Categories: Financial Services

[Ed. Note: We thank our colleague Richard D. Tuschman for this post, which was originally published on EBG’s Florida Employment & Immigration Law Blog]

An employee claiming Whistleblower protection under the Sarbanes-Oxley Act must have actually believed that his company’s conduct was illegal in order to state a claim under the Act, according to a recent decision by the Eleventh Circuit Court of Appeals, Gale v. U.S. Department of Labor, Case No. 08-14232 11th Cir. June 25, 2010) (pdf).

The case arose when Michael Gale was terminated from his employment at World Financial Group (“WFG”). Gale filed a Whistleblower complaint with the Occupational Safety and Health Administration, which enforces the SOX Whistleblower provisions. Gale alleged that he was terminated because he opposed decisions made by company officers relating to waste and misuse of corporate funds, and because he raised concerns regarding the alleged violation of SEC rules and regulations.

Under SOX, a publicly traded company and its officers are prohibited from discharging an employee for providing information to a supervisory authority about conduct that the employee “reasonably believes” constitutes a violation of federal laws against mail fraud, wire fraud, bank fraud, securities fraud, any SEC rule or regulation, or any provision of federal law relating to fraud against shareholders. 18 U.S.C. § 1514A(a)(1). 

OSHA dismissed Gale’s complaint on the grounds that WFG was not a covered employer. Gale appealed the decision to an administrative law judge of the Department of Labor, who allowed pre-hearing depositions. During his deposition, Gale testified that he was “uncomfortable” with some of the practices he observed and “expressed reservations” about them, but that he did not actually believe the company was engaging in illegal or fraudulent activities. The ALJ recommended that WFG’s motion for summary decision be granted on the grounds that Gale could not prove that he reasonably believed WFG’s practices were illegal or fraudulent The Administrative Review Board agreed with the ALJ and granted WFG’s motion. Gale appealed the ARB’s decision to the Eleventh Circuit.

The question presented in Gale was what “reasonably believes” means. In answering this question, the Eleventh Circuit joined several other federal circuit courts in holding that the term encompasses both a subjective and an objective component. That is, the employee must actually believe that the employer’s conduct was illegal, and his belief must be objectively reasonable under a “reasonable person” standard. The court noted that it has employed the same standard in the context of other retaliation statutes such as Title VII.

Because Gale did not actually believe his employer’s conduct was illegal, the Eleventh Circuit affirmed the ALJ’s summary decision in favor of WFG. The court did not have to reach the question of whether a reasonable person would have believed WFG’s practices were illegal or fraudulent.

For employers in the Eleventh Circuit, Gale is a reminder of the importance of both components of a retaliation case. Whether a belief is “objectively reasonable” is often a difficult question, and one that may not be amenable to a summary judgment motion. But where an employer is fortunate enough to obtain an admission from a plaintiff that she did not actually believe her employer’s conduct was illegal - or in the case of a Title VII sexual harassment case, that she did not actually perceive the harassment as sufficiently severe or pervasive to alter the terms and conditions of her employment - defending a retaliation case becomes a piece of cake.

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