The United States Court of Appeals for the Fifth Circuit held that revealing a whistleblower’s identity is prohibited retaliation under the Sarbanes-Oxley Act in Halliburton, Inc. v. Administrative Review Board, United States Department of Labor.

The facts were pretty straightforward.  Anthony Menendez, an employee of Halliburton, used the company’s internal procedures to submit a complaint to management about what he thought were “questionable” accounting practices. Menendez also lodged a complaint about the company’s accounting practices with the SEC, which led the SEC to contact Halliburton and instruct it to retain certain documents during the pendency of the SEC’s investigation. When Halliburton received the SEC’s notice of the investigation, the company inferred from Menendez’s internal reports that Menendez must have reported his concerns to the SEC too. Halliburton sent an email to Menendez’s colleagues that instructed them to start retaining certain documents because “the SEC has opened an inquiry into the allegations of Mr. Menendez.” Once his identity as the whistleblower was disclosed, Menendez’s colleagues, whom he had essentially accused of fraud, began treating him differently, generally refusing to work and associate with him.

Before getting into legal matters, it is important to note that the SEC concluded that no enforcement action against Halliburton was recommended. Apparently one lesson is Mr. Menendez was still entitled to the protections afforded by the Sarbanes-Oxley Act to whistleblowers.

Setting aside the detailed procedural history, the Administrative Review Board ultimately concluded that Halliburton was liable for retaliation.  Halliburton challenged the Review Board’s conclusions that:

  • Menendez suffered an “adverse action” when the company disclosed his identity as the whistleblower to his colleagues, and
  • Menendez’s protected activity was a “contributing factor” in the disclosure, as that element should be understood.

The court found under existing case law that a SOX anti-retaliation claim requires an “adverse action” which is an action harmful enough that it well might have dissuaded a reasonable worker from engaging in statutorily protected whistleblowing.  The court upheld the Review Board’s determination, noting the following:

“The undesirable consequences, from a whistleblower’s perspective, of the whistleblower’s supervisor telling the whistleblower’s colleagues that he reported them to authorities for what are allegedly fraudulent practices, thus resulting in an official investigation, are obvious. 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.”

Next, Halliburton contended that, as a matter of law, it is not enough that the protected conduct be a “contributing factor” in the employer’s adverse action.  Rather, according to Halliburton, an employee must prove a “wrongfully-motivated causal connection.”  The court rejected this contention, noting that it was unaware of any court that has held that, in addition to proving that the employee’s protected conduct was a “contributing factor” in the employer’s adverse action, the employee must prove that the employer had a “wrongful motive” too.

The court also held that Sarbanes-Oxley also permits an award of noneconomic compensatory damages, including awards for emotional distress and reputational harm.