On December 17, 2020, the Administrative Review Board (“ARB”) of the U.S. Department of Labor affirmed the dismissal of a former employee’s whistleblower retaliation claim under Section 806 of SOX.  The ARB concluded that the Complainant did not engage in protected activity, noting that his complaints regarding a lack of what he characterized as “internal controls” were inadequate.  The ARB also concluded that the Respondent showed it would have terminated Complainant’s employment even in the absence of his alleged protected activity.  Thibodeau v. Wal-Mart Stores, Inc., ARB Case No. 2017-0078.

Background

Complainant worked for Respondent as a Senior Estimator, with responsibility for evaluating contractors’ requests for additional payments.  When Complainant’s supervisor cancelled the licenses for certain estimating software, he escalated concerns to management because he believed the software was essential for reviewing payment requests.  After Complainant successfully negotiated a lower license rate, Respondent renewed the software.  Throughout the following several months, Complainant’s supervisors brought numerous performance issues to his attention, issued him three levels of coaching under Respondent’s progressive discipline policy, and notified him that his employment was subject to termination if issues continued.  Later that year, Complainant raised concerns that a contractor’s payment request was deficient, resulting in a contentious telephone conversation with the contractor.  This incident prompted an automatic third-strike-and-out termination of Complainant’s employment.

Complainant filed a complaint with OSHA claiming that his termination violated SOX’s whistleblower protection provision.  After OSHA dismissed the complaint, an ALJ conducted a hearing and similarly dismissed the complaint.  Complainant then appealed to the ARB.

Ruling

The ARB affirmed, finding that: (1) Complainant did not engage in protected activity, and (2) Respondent nevertheless would have terminated Complainant’s employment in the absence of his alleged protected activity, as evidenced by Complainant’s progression through the discipline policy.

Notably, the Complainant argued that reviewing contractors’ additional payment requests was a part of the internal controls over financial reporting, and that he therefore engaged in protected activity when he complained about the software license cancellation and reported deficient contractor requests.  The ARB ruled, however, that internal operational and managerial controls are distinguishable from internal controls over financial reporting.  The ARB concluded that Complainant’s payment request reviews are a cost-saving endeavor for Respondent, and thus fall outside the scope of the SEC’s rules for internal controls over financial reporting.  The ARB further held that, although Complainant subjectively believed the conduct he was reporting constituted a violation of SEC regulations, that belief was not objectively reasonable.

Of significance, the ARB also clarified its position regarding what constitutes “protected activity” under SOX.  The ARB previously held in Sylvester v. Parexel Int’l LLC, No. 07-123 (ARB May 25, 2011), that an employee’s complaint need not “definitively and specifically” relate to an enumerated legal violation, and that complainants only had to show that they reasonably believed the conduct complained about violated one of the laws enumerated in SOX.  Here, the ARB clarified that the standard established in Sylvester should not be interpreted to convert SOX into a general anti-retaliation statute.  Rather, complainants must still provide information regarding conduct that they reasonably believe constitutes a violation of one of the legal violations enumerated in SOX.  The ARB further clarified that an ALJ may consider, as part of the totality of the circumstances, evidence relevant to particular elements of the enumerated law when deciding if it was reasonable for the employee to believe that the law had been violated.

Implications

This decision is a valuable win for employers, as it clarifies what a complaint regarding a lack of internal controls must include and fortifies the rule that SOX is not a general anti-retaliation statute, despite the standard articulated in Sylvester.

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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.

Photo of Julia Hollreiser Julia Hollreiser

Julia Hollreiser is an associate in the Labor & Employment Department and a member of the Employment Litigation & Arbitration Group.

Julia represents employers in a wide range of employment-related disputes, including defending clients against claims of discrimination, harassment, retaliation, wrongful discharge, and…

Julia Hollreiser is an associate in the Labor & Employment Department and a member of the Employment Litigation & Arbitration Group.

Julia represents employers in a wide range of employment-related disputes, including defending clients against claims of discrimination, harassment, retaliation, wrongful discharge, and wage and hour law violations.  She has experience assisting in single-plaintiff, multi-plaintiff, and class and collective action litigations, in federal and state courts as well as before administrative agencies.  Julia represents clients across a variety of industries including sports, financial services, media and entertainment, higher education, and law firms. Julia also counsels clients on a broad range of employment issues, including investigations into sensitive employment matters, employee terminations and discipline, and employment policies and procedures.

Julia earned her J.D., summa cum laude, from Cornell Law School, where she was a member of the Order of the Coif and graduated first in her class. Julia was also the Managing Editor of the Cornell Law Review and a member of the Moot Court Board. While at Cornell, Julia worked as a student attorney in several clinical programs, representing clients in immigration matters and in employment discrimination matters before the New York State Division of Human Rights. While in law school, Julia was a judicial intern for the Honorable Ronnie Abrams in the Southern District of New York.