Jottings By An Employer's Lawyer

Monday, November 24, 2014

5th Circuit Takes Expansive View of SOX


While I was starting a week long trial in the Southern District of Texas, the 5th Circuit was taking a wide, pro-employee view of Sarbanes Oxley.  In Halliburton v. Administrative Review Board (5th Cir. 11.12.14) the Court was faced with an unusual factual case.

A whistleblower had raised complaints with both the SEC and later directly to Halliburton's Board of Directors about he perceived as improper accounting practices. Halliburton in response sent an email to the whistleblower's colleagues alerting them to the fact that the SEC was initiating an inquiry, instructing them to maintain all relevant documents, but also identifying the whistleblower.

What happened afterwards was that his colleagues, who had now been accused of wrongdoing, treated him differently.  A reaction the 5th Circuit characterized as "unsurprising."  Menendez, the whistleblower felt it was ostracism and ultimately negotiated a paid leave. When the SEC concluded that no enforcement action against Halliburton was recommended, he resigned a month later.

After OSHA initially throwing out his claim, Menendez requested a hearing before an ALJ. Unsuccessful there, he appealed to the Administrative Review Board, which ultimately ruled in his favor adopting a $30,000 conditional award made by the ALJ.

In the appeal from that ruling to the 5th Circuit, the Court in a per curiam opinion made at least three significant findings:

  1. It held that identifying a whistleblower, at least in an environment where collaboration is valued, is an adverse employment action. It relied on the Supreme Court's decision in White v. Burlington Northern,  which the 5th Circuit had previously adopted for SOX purposes. Allen v. Administrative Review Board (5th Cir. 2008),
  2. That motivating factor does not require any malicious or wrong motive, and
  3. That compensatory damages, specifically mental anguish, are available under SOX.
Not a fact pattern likely to re-occur, but another signal that in the years ahead SOX, and my guess is other whistleblower statutes, are going to be read broadly.


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