Clear and Convincing Under SOX - High, But Not Unobtainable

Posted 2:38 PM by Michael Fox

At least under some circumstances. Given the still relatively small number of cases under the SOX whistleblowing provisions, the decision last week by the Administrative Review Board, the appellate level of the adminstrative process, is worth looking at for its overall view of how the law may be interpreted. Halloum v. Intel Corp. (ARB 1/31/06). Among the points it makes:

the same legal standard as used under the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century will be used for SOX cases;
even though an employee who informed the SEC was wrong that Intel was withholding payment of invoices to increase their balance sheet (under their procedures the invoices were charged to the balance sheet when received not when paid), the standard for protected activity is "reasonable belief" of a violation and this met that test;
modifying a Corrective Action Plan with goals that were unreasonable and could not be completed in the allocated time was an adverse personnel action; and
that the protected activity does not have to be the primary motivating factor but only a contributing factor.

But notwithstanding that the employee showed his protected activity was a motivating factor in an adverse personnel action, the company still won. How? By meeting the "clear and convincing standard" required by SOX that it would have taken the same action even if he had not engaged in the protected activity.

Although the ARB did not provide much in the way of an explanation of what it takes to meet the clear and convincing standard, here it was because the employer had passed up an opportunity to fire the employee when it found he had secretly taped conversations with co-employees. Instead of the firing, they gave him the unobtainable goals.

A couple of factors probably helped the employer. First Halloum was pro se and some evidence he submitted at the ARB stage was not considered since it had not been presented at the administrative hearing. Secondly, when he was informed that he was not progressing satisfactorily under the Corrective Action Plan, he applied for Intel's Voluntary Separation Program which entitled him to several months severance pay. (No mention as to whether or not the Separation Program required a release, and if it did why it did not bar the claim.)

Although employers are certainly not wild about having to meet a clear and convincing standard, clearly under the right circumstances it can be done.

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