June 2016
Employees of publicly traded companies are protected from
retaliation for reporting “any conduct which the employee reasonably believes
constitutes a violation of” rules or laws regarding fraud against
shareholders. This includes internal
reports made to a supervisor or another individual with investigative authority
in a company. Because of this, employers
are often afraid to touch an employee who has made a complaint or report. However, not all reports or complaints
qualify for protection; the employee’s belief must be both subjectively
reasonable (i.e. the employee sincerely believes the law is being violated) and
objectively reasonable beyond what the employee may think. Recently,
the Eighth Circuit Court of Appeals clarified what constitutes a protected, “objectively
reasonable” report, to support a claim under Sarbanes-Oxley. The court held that
a plaintiff employee must prove that “a reasonable person in the same factual
circumstances with the same training and experience would believe the employer
violated securities laws.” Applying this
standard to the facts of the case, the court affirmed the dismissal of the
employee’s complaint.
In this particular case, the employee complained that the
company had repeatedly overstated its sales revenue projections by several
million dollars. However, the court found
this to be a mere drop in the bucket compared to the overall revenues of the defendant
company. The court reasoned that under
these circumstances it was not reasonable for the plaintiff—a salesperson and
shareholder of the company—to believe that these relatively inconsequential
misstatements constituted shareholder fraud.
Because the courts in Minnesota and neighboring states require that
employee whistleblowing needs to meet both a subjective and an objective
“reasonableness” standard in order to be protected under the Sarbanes-Oxley
Act, not every report or allegation of illegal activity will support such law
suits. This is good for employers. However,
Minnesota employers must also be concerned with the Minnesota’s Whistleblower Act,
which protects all good faith reports of violations, suspected violations, or
planned violations of any law.
Because employees may be protected from retaliation on any
number of grounds under federal and state law, and because retaliation claims
are among the fastest growing in all areas of employment law, employers should
seek experienced legal counsel before disciplining or discharging any employee
that has asserted any claims or made allegations against the company. An ounce of prevention may be worth much more
than a pound of proverbial cure.
