 09-002, 09-003 (Sept. 13, 2011), the ARB found that a company's disclosure of the identity of an employee who reported alleged improper accounting practices could be deemed a breach of confidentiality and, thus, could constitute an "adverse action" under the whistleblower protections of SOX.
Under this reasoning, employers will need to be concerned about
intangible actions as well as the traditional tangible actions.
Previously, when asked to list the types of retaliatory actions
that could not be taken against whistleblowers, employers typically
would have identified actions such as discharge, demotion, loss of
benefits, and decrease in wages. Failure to keep confidential a
whistleblower's identity likely would not have been on that
list. Well, things seem to have changed and employers now must take
further care to avoid engaging in adverse actions.
In Menendez, the ARB applied a broad interpretation of
the term "adverse action" under SOX to find that an
employer potentially could be liable for its disclosure of a
whistleblower's identity. There, Complainant, the Director of
Technical Accounting Research and Training at Halliburton,
initially raised concerns about Halliburton's revenue
recognition practices to the company's Chief Accounting Officer
("CAO"). Complainant's concerns were dismissed by the
CAO, as well as by the company and the company's outside
auditors after conducting a study of Halliburton's accounting
practices. Thereafter, Complainant filed a confidential complaint
with the U.S. Securities and Exchange Commission ("SEC")
and, later, Halliburton's Audit Committee. Subsequently, a
document retention e-mail linking Complainant to the pending SEC
investigation was circulated to company management officials and
many of Complainant's co workers. Additionally, notwithstanding
the company's confidentiality policy regarding whistleblower
complaints, the complaint to the Audit Committee (including
identifying information) was sent to the company's General
Counsel and Chief Financial Officer, as well as to the
company's outside auditors. Following the disclosure of his
identity, many of Complainant's co-workers and the
company's outside auditors (with whom Complainant often worked)
would not communicate with him and, in turn, Complainant began
taking off many days, leading to a six-month paid administrative
leave. During this time, both the SEC and the Audit Committee found
that there was no merit to the complaints. The day before he was
scheduled to return to work, Complainant resigned.
Complainant then filed a whistleblower complaint with the
Department of Labor. In the complaint, Complainant alleged that
Halliburton violated Section 806 of SOX, which forbids a
SOX-covered company from discharging, demoting, suspending,
threatening, harassing, or discriminating against an employee in
the terms and conditions of employment because the employee has
provided information or assistance to an investigation regarding
any conduct that the employee reasonably believes to be a violation
of laws regarding fraud against shareholders or the rules and
regulations of the SEC. To prevail on such a SOX claim, the
complainant must prove that: (1) he engaged in SOX-protected
activity; (2) he suffered an adverse action; and (3) the protected
activity was a contributing factor to the adverse action.
The ARB ultimately remanded the case in order to determine the
issue of causation, specifically as to whether Complainant's
reporting actually prompted the company to reveal his identity.
Contrary to the Department of Labor Administrative Law Judge
("ALJ") who dismissed Complainant's complaint based
on a finding that no adverse action had been taken by the company,
the ARB found that the term "adverse action" under SOX
has a much broader meaning than under Title VII. In overruling the
ALJ's finding that adverse action should be interpreted under
SOX in the same way as the term is interpreted under Title VII, the
ARB – citing to the statutory language and legislative
intent of SOX – held that, because SOX "explicitly
prohibits non-tangible activity," the term should be construed
to "prohibit a very broad spectrum of adverse action against
SOX whistleblowers." Thus, the ARB adopted a definition from a
previous ARB case: "[the] term adverse actions refers to
unfavorable employment actions that are more than trivial, either
as a single event or in combination with other deliberate employer
actions alleged." Accordingly, the ARB found that a
whistleblower's protection under Section 806 is "not
limited to economic or employment-related activities," and,
instead, a SOX whistleblower also is protected from having his
identity exposed after he has made a confidential complaint to his
employer's Audit Committee.
As a result, because of the ARB's expansive definition of the
term "adverse action," this case could have major
significance to employers throughout the country. In light of this
decision, employers potentially could be liable for any intangible
actions that they take against whistleblowers as well as the more
traditional tangible actions, such as discharge and demotion.
Although, in this case, Halliburton's actions did not rise to
the level of what most traditionally consider to be adverse
actions, revealing Complainant's identity seems to have had a
negative impact on Complainant and his career. Accordingly, when
dealing with an employee who has filed a whistleblower complaint,
employers must be cautious that they do not take any actions that
could have a detrimental effect on the employee. Otherwise, the
employer could be found to have engaged in actions considered
adverse, even if those actions do not adversely affect the
employee's wages, benefits, or status with the company. If the
ARB (or other reviewing bodies) apply this broad definition
hereafter, it is likely that an increasing number of intangible
actions will be deemed to be adverse in the future and further open
the door to even greater potential liability for employers
throughout the United States.
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