sealOn May 28, 2015, the Sixth Circuit Court of Appeals ruled that an employee who reports allegedly fraudulent conduct engages in protected activity under SOX where he or she has a reasonable belief that the activity reported is prohibited under Section 806—even if that belief is mistaken.  Rhinehimer v. U.S. Bancorp Investments, Inc., No. 13-cv-6641.  In doing so, it abandoned the “definitively and specifically” standard, which was particularly favorable to employers.

Background

Mr. Rhinehimer was a certified financial planner at U.S. Bancorp (Company) who was terminated after he complained to his supervisor about allegedly inappropriate trades.  He claimed to believe that the trades compromised his elderly client’s estate plan and constituted fraud.  He alleged that he was reprimanded and terminated after he returned from leave and that these actions constituted retaliation in violation of SOX.  A jury returned a verdict in favor of Mr. Rhinehimer in the amount of $250,000.00, and the Company appealed.  The issue before the Sixth Circuit was whether a jury could reasonably find that Mr. Rhinehimer engaged in protected activity.

Sixth Circuit’s Ruling

In Platone v. FLYi Inc., ARB Case No. 04-154 (Sept. 29, 2006), the ARB introduced two requirements for a SOX whistleblower complaint:  the complaint must “definitively and specifically” relate to an enumerated legal violation to qualify for protection; and the complaint must track the basic elements of the alleged fraud.  That standard was adopted by the First, Second, Fourth, Fifth and Ninth Circuits.  But, in 2011, the ARB abrogated Platone in Sylvester v. Parexel International LLC, No. 07-123 (ARB May 25, 2011), holding that an employee’s complaint need not “definitively and specifically” relate to an enumerated legal violation, and that the complainant need not prove the elements of fraud.  Instead, SOX complainants only had to show that they reasonably believed the conduct complained about violated one of the laws enumerated in Section 806 of SOX.

In 2012, the Sixth Circuit issued a decision in Riddle v. First Tennessee Bank, National Association, 497 F. App’x 588 (6th Cir. 2012) (unpublished), which adopted the Platone standard.   (Here is our post on that decision.)  But in Rhinehimer, the Sixth Circuit took an about-face, abandoning the Platone “definitively and specifically” standard and adopting the Sylvester “reasonable belief” standard.  The Court then explained that under this standard, “an employee need not establish the reasonableness of his or her belief as to each element of the violation” and that:

Instead, the reasonableness of the employee’s belief will depend on the totality of the circumstances known (or reasonably albeit mistakenly perceived) by the employee at the time of the complaint, analyzed in light of the employee’s training and experience.

Implications

Rhinehimer sets forth a lower hurdle for protected activity than the Sixth Circuit previously used.  Though employee whistleblower complaints still may be subject to dismissal for want of protected activity in jurisdictions like the Sixth Circuit, as there are a wide range of cases where complainants lack a reasonable belief, this standard could potentially lead employers to place a greater emphasis on causation-based defenses in a variety of cases.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

Photo of Pinchos Goldberg Pinchos Goldberg

Pinny Goldberg is a senior counsel in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and…

Pinny Goldberg is a senior counsel in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, wage and hour, wrongful discharge, whistleblowing and retaliation, covenants not to compete, breaches of fiduciary duty, unjust enrichment, and tort and contract claims.

In addition to handling litigation and dispute resolution, Pinny regularly advises clients on a wide variety of employment issues, including drafting, reviewing and revising handbooks and workplace policies. He also addresses questions and concerns related to hiring, wage and hour issues, employee leave, performance problems, terminations of employment, and separation agreements and releases.