Does SOX prohibit employers from “outing” confidential whistleblowers?

SOX prohibits employers from “outing” confidential whistleblowers

Disclosing a whistleblower’s identity may constitute an adverse employment action. The U.S. Court of Appeals for the Fifth Circuit reached this conclusion in a SOX case brought by Anthony Menendez, a former director in Halliburton Inc.’s finance and accounting department.[i]

About four months after Mr. Menendez joined Halliburton, he noticed that the company’s accounting practices that involved revenue recognition did not appear to conform to generally accepted accounting principles (“GAAP”). Mr. Menendez circulated a memo in his department about the issue. In response, his supervisor, who also received the memo, said that Mr. Menendez was not a “team player” and should work more closely with his colleagues to resolve accounting issues. Halliburton nonetheless studied the issue and, a couple of months later, determined that the accounting practices were proper.

After his supervisor refused a second meeting with him about the issue, Mr. Menendez filed a confidential disclosure with the SEC about Halliburton’s accounting practices. Mr. Menendez later raised the same issues in a memo to Halliburton’s board of directors. The memo was forwarded to Halliburton’s general counsel.

When Halliburton received a notice of investigation from the SEC requiring Halliburton to retain documents, Halliburton’s general counsel inferred from Mr. Menendez’s internal disclosures that he was the source of the SEC inquiry. The general counsel then sent an email to Mr. Menendez’s colleagues instructing them to retain certain documents because “the SEC has opened an inquiry into the allegations of Mr. Menendez,” effectively “outing” Mr. Menendez as a whistleblower.

Thereafter, Mr. Menendez’s colleagues began to treat him differently, refusing to work or associate with him. He resigned within a year. Applying the Burlington Northern material-adversity standard,[ii] the Fifth Circuit concluded that “outing” Mr. Menendez was an actionable adverse action:

It is inevitable that such a disclosure would result in ostracism, and, unsurprisingly, that is exactly what happened to Menendez following the disclosure. Furthermore, when it is the boss that identifies one of his employees as the whistleblower who has brought an official investigation upon the department, as happened here, the boss could be read as sending a warning, granting his implied imprimatur on differential treatment of the employee, or otherwise expressing a sort of discontent from on high. . . . In an environment where insufficient collaboration constitutes deficient performance, the employer’s disclosure of the whistleblower’s identity and thus targeted creation of an environment in which the whistleblower is ostracized is not merely a matter of social concern, but is, in effect, a potential deprivation of opportunities for future advancement.[iii]

When Halliburton outed Mr. Menendez to his colleagues as the whistleblower responsible for the SEC investigation, the company inevitably “creat[ed] an environment of ostracism,” which “well might dissuade a reasonable employee from whistleblowing.” This ruling underscores the broad scope of actionable retaliation under SOX.

[i] See Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254 (5th Cir. 2014).

[ii] Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53 (2006).

[iii] Halliburton, Inc. v. Admin. Review Bd., 771 F.3d at 262.

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