On April 2, 2019, the U.S. District Court for the Northern District of Alabama denied a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, finding genuine issues of material fact existed as to the basis for Plaintiff’s discharge, whether his complaint qualified as protected activity, and whether he had a reasonable belief that the complained-of activity was unlawful.  Shea v. Kohl’s Dept. Stores, Inc., No. 16-cv-01155.

Background

Defendant, a retailer, employed Plaintiff as a regional District Manager for Alabama and Georgia.  Defendant used a number of performance metrics used to evaluate stores, including daily credit applications.  It offered monetary incentives to encourage sales associates to ask each customer about opening a credit account.  Additionally, store managers’ bonuses were tied to the store’s performance on credit solicitation metrics.  In September 2015, Plaintiff allegedly began receiving reports from store managers that certain stores were creating fraudulent credit applications to increase reported numbers.  He allegedly became aware that one store in particular reported a credit application for every $96.00 in sales, compared to the usual average of one application for every $2,500 to $3,500 in sales.  These numbers allegedly concerned Plaintiff, who allegedly discovered sales associates at the store were submitting fraudulent credit applications using the social security numbers of customers and others without authorization.  Plaintiff sent an e-mail to the manager of the store and the District Loss Prevention Manager.  The e-mail was then forwarded to the Regional Vice President, who was Plaintiff’s supervisor.  Plaintiff’s employment was terminated shortly thereafter.  Plaintiff proceeded to file suit claiming he was retaliated against in violation of SOX for complaining of allegedly fraudulent conduct.

Ruling

Defendant moved for summary judgment, arguing Plaintiff did not engage in protected activity under SOX because he did not raise his concerns to the appropriate person in the company under the company policy (the policy required employees to raise concerns directly to their supervisor).  The court denied the motion, finding Plaintiff had engaged in protected activity because the person he notified, the District Loss Prevention Manager, had authority to investigate the alleged misconduct.  The court also rejected Defendant’s argument that Plaintiff lacked a subjectively reasonable belief; it found there was a genuine issue of material fact as to whether Plaintiff had a reasonable belief that unlawful activity was occurring, noting he had said “shady” activity was occurring, which raised a question as to whether he subjectively believed something unlawful was afoot.  Finally, the court found Defendant had not substantially rebutted Plaintiff’s prima facie case with its alternative reason for Plaintiff’s termination, noting the close temporal proximity between the reports of the fraud and the termination, and Plaintiff’s favorable performance reviews.

Implications

This court appears to have employed a relatively employee-friendly standard of determining whether an employee has met his or her burden of identifying a violation of one of the types of misconduct enumerated in Section 806 of SOX.

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Photo of Steven J. Pearlman Steven J. Pearlman

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

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice.

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

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice. Steven’s national practice focuses on defending companies in federal and state courts and arbitration against claims of: discrimination, retaliation and harassment, including claims brought by high-level executives; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations (including class, collective and PAGA actions).

Illustrating his versatility, Steven has successfully handled bench and jury trials in multiple jurisdictions (e.g., Illinois, California, Florida and Texas); defended one of the largest Illinois-only class actions in the history of the federal courts in Chicago; and prevailed following his oral arguments before the Seventh Circuit and state appellate courts. Steven brings his litigation experience to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. 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.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He was also named as One of the Top 10 Impactful Labor & Employment Lawyers in Illinois for 2023 by Business Today. 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.” Chambers also reports that “He is someone who can navigate the twists and turns of litigation without difficulty. Steven is great with brief-writing, crafting arguments, and making sure the client is always happy.”

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 was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often 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.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.