On May 28, 2015, the Sixth Circuit Court of Appeals ruled that an employee who reports allegedly fraudulent conduct engages in protected activity under SOX where he or she has a reasonable belief that the activity reported is prohibited under Section 806—even if that belief is mistaken.  Rhinehimer v. U.S. Bancorp Investments, Inc., No. 13-cv-6641.  In doing so, it abandoned the “definitively and specifically” standard, which was particularly favorable to employers.

Background

Mr. Rhinehimer was a certified financial planner at U.S. Bancorp (Company) who was terminated after he complained to his supervisor about allegedly inappropriate trades.  He claimed to believe that the trades compromised his elderly client’s estate plan and constituted fraud.  He alleged that he was reprimanded and terminated after he returned from leave and that these actions constituted retaliation in violation of SOX.  A jury returned a verdict in favor of Mr. Rhinehimer in the amount of $250,000.00, and the Company appealed.  The issue before the Sixth Circuit was whether a jury could reasonably find that Mr. Rhinehimer engaged in protected activity.

Sixth Circuit’s Ruling

In Platone v. FLYi Inc., ARB Case No. 04-154 (Sept. 29, 2006), the ARB introduced two requirements for a SOX whistleblower complaint:  the complaint must “definitively and specifically” relate to an enumerated legal violation to qualify for protection; and the complaint must track the basic elements of the alleged fraud.  That standard was adopted by the First, Second, Fourth, Fifth and Ninth Circuits.  But, in 2011, the ARB abrogated Platone in Sylvester v. Parexel International LLC, No. 07-123 (ARB May 25, 2011), holding that an employee’s complaint need not “definitively and specifically” relate to an enumerated legal violation, and that the complainant need not prove the elements of fraud.  Instead, SOX complainants only had to show that they reasonably believed the conduct complained about violated one of the laws enumerated in Section 806 of SOX.

In 2012, the Sixth Circuit issued a decision in Riddle v. First Tennessee Bank, National Association, 497 F. App’x 588 (6th Cir. 2012) (unpublished), which adopted the Platone standard.   (Here is our post on that decision.)  But inRhinehimer, the Sixth Circuit took an about-face, abandoning the Platone“definitively and specifically” standard and adopting the Sylvester “reasonable belief” standard.  The Court then explained that under this standard, “an employee need not establish the reasonableness of his or her belief as to each element of the violation” and that:

Instead, the reasonableness of the employee’s belief will depend on the totality of the circumstances known (or reasonably albeit mistakenly perceived) by the employee at the time of the complaint, analyzed in light of the employee’s training and experience.

Implications

Rhinehimer sets forth a lower hurdle for protected activity than the Sixth Circuit previously used.  Though employee whistleblower complaints still may be subject to dismissal for want of protected activity in jurisdictions like the Sixth Circuit, as there are a wide range of cases where complainants lack a reasonable belief, this standard could potentially lead employers to place a greater emphasis on causation-based defenses in a variety of cases.