Third Circuit Clarifies Prima Facie Burden of Whistleblowers for SOX Retaliation Claims
On February 2, 2016 the Third Circuit addressed Weist v. Tyco Electronics Corp., for a second time and, on this occasion, affirmed an Eastern District of Pennsylvania order granting summary judgment to Tyco. This second appellate ruling provides clarity on the required nexus between a whistleblower’s termination and protected activity under the Sarbanes Oxley Act of 2002. The Third Circuit’s prior ruling focused on the scope of whistleblower activity protected by SOX.
As we previously reported, Weist worked in Tyco’s accounting department and filed a SOX claim for retaliation after he raised concerns over excessive corporate expenditures. Tyco countered that it had fired Weist for sexual harassment and inappropriate sexual relations with two co-workers—not because he had reported expenses he believed were inappropriate. The District Court granted summary judgment for Tyco on the remand from the first appeal. The District Court Judge reasoned this time that Weist had failed to show his complaints “contributed” to his termination. The Third Circuit’s most recent ruling stems from Weist’s appeal from that order.
The Third Circuit has now clarified what whistleblowers must establish to show that their protected activity “contributed” to their termination. A “contributing factor” is “any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision [to terminate].” The panel applied this standard and affirmed the district court’s ruling that Weist had not met his burden. The Court noted that Weist’s involvement with the corporate expense issue was limited and not temporally related to the decision to terminate. Weist’s positive accolades from Tyco following his protected activities also weighed against his claims.
The Weist decision provides useful guidance for employers. Companies subject to SOX reporting obligations (publicly traded companies or companies which contract or subcontract with publicly traded companies) should record their grounds for terminating employees, especially those who have raised concerns about possible securities fraud, shareholder fraud, bank fraud, a violation of any SEC rule or regulation, or mail or wire fraud.