Although the U.S. Department of Labor's Administrative Review Board (ARB) recently issued a number of decisions that may compromise employers' defenses to whistleblower retaliation claims under Section 806 of the Sarbanes-Oxley Act of 2002 (SOX), federal courts have continued to issue decisions on which employers can rely in pursuing dispositive motions on such claims. The Fifth Circuit Court of Appeals' recent decision in Hemphill v. Celanese Corporation, Case No. 10-cv-10746 (5th Cir. July 23, 2011) (unpublished), is particularly valuable to employers, as it affirmed an order granting summary judgment in the employer's favor on the grounds that: (i) the employee's protected activity was not a contributing factor in the decision to terminate his employment; and (ii) the employer demonstrated by clear and convincing evidence that it would have discharged the employee regardless of his protected activity.
Defendant Celanese Corporation (Celanese) employed plaintiff Jeff Hemphill (Hemphill) as an internal audit manager. During his employment, Hemphill participated in audits that raised issues about whether employees were complying with legal requirements and internal policies. Hemphill reported these concerns to his supervisors, including Wegner. Celanese investigated Hemphill's concerns and concluded that, although some employees had not complied with the company's internal policies, there were no violations of any laws. However, Hemphill alleged that Wegner then told him not to "develop issues" and also rebuffed his request to raise alleged "books and records violations" of Securities and Exchange Commission rules with the company's audit committee.
Shortly after raising concerns to Wegner, Hemphill allegedly yelled at his secretary in an abusive manner, and several employees witnessed the incident. Curry, a human resources employee ? who had no prior knowledge about Hemphill's prior complaints ? conducted an investigation into this conduct. The employees Curry interviewed worked in a different department of the company than Hemphill and "had no material interest in Hemphill's auditing activities." After concluding the investigation, Curry recommended that Hemphill be terminated due to his "lying during a formal investigation, harassment of an employee, and creating a negative work environment for the team and those around him." Two human resources professionals supported this recommendation, and neither of them had any particular knowledge of Hemphill's audit-related complaints. Wegner, who had the final authority to make employment decisions concerning Hemphill, accepted the termination recommendation.
The Court's Ruling
Hemphill filed a complaint in the U.S. District Court for the Northern District of Texas, alleging that Celanese retaliated against him in violation of Section 806 of SOX by firing him for engaging in protected activity. The District Court granted Celanese summary judgment, ruling that Hemphill failed to show that his protected activity was a contributing factor to his termination and, even if he made such a showing, Celanese provided "clear and convincing evidence" that it would have terminated his employment absent any protected activity.
The Fifth Circuit affirmed the grant of summary judgment on both grounds. The Fifth Circuit first acknowledged the "contributing factor" standard under Section 806, noting that "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." In view of the undisputed facts, it found that Celanese's protected activity did not contribute to the decision to discharge Hemphill, noting that Celanese presented "substantial evidence" that it conducted an investigation into Hemphill's inappropriate behavior and decided to discharge him on this basis alone. As a result, Hemphill could not establish a prima facie case of retaliation under Section 806.
The Fifth Circuit then found that, even if Hemphill could establish a prima facie case, summary judgment in Celanese's favor was warranted because it presented clear and convincing evidence that it would have terminated Hemphill's employment regardless of whether he engaged in protected activity. In so ruling, the Fifth Circuit stressed that: (i) Celanese conducted a thorough investigation; (ii) neither Curry nor the other human resources professionals who supported Curry's recommendation to terminate Hemphill had any particular knowledge of Hemphill's alleged protected activity; (iii) the employees Curry interviewed in conducting the investigation did not work in Hemphill's department and "had no material interest in Hemphill's auditing activities"; and (iv) Wegner "simply accepted the unanimous termination recommendation provided to her ? ." The Fifth Circuit also rejected Hemphill's argument that the investigation was unreliable because Curry did not interview additional employees who may have witnessed the incident that led to his discharge.
The Hemphill decision is instructive in a number of respects. As an initial matter, it shows how appropriate investigations can pay dividends in litigation. In this regard, it illustrates: the importance of using independent investigators and conducting an objectively reasonable investigation; permitting the decision-maker with the purported retaliatory motive to rely on the investigator's findings and recommendations; and the deference courts commonly give to good-faith investigations in the face of challenges to the scope of the investigation. Moreover, the Hemphill decision should prove helpful to employers defending SOX whistleblower retaliation litigation at this time in light of the ARB's recent decisions that heighten the hurdles employers must surmount in prevailing on dispositive motions. In the same regard, it demonstrates that, although an employer's burden of providing "clear and convincing" evidence that it would have made the adverse employment decision absent protected activity may appear daunting at first blush, it is certainly possible to satisfy this burden in the context of a motion for summary judgment.
For more information, please contact the Seyfarth attorney with whom you work or any member of our SOX Whistleblower Team.