Every whistleblower and every attorney who represents them should be aware of the U.S. Court of Appeals for the Fifth Circuit’s November 12, 2014 ruling in Halliburton v. Administrative Review Board.
Decided under the Sarbanes-Oxley Act’s anti-retaliation provision, the case was simple. Halliburton disclosed the name of one of its employees who had filed an SEC fraud report to other employees inside the company. Once identified, that whistleblower was subjected to foreseeable “undesirable consequences,” such as “ostracism” from fellow employees. The issue presented to the court was whether or not the disclosure of the whistleblower’s identify was an unfair labor practice under the Sarbanes-Oxley Act. The Court correctly found that it was.
In a unanimous decision the Fifth Circuit’s panel held as follows:
“The undesirable consequences, from a whistleblower’s perspective, of the whistleblower’s supervisor telling the whistleblower’s colleagues that he reported them to authorities for what are allegedly fraudulent practices, thus resulting in an official investigation, are obvious. It is inevitable that such a disclosure would result in ostracism, and, unsurprisingly, that is exactly what happened to Menendez following the disclosure.”
This decision was based on common sense. Every whistleblower knows that once their identity as a “whistleblower” is exposed; their careers are impacted, and often destroyed. Whistleblowers are not welcome in their own workplace. That is an “unsurprising” fact for which the Fifth Circuit correctly recognized.
What is the takeaway from this decision?
First, if a company violates a whistleblower’s confidentiality after raising concerns covered under the Sarbanes-Oxley or Dodd-Frank Acts, a complaint can be filed. Because the Fifth Circuit upheld a ruling of the Department of Labor, the retaliation complaint should be filed with the Department of Labor under the SOX law and pursued within that forum. There is simply no guarantee that a federal district court judge would follow the Labor Department’s rule, so why take a chance?
Second, in passing strict confidentiality provisions in the Dodd-Frank Act, Congress got it right. Congress fully understood that whistleblowers were hated on Wall Street, and would not, in any foreseeable future, be welcomed in that culture. The Dodd-Frank Act permits whistleblowers to anomalously file claims with the Securities Exchange Commission or Commodity Futures Trading Commission. These legally mandated confidential filings are the safest way to raise a concern and provide the best protection against a company learning that you blew the whistle. Instead of providing whistleblowers with compensation after they are fired, these laws have the potential to compensate whistleblowers before their careers are ruined.
Under the new securities and commodities whistleblower laws employees can confidentially file claims, and if their original information results in a successful enforcement action, they are entitled to a percentage of the monies collected from the wrongdoers. In this context, everyone wins, except those who violate the law. The investor wins as corporate crime is detected and punished. Honest corporations win, as competitors who break the rules to increase profits and show higher rates of return due to fraud are not given an unfair market advantage. The regulatory process wins, as critical sources of information are encouraged to come forward and provide key evidence of fraud. The taxpayer wins, as the government collects fines and penalties from wrongdoers, and can avoid having to use our money to pay for corporate bailouts. The whistleblower wins as she or he is rewarded for doing the right thing, and potentially protected from the catastrophic impact of being known as a whistleblower.