Legal

6th Circuit: Reasonable Belief About Unlawful Conduct Enough for SOX Retaliation

By Jon Hyman

Jun. 1, 2015

It’s hard to imagine that in the eight-plus years I’ve written this blog, there is any area of employment law that on which I have not yet touched — except, I think, the Sarbanes-Oxley Act. Today, that changes.

For the uninitiated, Sarbanes-Oxley (or SOX as it is known) is a federal statute, enacted in reaction to everal corporate and accounting scandals (think Enron), which establishes conduct standards for public company boards, management and public accounting firms. 

In Rhinehimer v. U.S. Bancorp Investments, Inc. (6th Cir. 5/28/15) [pdf], the 6th Circuit addressed the standard for protected conduct under SOX’s anti-retaliation provisions. Does the plaintiff have to prove an underlying fraud, or it is sufficient for the plaintiff to have a reasonable belief that a fraud was committed?

 
The facts in Rhinehimer are not complicated. Prior to taking a disability leave, Rhinehimer, a certified financial planner, transferred some of the assets of a long-term, elderly client into low risk, conservative investments. While on leave, Rhinehimer’s assistant alerted him to the fact that a co-worker moved some of those assets into riskier investments. Believing those moves to be contrary to the client’s estate plan, Rhinehimer sent an email to his supervisor complaining about the transactions. Upon his return from leave, Rhinehimer was disciplined for his “unprofessional” email. That email spawned an investigation by FINRA. When Rhinehimer informed his employer that he had retained an attorney in response to the FINRA investigation, he was fired.
 
At issue on appeal was whether a plaintiff claiming retaliation under SOX must allege the specific elements of fraud relating to the underlying transaction, or if a reasonable, but mistaken, belief about the illegality of the underlying (mis)conduct will support the retaliation claim.
 
The 6th Circuit held for the more liberal proof standard.

Although it is true that Plaintiff had no specific knowledge of whether Harrigan had omitted or misrepresented material information in his communications with Purcell, much less any knowledge of whether Harrigan did so intentionally or with reckless disregard, these gaps in Plaintiff’s knowledge are immaterial. Even if, in fact, everything about the trades were above board, courts universally recognize that [SOX] protects employees who reasonably but mistakenly believe that the conduct at issue constitutes a violation of relevant law.… 

The information that was available to Plaintiff was more than adequate to allow him reasonably to believe that the trades were the result of conduct constituting unsuitability fraud. When USBII retaliated against him for reporting that information, it therefore violated Sarbanes–Oxley’s whistleblower protections.  

If you are a publicly traded company, employees who lodge complaints about financial improprieties or other financial issues require special treatment. If faced with one of these complaints, do not get hung up on the right or wrong of the complaining employee’s belief about the illegal conduct, because, if you later fire that employee, it appears the reviewing court will not care. 
 
Jon Hyman is a partner in the Employment & Labor practice at Wickens Herzer Panza. Contact Hyman at JHyman@Wickenslaw.com.

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