Difference between revisions of "Whistleblower Protection Laws"

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The SEC’s press release accompanying the order includes the following statement by Enforcement Director Andrew Ceresney: “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.” The Paradigm enforcement action suggests that whistleblower retaliation can result in liability far beyond the damages that a whistleblower can obtain in a retaliation action and that retaliation can invite or heighten SEC scrutiny.
The SEC’s press release accompanying the order includes the following statement by Enforcement Director Andrew Ceresney: “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable.” The Paradigm enforcement action suggests that whistleblower retaliation can result in liability far beyond the damages that a whistleblower can obtain in a retaliation action and that retaliation can invite or heighten SEC scrutiny.


=[[Defense Contractor Whistleblower Protection Act]]=
='''Section 1985 Haddle Remedy for Conspiracy to Interfere with Civil Rights of SEC Whistleblowers'''=
 
At-will employees that suffer retaliation for participating in a federal court proceeding can bring claims under 42 U.S.C. § 1985(2).  This civil rights statute prohibits conspiracies to intimidate or retaliate against parties, witnesses or jurors testifying or participating in federal court proceedings.  Under 42 U.S.C. § 1985(2), a victim of intimidation or retaliation who suffers injury to “his person or property” can recover damages against the perpetrators of the conspiracy.  The Supreme Court held in Haddle v. Garrison, 525 U.S. 121 (1998) that a conspiracy to terminate an employee’s at-will employment constitutes injury to person or property and is therefore actionable under 42 U.S.C. § 1985(2).
 
='''RICO Prohibition Against SEC Whistleblower Retaliation'''=
Section 1107 of SOX, 18 U.S.C. § 1513(e), criminalizes whistleblower retaliation.  It provides:
 
Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than 10 years, or both.
 
As Section 1513(e) is a predicate offense under the Racketeer Influenced and Corrupt Organizations Act (RICO), there is a private right of action to remedy a violation of 1513(e).  Protected conduct includes reporting a possible criminal securities law violation to the SEC.  RICO is a potent remedy because it authorizes treble damages.  18 U.S.C. § 1964(c).
 
In ''DeGuelle v. Camilli,'' 664 F.3d 192 (7th Cir. 2011), DeGuelle, a tax employee of S.C. Johnson & Son, Inc. (“SCJ”), was terminated after reporting an alleged tax scheme to his employer and federal agencies.  Over an eight year period beginning in 2001, DeGuelle relayed a series of concerns regarding SCJ tax practices to Daniel Wenzel, Global Tax Counsel of SCJ.  Wenzel directed DeGuelle to alter or destroy documents to avoid detection of a tax issue that DeGuelle brought to Wenzel also instructed DeGuelle and another employee to fabricate a business transaction in order to exploit accounting rules for the company’s benefit.  DeGuelle finally met with Camilli, Director of Human Resources, to discuss that Wenzel was creating a hostile work environment.  DeGuelle also spoke with Gayle Kosterman who informed DeGuelle that the company hired a law firm to investigate his tax fraud allegations and DeGuelle spoke with attorneys from the firm.
 
Wenzel told DeGuelle to keep his complaints about the tax department within the department, instead of taking them to human resources.  Wenzel made disparaging comments towards DeGuelle in front of other employees and acted aggressively towards him.  DeGuelle received a negative performance review, which was conducted off-cycle and at odds with the award he received earlier that year recognizing his stellar performance.  On September 10, 2008, DeGuelle and Camilli met again to discuss DeGuelle’s safety concerns relating to Wenzel’s behavior.  Later that month, DeGuelle and Wenzel had another verbal altercation and DeGuelle received a negative review from Wenzel.  DeGuelle spoke with Camilli alleging that the negative review was in retaliation for his whistleblowing, which she said she would investigate.  In November, DeGuelle contacted Camilli in writing to inform her that if the company did not take action, he would contact state or federal authorities regarding the retaliation.  On December 18, 2008 DeGuelle was informed that the negative review was retaliatory and would be revoked. DeGuelle was directed to drop his tax fraud complaints, but DeGuelle said he would file a whistleblower complaint with the Department of Labor.  The company offered a salary increase and offered to pay part of his attorney fees if he signed a confidentiality agreement and release of claims.  Instead, on December 18, 2008, DeGuelle filed a complaint under SOX with the Department of Labor, attaching tax documents, financial statements and internal communications to his complaint.  In January 2009, DeGuelle met with Kosterman to withdraw his salary request, fearing that it could be viewed as an attempt to profit from the company’s tax fraud.  On February 17, 2009, the DOL determined that SCJ was not a covered entity under SOX.  Id. at 197.
 
On March 10, 2009 SCJ sent another fraudulent tax return to the IRS.  On March 19, 2009 DeGuelle sent a memorandum detailing his concerns to SCJ counsel, after which Kosterman offered him a year’s salary if he were to resign and signed a confidentiality agreement and released all claims.  On April 9, 2009, SCJ began investigating DeGuelle for disclosing confidential company documents.  DeGuelle met with Camilli and other investigators and denied disclosing documents, but admitted that he attached them to the DOL complaint, asserting that Camilli was aware of those disclosures.  After that meeting, Kosterman and another employee placed DeGuelle on administrative leave, ultimately terminating him for taking and disclosing confidential business documents.  SCJ filed suit in Racine County Circuit court seeking recovery of SCJ property and confidential information and for breach of contract and conversion.  Following the suit, SCJ made defamatory statements about DeGuelle in the media.  DeGuelle then filed suit in federal court alleging multiple claims, including RICO violations.  Id. at 198.
 
The district court dismissed the RICO claims, holding that the tax fraud and retaliation are unrelated offenses and thus do not form a pattern of racketeering activity.  The district court also reasoned that since by the time the retaliation occurred, the government was already aware of alleged tax fraud, the predicate offenses were not the proximate cause of DeGuelle’s injuries.  The Seventh Circuit Court of Appeals reversed, holding that “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower…   Accordingly, we believe a relationship can exist between § 1513(e) predicate acts and predicate acts involving the underlying cause for such retaliation.”  Id at 201.  The court determined that despite SCJ officials’ attempts to investigate DeGuelle’s concerns and protect him from retaliation, SCJ can still be held liable for retaliatory termination.  The court also noted that a whistleblower does not have to show that the same officials participated in both the crime and the retaliation.
 
Following ''DeGuelle,'' in ''Simkus v. United Airlines,'' No. 11 C 2165, 2012 WL 3133603, (N.D. Ill. July 31, 2012), Simkus brought a suit against United Airlines under RICO.  Simkus alleged two predicate acts in his civil RICO suit that occurred within a ten year period, mail and wire fraud related to United providing Simkus with incorrect information regarding his stock allocation in 2006 and retaliation against Simkus in violation of SOX for reporting asbestos violations to the Occupational Health and Safety Administration (OSHA).  The court found that these two acts failed the “continuity plus relationship” test.  Unlike the alleged tax fraud and retaliation committed by SCJ, there was no relationship between the two acts alleged by Simkus. Id. at *3-4.
 
The Seventh Circuit’s holding in ''DeGuelle'' illustrates how a whistleblower who has been retaliated against can bring a RICO action against an employer relying upon Section 1107 as a predicate offense.
 
[1] This case was ultimately dismissed on remand and again on appeal, due to collateral estoppel relating to the judgement in the state court case filed by SCJ, in which DeGuelle represented himself pro se, failing to include affidavits in his response to SCJ’s motion for summary judgment. See ''DeGuelle v. Camlli'' 724 F. 3d 9ss (7th Cir. August 1, 2013).
 
='''Whistleblower Retaliation Can Give Rise to Breach of Contract Claim'''=
An employer’s breach of an anti-retaliation policy in a Code of Ethics can potentially give rise to a breach of contract claim, although the law varies by state.
 
For example, in 2015, a federal district court held that an employer’s anti-retaliation policy created legally enforceable rights. See ''Leyden v. Am. Accreditation Healthcare Comm’n,'' 83 F. Supp. 3d 241, 247–48 (D.D.C. 2015). In ''Leyden,'' the trial court held that the plaintiff had a valid claim based on the employer’s alleged violation of its internal anti-retaliation policy. The court relied on law construing whether employee handbooks created implied contractual rights.
 
In ''Leyden,'' the plaintiff was the Chief Accreditation Officer at the American Accreditation Healthcare Commission, a nonprofit offering accreditation and certification programs to healthcare entities. The defendant had an anti-retaliation policy, which stated: “No URAC employee who in good faith reports any Improper Activities in accordance with this policy shall suffer, and shall be protected from threats of harassment, retaliation, discharge, or other types of discrimination.” The plaintiff voiced concerns that new management was mistreating female executives and that two board members were engaged in conduct that she thought jeopardized the organization’s independence. The defendant then terminated the plaintiff’s employment.
 
The defendant moved to dismiss the complaint, arguing in relevant part that the anti-retaliation policy did not create contractual rights. Even if it did, the defendant contended, it had disclaimed any such rights in its employee handbook.
 
However, the court held that the anti-retaliation policy created an implied contract. The court began by reviewing ''Strass v. Kaiser Foundation Health Plan,'' a case holding that an employee handbook created an implied contract. Id. at 247 (citing ''Strass v. Kaiser Found. Health Plan,'' 744 A.2d 1000 (D.C. 2000)). The court discussed how a manual could create rights, and how an employer could effectively disclaim those rights. The court also rejected the defendant’s argument about the disclaimer, noting that a disclaimer that was “rationally at odds” with the other language in the document may not cut off an implied contract.
 
In finding an implied contract, the court focused on the employer’s invitation to report “Improper Activities” internally and on the language of the anti-retaliation policy. The court also concluded that the employer’s disclaimer, which was found in a different document, was rationally at odds with the anti-retaliation policy. The reasoning in ''Leyden'' may be persuasive in other jurisdictions and provide an important remedy to whistleblowers that are not covered under federal or state whistleblower protection statutes.
 
='''Defense Contractor Whistleblower Protection Act'''=