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SDNY Clarifies Definition of Protected Activity under SOX Whistleblower Provision
Practical Law Legal Update 2-527-9406 (Approx. 4 pages)
SDNY Clarifies Definition of Protected Activity under SOX Whistleblower Provision
by PLC Labor & Employment
| Published on 07 May 2013 • USA (National/Federal) |
In Leshinsky v. Telvent GIT, S.A., the US District Court for the Southern District of New York held that a plaintiff employee made out a prima facie case of retaliation against a whistleblower under Section 806 of the Sarbanes-Oxley Act of 2002 (SOX) when he was terminated after reporting a suspected violation to his supervisor. In so holding, the court clarified the definition of protected activity under the whistleblowing provision.
On May 1, 2013, the US District Court for the Southern District of New York issued an opinion in Leshinsky v. Telvent GIT, S.A., denying in part the defendants' motion for summary judgment and finding the plaintiff had established a prima facie case of wrongful termination in violation of Section 806 of the Sarbanes-Oxley Act of 2002 (SOX). The court had earlier denied the defendants' motion to dismiss for lack of subject matter jurisdiction, holding that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amendment to Section 806, giving whistleblower protections to employees of privately owned subsidiaries of publicly traded companies, applies retroactively (see Legal Update, Dodd-Frank Amendment to SOX Whistleblower Provision Protecting Employees of Nonpublic Subsidiaries is Retroactive: SDNY).
The plaintiff in Leshinsky alleged he was wrongfully terminated in violation of Section 806 after he told his supervisor he was concerned that his company's plan to win a contractor bid by using both an external and an internal audited overhead rate to reduce its overhead was illegal. The company eventually won the bid, but did not use the two overhead strategy in submitting the bid.
To make out a prima facie case under Section 806, a plaintiff employee must first demonstrate that he engaged in protected activity, which is defined as providing information regarding conduct he reasonably believes constitutes a violation of specified federal laws or any federal laws relating to fraud against shareholders to a federal agency, Congress or a person with supervisory authority over the employee. Section 806 does not explicitly indicate to what extent the employee must put his supervisor on notice that a particular violation has occurred.
On the defendants' motion for summary judgment, the SDNY clarified the meaning of protected activity, holding that:
- In "providing information" under Section 806, the key issue is whether the employee reported conduct that he reasonably believed constituted a violation of the law, not whether that information definitively and specifically described a violation. In this case, the plaintiff provided information to his supervisor when he told him he thought the company's two overhead strategy was illegal, even though he did not use the word fraud in the conversation.
- The reported violation need not be an existing violation, as "crimes in their infancy" are within Section 806's scope. The court agreed with the US Court of Appeals for the Third Circuit's holding in Wiest v. Lynch that Section 806 protects an employee's communications about a violation that has not yet occurred as long as the employee reasonably believes it is likely to happen (see Legal Update, SOX Whistleblowers Need Only Reasonable Belief of Violation to Survive Motion to Dismiss: Third Circuit).
- Reports to a supervisor who has made it clear that he will do nothing about the misconduct are covered under Section 806. The court noted that the plain language of the statute indicated such a report should be protected, and added that Congress had recently overruled the US Court of Appeals for the Federal Circuit's similarly narrow interpretation of the analogous Whistleblower Protection Act that disclosure of wrongdoing to the wrongdoer himself is not whistleblowing. This suggests that a report by an employee to his supervisor is protected under Section 806 even if the supervisor himself is implicated in the wrongdoing.
In this case, the court held that there was sufficient evidence for a factfinder to conclude that:
- The plaintiff:
- reasonably believed the defendants could carry out their dual overhead scheme; and
- had a subjective belief that fraud was occurring.
- It was objectively reasonable for him to believe he was reporting a crime.
Finally, the court held that the plaintiff had demonstrated that a genuine issue of material fact exists as to whether his whistleblowing was a contributing factor in his termination, finding:
- The five-month delay between the plaintiff's report to his supervisor and his termination was not too remote to establish he was terminated for the report, where the plaintiff provided other evidence indicating a connection. In this case, the plaintiff produced evidence showing he was marginalized immediately after he reported the violation to his supervisor and up until his termination.
- The fact that one of the persons responsible for his termination (his supervisor) knew about the plaintiff's protected activity was sufficient evidence that his report was the proximate cause of his termination, even where the rest of the individuals who decided to terminate the plaintiff were not aware of the report.
- Although the plaintiff's subpar job performance played a large role in his firing, it was not beyond genuine dispute that legitimate reasons alone motivated his termination.
Court documents: