Twice as Nice for Employers: Federal Courts of Appeals Affirm Sarbanes-Oxley, Kansas Whistleblower Dismissals
For those of us who follow whistleblower law, Wednesday was a big day – and a good one for employers. In two separate federal appellate decisions, courts affirmed the dismissal of whistleblower actions based on very different issues. For potential whistleblowers and employers alike, the decisions demonstrate yet again the importance of the particular requirements and scope of the law that a whistleblower relies on to support his claim.
The first decision, Villanueva v. Department of Labor, No. 12-60122 (5th Cir. Feb. 12, 2014), comes to us from the Fifth Circuit. It involves William Villanueva, a Colombian national who worked for a Colombian affiliate of Core Labs, a Netherlands company whose stock is publicly traded in the U.S. Villanueva claimed that he blew the whistle on a transfer-pricing scheme by his employer to reduce its Colombian tax burden, and that his employer passed him over for a pay raise and fired him in retaliation for his whistleblowing.
At all three levels of review, OSHA rejected Villanueva’s claim, and the Fifth Circuit affirmed. Under Sarbanes-Oxley, a whistleblower must report particular kinds of violations of U.S. law in order to be protected from retaliation, and the Fifth Circuit held that Villanueva hadn’t satisfied this requirement of the statute. Rather, his reporting only related to violations of Colombian tax law. Therefore, even if he actually reported a legal violation, and even if his employer retaliated against him as a result, he didn’t have a remedy under SOX.
The Villanueva decision leaves open an important issue: what if Villanueva had accused his employer and Core Labs of committing U.S. mail fraud or wire fraud to accomplish their scheme? (There was a hint of that in Villanueva’s arguments, but the Fifth Circuit didn’t see enough in the record to show that Villanueva actually had put his employer and Core Labs on notice of a belief that they were violating U.S. law.) Would Sarbanes-Oxley have protected him, even though he lived and worked in Colombia? The Fifth Circuit left this extraterritoriality issue for another day, but it noted that both Core Labs and the U.S. government had argued that the statute would not apply in that situation. Given that multiple federal courts have already ruled that Dodd-Frank Act does not apply extraterritorially to protect whistleblowers, as we covered here, it won’t be surprising if future courts addressing Sarbanes-Oxley reach the same outcome.
The second decision, Lykins v. CertainTeed Corp., No. 12-3308 (10th Cir. Feb. 12, 2014),from the Tenth Circuit, addresses Kansas state whistleblower law. That law includes a different requirement: a whistleblower “must seek to stop unlawful conduct through the intervention of a higher authority.” (No, not that kind of higher authority.) In the case, Randall Lykins claimed that his employer disposed waste products improperly, and that he was fired for reporting his environmental concerns. He reported his concerns to management at the plant where he worked, but the Tenth Circuit held that wasn’t enough under Kansas law, because he had also argued in the lawsuit that those managers were also “the perpetrators of the wrongdoing.”
How could Lykins have avoided this outcome? The easiest answer is that he could have reported his concerns to the EPA or other law enforcement officials, which, under the Kansas law reviewed by the Tenth Circuit, would have easily qualified as a “higher authority.” Alternatively, he could have reached out to company superiors not involved in the wrongdoing. But because he did not, his claim of wrongful termination under the specific requirements of his state’s law failed.