United States: Bonus Points: ARB Upholds Whistleblower Order Challenging Bonus Plan

Last Updated: May 4 2016
Article by Renee B. Phillips and Michael Disotell

The Department of Labor's Administrative Review Board ("ARB") recently upheld an order finding a semiconductor company had constructively discharged a manager who complained the company's bonus plan violated state wage and hour laws, and in doing so, broadly interpreted the protections offered under the Sarbanes-Oxley Act ("SOX" or "Act").

In Dietz v. Cypress Semiconductor Corp., the company hired the complainant as a program manager after acquiring his former employer.  Cypress required certain employees to participate in its "Design Bonus Plan," and although the complainant was never subject to the bonus plan, many of his direct reports were.  Under the bonus plan, Cypress deducted 10% from the participants' salaries and at the end of each quarter, and it would calculate each employee's "bonus" based on the employee's team's performance.  However, some employees ultimately received less than what they had contributed.  Further, employees who left Cypress before the quarter's payout forfeited their contributions and bonus.

When the complainant's direct reports informed him of the compulsory bonus plan, he emailed his supervisor explaining that he believed the program violated both California and Colorado law.  In the email, he explicitly invoked the company's formal whistleblower policy and cited the state statutes he believed Cypress was violating.   After the complainant sent the email to his supervisor, two of Cypress's attorneys held a teleconference with him.  In it, they explained they had a legal opinion confirming the legality of the bonus plan.  (In truth, Cypress never produced a written legal opinion, and it was unable to explain before the Administrative Law Judge ("ALJ") how the plan was legal.)

After the teleconference, the complainant's managers allegedly began taking resources away from him.  Then, his supervisor sent him a formal disciplinary memo discussing alleged "performance issues."  The memo subsequently demanded the complainant "confess fault" by writing a response letter outlining his shortcomings.  The memo was to be placed in the complainant's personnel file, which would have made it "virtually impossible for him to get another job in the industry."  Notably, the complainant had never had performance issues before, and in fact, he had previously received above averages evaluations for his work.

Instead of confessing fault, though, the complainant wrote a response letter disputing the allegations in his supervisor's memo and his belief he was being retaliated against for his whistleblower complaint.  He ended his letter by stating he was terminating his employment at Cypress; however, he then immediately circumscribed his resignation by noting he was willing to remain for another month to complete a project he was staffed on unless Cypress chose to terminate his employment sooner.  The next day, the complainant was called into a meeting with his supervisor, an HR representative, and another manager, but no one told him what the meeting was for or set an agenda.  As a result, the complainant feared the meeting could mean only one thing—that he would be fired—so instead of attending the meeting, he resigned effective immediately.

The ALJ determined that the complainant was constructively discharged for reporting what he reasonably believed was fraudulent activity related to the bonus plan.  Although the complainant never specifically mentioned fraud nor any of SOX's whistleblower provisions in his communications, the ALJ determined he reasonably believed the company was engaging in fraud against its employees.  As for the complainant's initial mention of resignation in his response letter, the ALJ determined complainant knew Cypress had an aggressive "turnaround policy" where it would attempt to retain employees who expressed an intent to resign; the ALJ determined the complainant anticipated the policy would kick in with his letter so he did not truly intend to resign.

On appeal, Cypress argued that (1) because the alleged violations were of state wage laws, he was not protected by SOX as a whistleblower and (2) the complainant voluntarily resigned so as to defeat his constructive discharge claim.  While the ARB noted several errors in the legal standards the ALJ applied, it concluded overall that substantial evidence supported the ALJ's finding and affirmed its order.  Specifically, the ARB determined that the complainant reasonably believed that Cypress concealed material facts about the bonus plan, such as requiring compulsory deductions from certain employees.  He presented these beliefs in his initial email to his supervisor and during the teleconference with Cypress's attorneys.  Given the complainant's position in the company—as a manager of employees who felt they were being paid less than what they earned—his belief that some fraud had occurred as a result of the concealment of violations of state wage laws was reasonable.

As to the constructive discharge claim, the ARB upheld the ALJ's finding that a reasonable person in the complainant's position would have felt that his only option was quitting, albeit with a slight modification to the legal standard the ALJ applied.  The ARB reasoned that the complainant's response letter to his supervisor's memo requesting he confess fault was not in fact a resignation but instead an attempt to trigger Cypress's turnaround policy.  In other words, the complainant's statements that he was resigning but then offering to stay on temporarily was simply a matter of "hedging his bets."

Further, the fact that the complainant was called into an agenda-less meeting signaled nothing other than he would be terminated.  Given the three weeks between the complainant's complaint and his termination, the ARB reasoned that the complainant had sufficiently demonstrated temporal proximity and that his complaint was a contributing factor to his constructive termination.  This was supported, for instance, by the fact that the complainant never had a poor performance review until he complained about the bonus plan but after he complained, Cypress began undermining his ability to perform his job.  Cypress's culpability was further highlighted, according to the ARB, due to company's failure to follow its own whistleblower policy in handling complaints.

Ultimately, the Dietz case demonstrates that the current ARB continues to construe SOX very broadly.  Although Dietz's complaint appeared to be about state law violations, by adding an allegation of concealment, he brought the claim within SOX's coverage.  In light of this decision, creative plaintiffs' attorneys may attempt to allege that employee reports of violations not covered by SOX are covered because the employees asserted concealment of the violations.  Moreover, the ARB's affirmance that Dietz suffered a constructive discharge represents a very broad reading of the term, showing that the ARB continues to be a tough forum for employers under the current administration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Renee B. Phillips
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.