On February 12, 2018, the United States District Court for the Northern District of Mississippi recently denied a motion for summary judgment in a SOX whistleblower claim where the defendant company alleged that it terminated the plaintiff pursuant to a reduction-in-force (RIF). Hendrick v. ITT Engineered Valves, LLC, No. 16-cv-204.

Background. Plaintiff began working as Operational Excellence Manager at a company that was considering a RIF to respond to a decline business.  Recognizing that he may lose his job, Plaintiff offered to management that he take off Fridays off to reduce expenses.  Later that month, Plaintiff allegedly observed fraudulent inventory figures.  Plaintiff photographed the proof of the alleged fraud and gave the pictures to a co-worker, who submitted an anonymous ethics complaint.  Three hours after the report was filed, Plaintiff was informed that his job was being restructured, and Plaintiff interpreted this as a demotion.  Plaintiff then e-mailed management about the alleged fraud.  He and his co-worker who submitted the anonymous ethics complaint were both terminated months later.  The organization cited a RIF as its reason for the layoffs.  Plaintiff filed suit alleging he was terminated because of his co-worker’s anonymous ethics complaint in violation of SOX.

Rulings. The company moved for summary judgment, arguing that because Plaintiff failed to identify any fraudulent activity that would qualify as a protected activity.  Specifically, it argued that Plaintiff never accused the company of any SOX violation and failed to articulate his fraud claim in deposition testimony.  But the court determined that there were questions as to whether Plaintiff’s purported beliefs were objectively and subjectively reasonable.  The company also argued that there was no materially adverse employment action, as the restructuring was not a demotion and because Plaintiff’s termination was planned prior to the whistleblowing activity.  For summary judgment purposes, however, the court found that Plaintiff established a prima facie case that the alleged demotion and termination were adverse actions. Notably, moreover, even though the organization provided a “first pass” of names to be included in the RIF, it was not deemed to be “clear and convincing” evidence that the organization would have terminated Plaintiff in the absence of his protected activity.

Implications. While a pre-planned RIF may in many cases provide a compelling explanation as to why one was not terminated for whistleblowing activity, this decision shows that this defense is not always an impenetrable shield to a SOX claim at the summary judgment phase.

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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.