Sarbanes-Oxley

Section 806 of the Sarbanes-Oxley Act protects whistleblowers at covered employers who report to their supervisor or the government conduct that they reasonably believe constitutes wire fraud, mail fraud, bank fraud, securities fraud, or a violation of any rule or regulation of the SEC, or any provision of Federal law relating to fraud against shareholders.

Some SOX whistleblowers have obtained substantial recoveries, including jury verdicts of $11M and $5M in SOX whistleblower retaliation cases. Leading SOX whistleblower lawyer Jason Zuckerman has established favorable precedent construing SOX and has obtained more than ten settlements in SOX matters in excess of $1 million, two of which were above $4 million.

To succeed in a Sarbanes-Oxley retaliation claim, the whistleblower must show by a preponderance of the evidence that

  1. she had engaged in protected whistleblowing activity;
  2. the company was aware of her protected activity;
  3. she suffered an unfavorable personnel action; and
  4. her protected activity was a “contributing factor” in the unfavorable action.

“Contributing factor” causation is a light burden that can be met by showing that protected activities tended to affect in any way the decision to take the adverse action.

Once the whistleblower makes that showing, the company can avoid liability only by proving by clear and convincing evidence that it would have taken the same adverse action even in the absence of the protected activity.

A helpful guide to SOX titled Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers elaborates on protections afforded whistleblowers under the law.

Protected Whistleblowing Under the Sarbanes-Oxley Act

The Sarbanes-Oxley whistleblower law protects corporate whistleblowers for providing information about securities fraud, shareholder fraud, bank fraud, a violation of any SEC rule or regulation, mail fraud, or wire fraud. The Department of Labor has construed SOX whistleblowing broadly, holding that:

  • Disclosing a potential violation is protected, i.e., an employee who reasonably believes that a securities violation is imminent will be protected by SOX if he or she reports the violation before it actually occurs.
  • An employee’s mistaken belief in a violation of law can be objectively reasonable. The reasonable person standard recognizes that many employees are unlikely to be trained to recognize legally actionable conduct by their employers. To satisfy the objective component of the “reasonable belief” standard, the employee must prove that a reasonable person in the same factual circumstances with the same training and experience would believe that the employer violated securities laws.
  • To be protected under SOX, the employee’s report need not “definitively and specifically” relate to one of the listed categories of fraud or securities violations in Section 806 of SOX. The focus is “on the plaintiff’s state of mind rather than on the defendant’s conduct.” Guyden v. Aetna, Inc., 544 F.3d 376, 384 (2d Cir. 2008).

Prohibited Whistleblower Retaliation Under Sarbanes-Oxley

The whistleblower protection provision of the Sarbanes-Oxley Act prohibits a broad range of retaliatory adverse employment actions, including discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Recently a federal court of appeals held that merely outing or disclosing the identity of a whistleblower is actionable retaliation under SOX.

Proving Sarbanes-Oxley Whistleblower Retaliation

To prevail under SOX’s whistleblower provision, an employee must prove by a preponderance of the evidence that

  • they engaged in protected activity;
  • the employer knew that they engaged in the protected activity;
  • they suffered an unfavorable personnel action; and
  • the protected activity was a contributing factor in the unfavorable action.

A contributing factor is any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision. Causation can be inferred from timing alone where an adverse employment action follows on the heels of protected activity. The decision-maker’s knowledge of the protected activity and close temporal proximity will suffice to prove causation in some cases.

Once the employee proves the elements of a Sarbanes-Oxley whistleblower retaliation claim by a preponderance of the evidence, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same unfavorable personnel action in the absence of the complainant’s protected behavior or conduct.

Recent SOX Whistleblower Recoveries

There is no cap on special damages under SOX, and some state whistleblower protection laws enable whistleblowers to recover punitive damages. Recently corporate whistleblowers have obtained substantial recoveries in SOX whistleblower cases:

Remedies in Whistleblower Retaliation Cases

Whistleblower retaliation can exact a serious toll, including lost pay and benefits, reputational harm, and emotional distress. Indeed, whistleblower retaliation can derail a career and deprive the whistleblower of millions of dollars in lost future earnings.

Whistleblowers should be rewarded for doing the right thing, but all too often they suffer retaliation and find themselves marginalized and ostracized. Federal and state whistleblower laws provide several remedies to compensate whistleblowers that have suffered retaliation, including:

  • back pay (lost wages and benefits);
  • emotional distress damages;
  • damages for reputational harm;
  • reinstatement or front pay in lieu thereof;
  • lost future earnings; and
  • punitive damages.

Click here for examples of substantial verdicts and settlements in whistleblower retaliation cases. Recently, the Pennsylvania Supreme Court affirmed an award of approximately $3.2 million in a whistleblower protection case.

Back Pay in Whistleblower Retaliation Cases

Back pay is compensation for lost wages and benefits that the whistleblower would have earned absent the adverse employment action, offset by interim earnings. A back pay award may include all promotions and salary increases the complainant would have received in the absence of retaliation. See, e.g., Welch v. Cardinal Bankshares Corp., 2003-SOX-15, at 17 (ALJ Feb. 15, 2005) (holding that a prevailing complainant “is entitled to all promotions and salary increases that he would have obtained but for the illegal discharge”) rev’d on other grounds, 536 F.3d 269 (4th Cir. 2008). The value of stock options is recoverable in SOX whistleblower cases. Hagman v. Washington Mutual Bank, Inc., 2005-SOX-73, 2006 WL 6105301, *32 (Dec. 19, 2006).

In addition to back pay, a prevailing whistleblower is entitled to prejudgment interest under certain whistleblower protection laws. Prejudgment interest accrues from the time of the whistleblower’s termination to the time that the court entered judgment.

Under the False Claims Act whistleblower protection law and Dodd-Frank anti-retaliation provision, a prevailing whistleblower is entitled to recover double back pay. In Mooney v. Americare, the court held that back pay is doubled before the court offsets the value of interim earnings (also known as mitigation).

Back pay can also include contracted severance pay to which he would be entitled in the event of discharge without cause when reinstatement was not appropriate. See Loftus v. Horizon Lines, Inc., ARB No. 16-082, ALJ No. 2014-SPA-004 (ARB May 24, 2018).

Front Pay in Lieu of Reinstatement in Whistleblower Retaliation Cases

Reinstatement is the “presumptive and preferred remedy,” but where pronounced animosity between the parties leads both of them to advocate against reinstatement, front pay may be an appropriate substitute. Front pay is designed to compensate the plaintiff for the time it would take to secure comparable employment. See, e.g., Hagman v. Washington Mutual Bank, Inc., ALJ Case No. 2005-SOX-00073, at 26–30 (ARB Dec. 19, 2006), appeal dismissed, ARB Case No. 07-039 (ARB May 23, 2007) (awarding $640,000 in front pay to a banker whose supervisor became verbally and physically threatening when the banker disclosed concerns about the short funding of construction loans).

Where a whistleblower demonstrates that he planned to continue working for the employer until he or she reached normal retirement age and demonstrates sufficient efforts to mitigate damages (find comparable employment), the whistleblower can been entitled to expected earnings to the date of retirement. For example in the Perez v. Progenics Pharmaceuticals SOX whistleblower case, the court awarded approximately $2.7 in front pay. That case is discussed in an article in Corporate Counsel titled How to Help a Whistleblower.

Front pay is an appropriate remedy in lieu of reinstatement in SOX whistleblower cases. See Jones v. SouthPeak Interactive Corp., 986 F. Supp. 2d 680 (E.D. Va. 2013), aff’d, 777 F.3d 658 (4th Cir. 2015). Andrea Jones worked at SouthPeak Interactive Corp. (“SouthPeak”) as its chief financial officer, and SouthPeak terminated her employment two days after she disclosed accounting irregularities to the SEC. Following a four-day trial, a jury found for Jones and awarded nearly $700,000 in damages. Jones then filed a motion seeking front pay in lieu of reinstatement and in addition to compensatory damages. Judge Payne awarded front pay, and noted the following:

Front pay also has been more precisely defined as “a lump sum … representing the discounted present value of the difference between the earnings [an employee] would have received in his old employment and the earnings he can be expected to receive in his present and future, and by hypothesis, inferior, employment.” McKnight v. Gen. Motors Corp., 908 F.2d 104, 116 (7th Cir.1990), cert. denied, 499 U.S. 919, 111 S.Ct. 1306, 113 L.Ed.2d 241 (1991), partially superseded by Civil Rights Act of 1991, Pub.L. 102-166, 105 Stat. 1071 (codified at 42 U.S.C. 1981 et seq.). If a plaintiff has been diverted onto a less profitable career path through the unlawful actions of his former employer, an award of front pay to compensate the plaintiff until such time as he can regain his former career track is not a windfall.

SouthPeak appealed Judge Payne’s decision. The DOL filed an amicus curiae brief arguing that front pay is an appropriate remedy under SOX, and the Fourth Circuit affirmed. See 777 F.3d at 663.

In calculating front pay, courts should apply the following guiding principles:

  • “It is well settled that `the risk of lack of certainty with respect to projections of lost income must be borne by the wrongdoer, not the victim.” Bartek v. Urban Redevelop ent Authority, 882 F.2d 739, 746 (3d Cir. 1989).
  • The Court should “assume, absent evidence to the contrary, that the illegally discharged employee would have continued working for the employer until he or she reached normal retirement age.” See Perez v. Progenics Pharmaceuticals, Inc., 204 F. Supp. 3d 528 (S.D.N.Y. 2016).

Compensatory Damages in Whistleblower Retaliation Cases

The SOX whistleblower protection law and similar corporate whistleblower protection laws authorize the award of not only economic damages, but also “special damages” which includes damages for emotional distress, mental anguish, humiliation and injury to reputation. See, e.g., Lockheed Martin Corp. v. Admin. Rev. Bd., 717 F.3d 1121, 1138 (10th Cir. 2013) (upholding an award of “noneconomic compensatory damages” for “emotional pain and suffering, mental anguish, and humiliation”). As a federal judge held in Hanna v. WCI Communities, Inc., 348 F.Supp.2d 1332 (S.D.Fla.2004), a SOX whistleblower case, “[w]hen reputational injury caused by an employer’s unlawful discrimination diminishes a plaintiff’s future earnings capacity, [he] cannot be made whole without compensation for the lost future earnings [he] would have received absent the employer’s unlawful activity.”

“[A] plaintiff’s testimony, standing alone, can support an award of compensatory damages, [but] the evidence of the emotional distress must be demonstrable, genuine, and adequately explained.” Price v. City of Charlotte, N.C., 93 F.3d 1241, 1251-52 (4th Cir. 1996). The whistleblower’s testimony “must indicate with specificity how the plaintiff’s alleged distress manifested itself.” Bryant v. Aiken Reg’l Med. Ctrs., 333 F.3d 536, 547 (4th Cir. 2003) (internal quotation marks and alterations omitted).

Attorney Fees and Litigation Costs in Whistleblower Retaliation Cases

Legal fees and costs in whistleblower retaliation cases can also be significant. In the Wadler v. Bio Rad SOX whistleblower retaliation case, Bio-Rad stipulated to $3M in attorney fees for the whistleblower’s counsel. In March 2020, Magistrate Judge Michael E. Hegarty awarded $2,719,225.50 in lodestar fees on the whistleblower’s recovery of $620,105.00 in an NDAA whistleblower retaliation case. See Cejka v. Vectrus Systems Corp., 2019 WL 8198090 (D. Colo. Feb. 21, 2019).

Litigating Sarbanes-Oxley Whistleblower Cases

A Sarbanes-Oxley whistleblower retaliation complaint must be filed initially with OSHA. The complainant has the option to remove a SOX whistleblower claim to federal court once the complaint has been pending at the Department of Labor for 180 days.

180-Day Sarbanes-Oxley Statute of Limitations

The deadline for a SOX whistleblower to file a complaint is 180 days after the whistleblower first experiences or becomes aware of the unlawful retaliation.i The clock starts ticking once “the discriminatory decision has been both made and communicated to the complainant.”ii

The 180-day clock starts to run on the date of each discrete retaliatory act, e.g., the date on which the whistleblower is informed of a demotion, suspension, termination, change in job duties, etc. However, in an action alleging a hostile work environment, retaliatory acts outside the statute of limitations period are actionable where there is an ongoing hostile work environment and at least one of the acts occurred within the 180-day statute of limitations.

A SOX retaliation complaint is considered filed once the Department of Labor receives it. A complaint sent by mail, however, is considered filed on the date of its postmark.

The 180 day period is not jurisdictional and may be equitably tolled when (1) the respondent actively misled the complainant respecting the cause of action, (2) extraordinary circumstances prevented the complainant from asserting his rights, (3) complainant raised the precise statutory claim in issue but mistakenly did so in the wrong forum, or (4) the respondent did not actively mislead the complainant, but instead through its acts or omissions lulled the complainant into foregoing prompt action to vindicate his rights.

“[A]lthough recovery for any action outside the 180-day period is barred, an employee may still use ‘the prior acts as background evidence in support of a timely claim.’” Roop v. Kan. City S. Ry., No. CIV-16-413-SPS, 2017 U.S. Dist. LEXIS 177646 (E.D. Okla. Oct. 26, 2017) citing Dunn v. BNSF Ry. Co., 2017 U.S. Dist. LEXIS 137109, 2017 WL 3670559, at *8 (W.D. Wash. Aug. 25, 2017), quoting Nat’l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 105, 110, 113 (2002).

i i 18 U.S.C. §1514A(b)(2)(D).

i ii 29 CFR § 1980.103(d).

Individual Liability Under SOX Whistleblower Protection Law

A whistleblower can bring a SOX retaliation claim against individuals who have the functional ability to retaliate against the whistleblower, and are aware of the whistleblower’s protected conduct (or influenced by a person with knowledge of the protected conduct).

The Fourth Circuit and a California district court have held that directors may be held individually liable under SOX as agents of a publicly-traded company. See Jones v. Southpeak Interactive Corp. of Delaware, 777 F.3d 658, 675 (4th Cir.2015); Wadler v. Bio-Rad Labs, Inc., No. 15-cv-02356-JCS, 2015 WL 6438670 (N.D. Cal. Oct. 23, 2015). But in Zornoa v. Terraform Global, Inc. of the United States Court for the Southern District of New York held that corporate directors are not liable under SOX because they are not understood to function as agents and the statute omits directors from its list of potentially liable persons.

OSHA Enforcement of Sarbanes-Oxley Whistleblower Law

The U.S. Department of Labor Occupational Safety and Health Administration (“OSHA”) administers the anti-retaliation provision of SOX. A SOX whistleblower claim must be filed initially with OSHA. OSHA will then investigate the complaint and may order preliminary reinstatement of the whistleblowers if it finds “reasonable cause” to believe that retaliation occurred.

OSHA finds “reasonable cause” when it determines that a reasonable judge could rule for the whistleblower. And a reasonable judge could rule so only where there is evidence supporting each element of a SOX retaliation claim. Generally, though, less evidence is required to establish “reasonable cause” at this stage than to prevail at trial. “OSHA’s responsibility to determine whether there is reasonable cause to believe a violation occurred is greater than the complainant’s initial burden to demonstrate a prima facie allegation that is enough to trigger the investigation.”[i] But OSHA need not “resolve all possible conflicts in the evidence or make conclusive credibility determinations to find reasonable cause to believe that a violation occurred.” In practice, however, OSHA rules for SOX complainants only in the strongest cases, which is due in part to the burden that OSHA must bear to order preliminary reinstatement of a whistleblower.

[i] Clarification of the Investigative Standard for OSHA Whistleblower Investigations (Apr. 20, 2015)

Dodd-Frank Act

The whistleblower protection provision of the Dodd-Frank Act prohibits retaliation against a whistleblower for lawful actions taken by a whistleblower:

  1. in providing information to the Commission in accordance with this section;
  2. in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or
  3. in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. [§§] 7201 et seq.), this chapter, including section 78j-1(m) of this title, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

15 U.S.C. § 78u-6(h)(1)(A). A prevailing whistleblower can secure reinstatement and recover double back pay and compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees.

In February 2018, the Supreme Court held in Somers that the anti-retaliation provision of the Dodd-Frank Act projects a whistleblower only where the whistleblower has disclosed a potential securities law violation to the SEC. Somers also clarified that once an employee has provided information to the SEC, subsequent internal disclosures are protected absent proof that the employer had knowledge of the disclosure to the SEC.

Post Somers, the SEC has indicated that it will continue to prioritize whistleblower protection as a key tool to encourage whistleblowers to come forward. In a June 28, 2018 public statement at the open meeting announcing the Proposed Rulemaking, Chair Clayton stated: “Many have asked whether the SEC will continue to enforce the anti-retaliation provisions of Dodd-Frank. Let me be clear: retaliation protections are a key component of the whistleblower program, and we will bring charges against companies or individuals who violate the anti-retaliation protections when appropriate.” Statement at Open Meeting on Amendments to the Commission’s Whistleblower Program Rules.

SEC Enforcement of Dodd-Frank SEC Whistleblower Retaliation Provision

The SEC has taken enforcement action for retaliation against a whistleblower. On September 29, 2016, the SEC ordered International Game Technology (“IGT”) to pay a $500,000 penalty for terminating the employment of a whistleblower because he reported to senior management and to the SEC that the company’s financial statements might be distorted. See Exchange Act Release No. 78991 (Sept. 29, 2016). During an internal investigation into the whistleblower’s allegations, IGT removed him from opportunities that were integral to his ability to perform his job successfully. IGT then fired the whistleblower the same day as the internal investigation concluded that IGT’s cost-accounting model was appropriate and did not cause its financial statements to be distorted. The whistleblower was protected under the SEC whistleblower program, despite being mistaken, because he reasonably believed that IGT’s cost-accounting model constituted a violation of federal securities laws.

The action against IGT was the SEC’s first standalone retaliation case. However, it is consistent with a 2014 enforcement action that indicated, for the first time, that retaliating against a whistleblower can result not only in a private suit brought by the whistleblower but also in a unilateral SEC enforcement action. On June 16, 2014, the SEC announced that it was taking enforcement action against Paradigm Capital Management, Inc. (“Paradigm”), a hedge fund advisory firm, for engaging in prohibited principal transactions and for retaliating against the whistleblower who disclosed the unlawful trading activity to the SEC. See Exchange Act Release No. 72393 (June 16, 2014). This was the first case in which the SEC exercised its authority under Dodd-Frank to bring enforcement actions based on retaliation against whistleblowers.

According to the order, Paradigm retaliated against its head trader for disclosing, internally and to the SEC, prohibited principal transactions with an affiliated broker-dealer while trading on behalf of a hedge fund client. The transactions were a tax-avoidance strategy under which realized losses were used to offset the hedge fund’s realized gains.

When Paradigm learned that the head trader had disclosed the unlawful principal transactions to the SEC, it retaliated against him by removing him from his position as head trader, changing his job duties, placing him on administrative leave, and permitting him to return from administrative leave only in a compliance capacity, not as head trader. The whistleblower ultimately resigned his position.

Paradigm settled the SEC charges by consenting to the entry of an order finding that it violated the anti-retaliation provision of Dodd-Frank and committed other securities law violations; agreeing to pay more than $1 million to shareholders and to hire a compliance consultant to overhaul their internal procedures; and entering into a cease-and-desist order.

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.

Differences between SOX and Dodd-Frank Acts

This table identifies some of the major differences between the anti-retaliation provisions of SOX and Dodd-Frank. To maximize the potential recovery, a whistleblower could initially bring a SOX claim at OSHA and subsequently remove it to federal court and also bring a Dodd-Frank claim. Doing so could enable the whistleblower to recover double back pay and uncapped special damages.

Topic Area SOX Dodd-Frank
Scope of Coverage Any company with a class of securities registered under section 12 of the Securities Exchange Act of 1934, or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934, including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company, or nationally recognized statistical rating organization, or any officer, employee, contractor, subcontractor, or agent of such company. Any employer
Protection for internal whistleblowing Yes Internal whistleblowing protected only if individual has also reported a possible securities violation to the SEC
Protection for whistleblowing to SEC Yes Yes
Statute of Limitations 180 days 6 years
Administrative Exhaustion Must file initially with OSHA None
Arbitration Exempt from mandatory arbitration Not exempt
Back pay Ordinary back pay Double back pay
Special damages for emotional distress and reputational harm Available Not available

Four advantages to bringing a SOX claim in addition to a Dodd-Frank claim:

Four advantages to bringing a Dodd-Frank claim in addition to a SOX claim:

  • Double back pay: Dodd-Frank authorizes an award of double back pay (double lost wages) plus interest, whereas SOX authorizes ordinary back pay with interest along with other damages. Both statutes authorize reinstatement and attorney fees.
  • Longer statute of limitations: Whereas the statute of limitations for a SOX retaliation claim is just 180 days, the statute of limitations for a Dodd-Frank retaliation claim is six to ten years.
  • Broader scope of coverage: SOX whistleblower protection applies primarily to employees of public companies and contractors of public companies. The Dodd-Frank prohibition against whistleblower retaliation applies to “any employer,” not just public companies.
  • No administrative exhaustion: In contrast to SOX, Dodd-Frank permits a whistleblower to sue a current or former employer directly in federal district court without first exhausting administrative remedies at DOL.

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

In an article titled “New law drove whistleblower complaints against DOD contractors up,” Jill Aitoro reports that the NDAA whistleblower protection provisions, which became effective one year ago, have generated a substantial increase in whistleblower complaints to the Department of Defense Office of Inspector General. According to the article, “the rate of complaints from Defense Department whistleblowers increased from about four to six a month as of August 2013 to more than 200 since Jan. 1.” In addition, the article reports that whistleblower disclosures about DOD contractor fraud have resulted in several substantial recoveries for the government.

Sections 827 and 828 of the NDAA provide robust whistleblower protection to employees of most government contractors and grantees. Under the NDAA whistleblower protection provisions, protected conduct includes the disclosure of information that the employee reasonably believes is evidence of:

  • gross mismanagement of a Federal contract or grant;
  • a gross waste of Federal funds;
  • an abuse of authority relating to a Federal contract or grant; or
  • a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract.

To be protected, the disclosure must be made to a Member of Congress or Congressional committee, an IG, the GAO, a federal employee responsible for contract or grant oversight or management at the relevant agency, an authorized official of DOJ or other law enforcement agency, a court or grand jury or a management official or other employee of the contractor or subcontractor who has the responsibility to investigate, discover, or address misconduct.

Differences Between False Claims Act Whistleblower Protection and NDAA/Defense Contractor Whistleblower Protection

Whistleblowers disclosing DoD contractor fraud can pursue claims both under the FCA and the NDAA. The following table summarizes key distinctions between Section 3730(h) of the False Claims Act and Sections 827 and 828 of the NDAA:

Topic Area False Claims Act Whistleblower Protection NDAA/Defense Contractor Whistleblower Protection Act
Coverage Employee, contractor, or agent of federal contractor Employee of a contractor, subcontractor grantee, or subgrantee, or a personal services contractor
Scope of Protected Conduct (protected whistleblowing) Protects lawful acts done by the employee, contractor, agent, or associated others (1) in furtherance of an action under the FCA or (2) other efforts to stop 1 or more violations Protects disclosures to employer or the government concerning:
  • Violation of law, rule, or regulation related to a federal contract
  • Gross mismanagement of a federal contract or grant
  • Gross waste of federal funds
  • Abuse of authority relating to a federal contract or grant
  • Substantial and specific danger to public health or safety
Damages Double back pay, reinstatement, uncapped special damages (emotional distress and harm to reputation), attorney’s fees Back pay, reinstatement, uncapped special damages, attorney’s fees
Causation Standard "But for" causation Contributing factor causation
Administrative Exhaustion No exhaustion requirement; file directly in federal court Must file initially at OIG and after 210 days, can remove claim to federal court
Statute of Limitations 3 years 3 years

Defense Contractor Whistleblower: Reporting Fraud Internally or Directly to the Government

There are many factors to consider in deciding whether to blow the whistle directly to the government in the form of a qui tam whistleblower lawsuit and which laws offer the best remedy to combat retaliation. It is important to assess your options at an early stage to avoid waiving claims or rights. For example, entering into a global release or global waiver with your employer to resolve a retaliation claim could waive your right to recover a qui tam whistleblower award.

Proving NDAA Whistleblower Retaliation

The burden of proof and causation standard in NDAA whistleblower cases is very favorable to employees. The complainant prevails merely by demonstrating that the protected disclosure was a contributing factor in the personnel action, which can be met by showing knowledge and temporal proximity.

Remedies for Prevailing NDAA Whistleblowers

Remedies for prevailing whistleblowers in NDAA retaliation actions include reinstatement, back pay, uncapped compensatory damages (emotional distress damages) and attorney fees and costs.

Procedures for Filing an NDAA Whistleblower Retaliation Claim

An NDAA retaliation claim must be filed initially with the Office of Inspector of General of the agency that awarded the contract or grant about which the employee disclosed wrongdoing, and the statute of limitations is three years after the date of the reprisal. The OIG will investigate the complaint and make recommendations to the agency head. If the agency head fails to provide requested relief within 210 days, the whistleblower may bring an action in federal district court and try the case before a jury.

Taxpayer First Act

Whistleblower Protection Act

Energy Reorganization Act

Section 211 of the Energy Reorganization Act (ERA) protects employees who disclose concerns about nuclear safety or a violation a Nuclear Regulatory Commission (NRC) rule or regulation.

Protected Nuclear Safety Whistleblowing

The ERA whistleblower anti-retaliation provision protects employees in the nuclear industry for engaging in protected whistleblowing, including:

  • Raising concerns about nuclear safety;
  • Refusing to engage in activities prohibited under either the ERA or AEA provided the employee has identified the alleged illegality;
  • Testifying before Congress or at any Federal or State proceeding regarding any provision of the ERA or the AEA;
  • Commencing or causing to be commenced a proceeding under or the enforcement of the ERA or AEA, or testifying in any such proceeding; or
  • Assisting or participating in any other action to promote nuclear safety.

The ERA protects disclosures to an employer and disclosures to the NRC. Click here to report a safety or security concern directly to the NRC.

Prohibited Retaliation Against Nuclear Safety Whistleblowers

Section 211 of the ERA prohibits a broad range of retaliatory actions, including termination, harassment, suspension, demotion, blacklisting/refusal to hire, and any act that would dissuade a reasonable person from engaging further protected activity.

Recently, OSHA awarded $260,000 to a nuclear whistleblower who was wrongfully terminated after reporting safety concerns concerning a construction project at the Wolf Creek Generating Station, including breaches of minimum soil coverage requirements for emergency service water piping.

Proving ERA Whistleblower Retaliation

To prevail on an ERA whistleblower complaint, a complainant must prove by a preponderance of the evidence that the complainant’s protected whistleblowing was a contributing factor in the adverse action. A common source of indirect evidence of retaliation is “temporal proximity” between the protected whistleblowing and the adverse action. The closer the temporal proximity, the greater the causal connection there is to the alleged retaliation.

If the complainant’s protected activity was a contributing factor in the adverse action, the employer may avoid liability only if it demonstrates by clear and convincing evidence that it would have taken the same unfavorable personnel action in the absence of the protected whistleblowing. This is known as the “same decision defense.” To assess whether an employer has proven that defense by clear and convincing evidence, DOL evaluates the following factors: (1) whether the employer’s evidence meets the plain meaning of “clear” and “convincing”; (2) whether the employer’s evidence indicates subjectively that the employer “would have” taken the same adverse action; and (3) whether facts that the employer relies on would change in the “absence of” the protected activity.”

Remedies for Prevailing Nuclear Safety Whistleblowers

A prevailing nuclear whistleblower can obtain:

  • Reinstatement,
  • Lost wages,
  • Damages for emotional distress and anguish, humiliation, harm to reputation, and other non-economic harms, and
  • Attorney’s fees.

In Hobby v. Georgia Power Co., the Administrative Review Board affirmed an award of $250,000 in compensatory damages for emotional distress, humiliation, and loss of reputation.

Filing an ERA Whistleblower Retaliation Complaint

An ERA whistleblowing complaint must be filed initially with the Occupational Safety and Health Administration (OSHA) within 180 days of when the whistleblower knew or should have known of the retaliatory adverse action.

Licensee Duty to Maintain Safety Conscious Work Environment

The NRC has published guidance for licensees emphasizing the importance of maintaining safety-conscious environments in which employees feel free to raise safety concerns, both to their management and to the NRC, without fear of retaliation. In particular, the NRC has articulated the following expectations:

  • Employers licensed by the NRC must have processes in place for employees to report safety concerns;
  • Subcontractors have the same responsibilities as licensed entities;
  • Senior management must involve themselves to the extent necessary to ensure all safety concerns are addressed; and
  • Employees have a responsibility to raise safety concerns with their employer, and a right to bring concerns to the NRC if the employer fails to address them.

Wendell H. Ford Aviation Investment and Reform Act for the 21st Century

The AIR21 whistleblower law protects employees in the airline industry against retaliation for raising a concern about air carrier safety. ==Proving a Violation of AIR21 Whistleblower Protection Law==

To prevail under AIR21, the whistleblower must prove:

  • the employee engaged in protected whistleblowing;
  • the employer was aware of the protected whistleblowing;
  • the employer took an adverse action; and
  • the protected whistleblowing was a contributing factor in the employer’s decision to take the adverse action.

A contributing factor is any factor which, alone or in combination with other factors, tends to affect in any way the outcome of the decision. Circumstantial evidence may include a wide variety of evidence, such as motive, bias, work pressures, past and current relationships of the involved parties, animus, temporal proximity, pretext, shifting explanations, and material changes in employer practices, among other types of evidence.

Once the complainant has proven these four elements, the employer may avoid liability only if it demonstrates by clear and convincing evidence that it would have taken the same adverse personnel action in the absence of the whistleblowing.

AIR21 protects an employee of a section 44704 or 44705 FAA certificate holder or a contractor, subcontractor, or supplier of such holder.

Protected Air Safety Whistleblowing

As amended by the Aircraft Certification, Safety, and Accountability Act, AIR21 protects whistleblowers against retaliation for:

  • Disclosing a potential violation of any FAA order, regulation, or standard to an employer or the federal government;
  • Commencing a proceeding related to a potential violation of an airline safety regulation; or
  • Testifying, assisting, or participating in a proceeding related to a potential violation of an airline safety regulation.

Examples of protected disclosures include:

  • reporting a violation of the airline’s flight operations manual;
  • disclosing that an aircraft is not in airworthy condition;
  • identifying falsified FAI documentation (a violation of 14 C.F.R. §21.2(a));
  • opposing a violation of 14 C.F.R. § 135.267(c), which limits pilots that conduct Part 135 operations from working more than 14 hours of duty time;
  • reporting conduct that would result in “operating an aircraft in a careless or reckless manner so as to endanger the life or property of another”;
  • reporting the use of an unsuitable part (a violation of 14 C.F.R. §3.5(c)(2)); and
  • reporting that a pilot failed a line check, i.e., which triggers a requirement upon the carrier not to utilize the pilot until the pilot passes the line check.

FAA regulations on airplane safety can be found here.

“As a matter law, an employee engages in protected activity any time [h]e provides or attempts to provide information related to a violation or alleged violation of an FAA requirement or any federal law related to air carrier safety, where the employee’s belief of a violation is subjectively and objectively reasonable.” Sewade v. Halo- Flight, Inc., ARB No. 13-098, slip op. at 7-8 (Feb. 13, 2015). The “complainant must prove that he reasonably believed in the existence of a violation,” which entails both a subjective and an objective component. Burdette v. ExpressJet Airlines, Inc., ARB No. 14-059, slip op. at 5 (Jan. 21, 2016).

The complainant need not prove an actual violation of a regulation, order, or standard relating to air carrier safety, as long as the complainant’s belief in a violation is reasonable. Furland v. Am. Airlines, Inc., ARB No. 90-102, ALJ No. 2008-AIR-011, slip op. at 5 (ARB July 27, 2011). Also, the complainant need not convey his reasonable belief in order for it to be protected. See Newell v. Airgas, Inc., ARB No. 16-007, ALJ No. 2015-STA-6, slip op. at 11 (ARB Jan. 10, 2018).

Prohibited Whistleblower Retaliation Under AIR21 Whistleblower Law

AIR21 prohibits a broad range of retaliatory acts that have a negative effect on the employee’s terms, conditions, or privileges of employment. This includes intimidating, threatening, restraining, coercing, blacklisting, or discharging a whistleblower.

An adverse employment action is one that would dissuade a reasonable worker from engaging in protected whistleblowing. Suspension without pay is a way to dissuade employees from engaging in AIR21 protected conduct, and is therefore an adverse employment action.

Subjecting an employee to a 15D psychological evaluation can be an actionable adverse action where it is selectively implemented or utilized in a retaliatory fashion.

The DOL ARB has held “that the intended protection of AIR 21 extends beyond any limitations in Title VII and can extend beyond tangibility and ultimate employment actions.” Williams v. American Airlines, ARB No. 09- 018, slip op. at 10-11 n.51 (Dec. 29, 2010)). The ARB views “the list of prohibited activities in Section 1979.102(b) as quite broad and intended to include, as a matter law, reprimands (written or verbal), as well as counseling sessions by an air carrier, contractor or subcontractor, which are coupled with a reference of potential discipline.” Williams, ARB No. 09-018 at 10-11. For example, “even paid administrative leave may be considered an adverse action under certain circumstances.” Id. at 14 (emphasis in original) (citing Van Der Meer v. Western Ky. Univ., ARB No. 97-078, slip op. at 4-5 (Apr. 20, 1998) (holding that “although an associate professor was paid throughout his involuntary leave of absence, he was subjected to adverse employment action by his removal from campus)).

Remedies for Airline Industry Workers in AIR21 Whistleblower Protection Cases

Under AIR-21, a prevailing whistleblower can recover:

  • Reinstatement;
  • Lost wages and benefits;
  • Compensatory damages for emotional distress and reputational harm; and
  • Attorney fees and litigation costs.

A mechanic who was fired for reporting insufficient maintenance on ambulance helicopters was awarded $485,000 in damages, plus attorney’s fees.

An airline that filed a retaliatory defamation lawsuit against nine whistleblowers was ordered to withdraw its lawsuit and pay $7.9 million in damages to the employees.

In a decision finding that Delta violated the anti-retaliation provision of the AIR21 whistleblower protection law, Judge Morris awarded pilot Karlene Petit $500,000 in compensatory damages for emotional distress, humiliation, and reputational harm.

In Vieques Air Link, Inc. v. USDOL, No. 05-01278 (1st Cir. Feb. 2, 2006), the First Circuit affirmed a compensatory damages award of $50,000 for mental anguish where the complainant testified that he depleted his savings and struggled to support his wife and two infant children while he looked for a new full-time job following his termination.

How to File an AIR21 Aviation Safety Whistleblower Retaliation Claim

An AIR-21 whistleblowing retaliation complaint must be filed initially with the Occupational Safety and Health Administration (OSHA) within 90 days of when the whistleblower knew or should have known of the retaliatory adverse action.

In 2015, the FAA and OSHA entered into a Memorandum of Understanding to facilitate cooperation concerning enforcement of the whistleblower protection provisions in AIR21. The DOL and FAA both play a critical role in enforcing the whistleblower protection provision of AIR21. The FAA investigates complaints related to air carrier safety and enforces air safety regulations and issue sanctions to airmen and air carriers for noncompliance with these regulations.

Surface Transportation Assistance Act

The whistleblower protection provision of the Surface Transportation Assistance Act (“STAA”) protects truck drivers from retaliation where they engage in protected whistleblowing, which includes:

  • Refusing to operate a vehicle because: (i) The operation violates a regulation, standard, or order of the United States related to commercial motor vehicle safety, health, or security; or (ii) He or she has a reasonable apprehension of serious injury to himself or herself or the public because of the vehicle’s hazardous safety or security condition;
  • Accurately reporting hours on duty; or
  • Cooperating with a safety or security investigation by the Secretary of Transportation, the Secretary of Homeland Security, or the National Transportation Safety Board; or
  • Furnishing information to the Secretary of Transportation, the Secretary of Homeland Security, the National Transportation Safety Board, or any Federal, State, or local regulatory or law enforcement agency as to the facts relating to any accident or incident resulting in injury or death to an individual or damage to property occurring in connection with commercial motor vehicle transportation.

In two recent cases, truck drivers prevailed where they were terminated for refusing to drive a damaged truck and refusing to drive while on prescription medication.

Proving a Trucking Safety Whistleblower Protection Claim

A trucking whistleblower must prove the following to prevail in a STAA whistleblower retaliation claim:

  • The employee engaged in protected conduct;
  • The employer was aware of the protected whistleblowing;
  • The employer took an adverse action; and
  • The protected whistleblower was a contributing factor in the employer’s decision to take the adverse action.

Prohibited STAA Whistleblower Retaliation

STAA proscribes a wide range of retaliatory adverse actions, including discharging, disciplining or discriminating against a whistleblowing employee regarding pay, terms or privileges of employment. Examples include blacklisting, termination, suspension, demotion, reduction in salary, failure to hire, or any act that would deter a reasonable person from engaging in protected activity.

Remedies Available to Prevailing Trucking Industry Whistleblowers

A prevailing trucking industry whistleblower can recover:

  • Reinstatement,
  • Lost wages and benefits,
  • Damages for emotional distress and anguish, humiliation, harm to reputation, and other non-economic harms,
  • Attorney fees and litigation costs, and
  • Punitive damages up to $250,000.

Recently, a truck driver was awarded $150,000 after he was fired for refusing to drive in unsafe weather conditions.

In Fink v. R&L Transfer, Inc., the ARB affirmed an award of compensatory damages in the amount of $100,000.00, and punitive damages in the amount of $50,000 to a truck driver who was terminated for refusing to drive in unsafe winter weather conditions.

How to File a Trucking Safety Whistleblower Retaliation Action

A STAA whistleblowing complaint must be filed initially with the Occupational Safety and Health Administration (OSHA) within 180 days of when the whistleblower knew or should have known of the retaliatory action.

Consumer Financial Protection Act

Federal Railroad Safety Act

Criminal Antitrust Anti-Retaliation Act