The U.S. Department of Labor’s Administrative Review Board (ARB) adopted a new standard? governing “adverse employment actions” under Section 806 of the Sarbanes-Oxley Act of 2002 (SOX).? Menendez v. Halliburton, Inc., Case No. 09-002, 2011 DOL Ad. Rev. Bd. LEXIS 83 (ARB Sept. 13, 2011).? Now, according to the ARB, an employee need not experience a “tangible” consequence as a result of his or her protected activity.? In addition, the U.S. District Court for the Western District of Washington continued the trend of granting employers summary judgment on a SOX Section 806 claim on causation grounds.? Kim v. The Boeing Co., Case No. 10-cv-1850, 2011 U.S. Dist. LEXIS 108635 (W.D. Wash. Sept. 23, 2011).? Importantly, the Kim court also noted that the “definitely and specifically” standard federal courts have applied in determining whether a complainant engaged in protected activity is alive and well (at least within the Ninth Circuit), despite Sylvester v. Parexel International LLC, Case No. 07-123, 2011 DOLSOX LEXIS 39 (ARB May 25, 2011).

Menendez v. Halliburton, Inc.

In late 2005, Anthony Menendez confidentially filed a complaint with the Securities and Exchange Commission (SEC) stating concerns about Halliburton, Inc.’s (the Company) alleged accounting practices.? In early 2006, he e-mailed a complaint to the Company’s internal audit committee raising essentially the same issues and he included his name and contact information in that message.? The Company’s Assistant General Counsel allegedly forwarded the complaint to internal audit committee members, the General Counsel and Chief Financial Officer.? The SEC subsequently informed the Company that it was opening an investigation into its accounting practices.? Shortly thereafter, the General Counsel allegedly informed several managers by e-mail that the SEC “opened an inquiry into the allegations of Mr. Menendez.”? The Chief Accounting Officer also allegedly passed on this e-mail to members of Menendez’s department.? Menendez then took a paid administrative leave, and resigned before he was scheduled to return.

Menendez filed suit under Section 806, alleging that the Company retaliated against him because of his complaints to the audit committee and the SEC, stressing that the Company violated his expectations of confidentiality by identifying him as a whistleblower.? The ALJ dismissed Menendez’s complaint, finding that he failed to demonstrate that the Company had taken adverse actions against him.? The ARB, however, found that the ALJ erred in finding that Menendez did not suffer an adverse action.

The ARB’s decision principally focused on whether Menendez suffered an adverse action.? It initially noted that Section 806 “explicitly proscrib[es] non-tangible activity … bespeaks a clear congressional intent to prohibit a very broad spectrum of adverse action against SOX whistleblowers.”? Further, although the ARB recognized that the Supreme Court’s landmark decision in Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. 53 (2006) was instructive, it stressed that Burlington Northern involved the standard under Title VII, and concluded that Section 806 affords greater protections than Title VII.? Thus, the ARB instead relied on Williams v. American Airlines, Inc., No. 09-018 (ARB Dec. 29, 2010), which held (in the context of an AIR 21 retaliation claim), that adverse action “refers to unfavorable employment actions that are more than trivial.”? The ARB went further to conclude that Section 806’s reference to the “terms and conditions of employment” does not limit SOX’s protections to “economic or employment-related actions.”

The ARB proceeded to analyze Menendez’s claim that the Company’s outing of his identity breached a right to confidentiality under Section 301 of SOX, which requires publicly-traded companies to establish procedures for confidential, anonymous submissions of employee complaints.? The ARB found that Section 301 “effectively establishes a ‘term and condition’ of employment within the meaning of Section 806’s whistleblower protection provision,” and concluded that outing Menendez as a whistleblower thus constituted an adverse action.? The ARB ultimately remanded the case for a determination of causation issues.

Kim v. The Boeing Co.

Michael Kim was as a Business Analyst tasked with consolidating cost data for The Boeing Company’s (the Company) financial statements.? From December 2006 through spring 2008, Kim complained of alleged financial irregularities to his managers and director, the Company’s ethics office, and the Senior Vice President of Internal Governance.? The Company investigated his complaints and found that his allegations were unfounded.? In November 2007, Kim told the Company’s Equal Employment Opportunity representative that he was being retaliated against and that his work environment became “incrementally more hostile and appeared designed to discourage him from pursuing his concerns about SOX non-compliance.”

In August 2008, Kim’s manager instructed him to transfer job duties with his co-worker due to concerns with his performance.? Kim refused and was suspended for insubordination.? He took a medical leave and the Company informed him that he would be terminated from his position immediately when he returned to work.? While on leave, and before he was terminated, he was selected for layoff in a reduction-in-force.? Kim filed suit under Section 806, alleging that the threatened termination and ultimate layoff were retaliatory.

The court initially noted that the ARB’s decision in Sylvester did not abrogate the Ninth Circuit ruling in Van Asdale v. International Game Tech., 577 F.3d 989 (9th Cir. 2009), that an employee’s disclosures must “definitively and specifically relate to one of the six listed categories of fraud or securities violations listed in 18 U.S.C. ?1514A(a)(1)” (emphasis added).? Driving this point home, the court stated that “[t]he Ninth Circuit Court of Appeals has joined other circuits in adopting this ‘reasonable interpretation of the statute.’” (citing Van Asdale, 577 F.3d at 997).

The court’s decision, however, ultimately focused on issues of causation rather than protected activity.? More specifically, the court granted the Company summary judgment because it established that it would have terminated Kim’s employment for insubordination regardless of whether he engaged in protected activity.? In so ruling, the court noted that Kim was warned that he would be discharged if he refused to comply with his manager’s order that he transition to the new position.? Moreover, the court emphasized that the transition would not have changed his compensation or benefits.

Implications

The ARB’s decision in Menendez is a substantial departure from the standard the ARB and federal courts have applied in determining whether an employee suffered an adverse employment action.? And the ARB’s novel ruling that an employee’s ability to file a complaint anonymously pursuant to Section 301 of SOX amounts to a term and condition of employment illustrates the risk that this new standard may be applied to yield liberal results.? It remains to be seen whether federal courts will defer to this new standard.

Moreover, the Kim court’s statement that the ARB’s Sylvester decision did not abrogate the federal appellate court decisions embracing the “definitively and specifically” test for whether conduct constitutes protected activity is noteworthy.? It reflects a lack of deference to the ARB’s recent decisions that are at odds with established lines of federal decisions, and it is possible that other federal courts will take the Kim court’s lead.? The Kim decision also is consistent with a trend of federal courts granting employers summary judgment in SOX whistleblower cases on causation grounds.

By: Steven J. Pearlman, Dawn Mertineit and Rachel S. Urquhart