8th Circuit Clarifies Definition of a “Report” Protected under Sarbanes-Oxley Act

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.

Minnesota Supreme Court Determines that Whistleblower Claimants Have 6 Years to Sue Their Employers

The Minnesota Supreme Court recently ruled, in Ford v. Minneapolis Public Schools, that lawsuits under the Minnesota Whistleblower Act (MWA) are subject to a 6 year statute of limitations.  The MWA prohibits employers from discriminating against employees for engaging in a number of activities related to reporting, refusing to engage in, or participating in investigations of suspected violations of the law.  Accordingly, lawsuits claiming “whistleblower” violations often involve allegations that an employee reported, either internally or externally, to authorities, that her/his employer was violating the law and the employer retaliated against the employee for making the report.  The state legislature did not include any deadline for employees to bring claims under the MWA, so the courts were left to fashion one.  As a result of the Ford decision, whereas many claims for employment discrimination or retaliation must be brought within 300 days under federal law (Title VII, ADA, ADEA), and within one year under the Minnesota Human Rights Act (MHRA), employees have 6 full years to bring whistleblower claims! What should employers do to protect themselves?    

Due to amendments to the MWA in 2013 that make it much easier for plaintiffs to bring and prevail in whistleblower claims, these suits are on the rise.  Now that plaintiffs have 6 full years to sue under the MWA, Minnesota employers can expect even more whistleblower lawsuits in 2016 and beyond.  The thought of being sued by a discharged employee, many years after the termination, should be very disconcerting to employers.  Employers may wish to deviate from their standard record retention practices, at least where a potential whistleblower employee may be involved.  A typical defense to any whistleblower claim is that the adverse employment action being challenged by the plaintiff, was unrelated to any report the individual may have made and instead was done for legitimate reasons.  Of course in court it takes evidence to defend against claims and so employers are now well advised to maintain such evidence for 6 years. 

Questions? Contact Attorney James Sherman at (952) 746-1700 or email jasherman@wesselssherman.com.