Establishing Knowledge of SOX Protected Conduct
The second element of a SOX claim is knowledge of protected conduct. A whistleblower may establish employer knowledge by demonstrating that a supervisor or senior executive knew of the activity (actual knowledge) or that a person with knowledge of the disclosure influenced the official who decided to take the retaliatory action (constructive knowledge).
In a SOX retaliation suit against an employer, a whistleblower need only make a protected disclosure to someone who has either supervisory authority over them or authority to investigate and address misconduct. The supervisor’s knowledge is imputed to the final decision maker.[i]
SOX whistleblowers can demonstrate knowledge of protected conduct using the cat’s paw theory, i.e., by showing that the decision-maker followed the biased recommendation of a subordinate without independently investigating the reason or justification for the proposed adverse personnel action.
In Jayaraj v. Pro-Pharmaceuticals, Inc.,[ii] the employer was a start-up biotechnology company whose primary executives were a chief executive officer (“CEO”) and a chief operating officer (“COO”). The CEO testified that when he decided to terminate the complainant’s employment, he was unaware that she had engaged in protected activities. However, based on evidence that the CEO and COO worked closely together since the founding of the company, the ALJ found that the COO had likely told the CEO about the complainant’s protected activity.
The Supreme Court has held that a “cat’s paw” theory of causation can apply in retaliation cases. Staub v. Proctor Hosp., 562 U.S. 411, 419-22 (2011). A “cat’s paw” theory of causation applies when the protected activity has no bearing on the decision-maker, but does bear on the actions of a lower-level supervisor, who in turns influences or causes the decision-maker to take the adverse action. Id. at 415; see also Bobreski v. J. Givoo Consultants, Inc., ARB No. 09-057, ALJ No. 2008-ERA-003, slip op. at 16 (ARB June 24, 2011); Zinn v. American Commercial Lines, 2009-SOX-25, slip. op. 18 (Nov, 19, 2012) (“A complainant is not required to prove direct knowledge on the part of the employer’s final decision maker because the law will not permit itself to insulate it by creating layers of bureaucratic ignorance between a whistleblower’s direct line of management and the final decision maker.”).
“A complainant may show contribution via a cat’s paw theory. See Kuduk, 768 F.3d at 790–91. This theory applies when the impermissible consideration has no bearing on the decision–maker, suggesting no discrimination, but does bear on the actions of another supervisor who in turns acts to bring about the ultimate adverse action in some way. See Staub v. Proctor Hosp., 562 U.S. 411, 422–23 (2011). If the impermissible factor contributed to actions of one supervisor, and those actions contributed to the ultimate decision resulting in the adverse action, then the impermissible factor was a contributing factor in the adverse action. The complainant need only show that one individual among multiple decision makers influenced the final decision and acted, in part, because of the protected activity. Rudolph, ARB No. 11–037 at 16–17 (citing Bobreski v. J. Givoo Consultants, Inc, ARB No. 09–057, ALJ No. 2008–ERA–3, slip op. at 13–14 (ARB June 24, 2011).” Klinger v. BNSF Railroad Co., ALJ No. 2016-FRS-00062, at 16 (ALJ Sept. 29, 2022).
Can circumstantial evidence establish knowledge of SOX protected conduct?
Yes. A decision denying summary judgment in Erhart v. BofI Holding, Inc., Dist. Court, SD California 2017 (Sept. 11, 2017) illustrates the type of evidence that can establish knowledge of protected whistleblowing:
Erhart must allege that BofI “knew or suspected that [he] engaged in the protected activity.” 29 CFR § 1980.104(e)(2)(ii); see also Tides, 644 F.3d at 814. This requirement is satisfied. Erhart alleges he reported much of the conduct he discovered to members of BofI’s management team—particularly VP Ball. Some of Erhart’s discoveries also made their way directly to SVP Tolla. As for Erhart’s “two whistleblower tips to the SEC,” he alleges that “BofI had knowledge of his whistleblowing.” (Id. ¶ 31.)
Further, the events that allegedly transpired around the time Erhart called off sick from work indicate BofI, at the minimum, “suspected that [he] engaged in the protected activity.” See 29 CFR § 1980.104(e)(2)(ii). These circumstances include BofI accessing Erhart’s work computer, BofI “going through all the documents” in Erhart’s locked file cabinets, SVP Tolla locating Erhart’s review of CEO Garrabrants’s personal accounts, BofI preparing a letter terminating Erhart, BofI’s alleged statements to the OCC about Erhart, and BofI’s general counsel demanding that Erhart “come to a conference room to speak” when he returned his work laptop. (See FAC ¶¶ 56-74.) If these allegations are true, a factfinder could draw the inference that BofI suspected or knew Erhart engaged in protected activity. Accordingly, Erhart’s pleading meets the second element of a prima facie case for whistleblower retaliation under Sarbanes-Oxley.
Sarbanes-Oxley (SOX) Whistleblower Protection Law
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SEC Whistleblower Program and SEC Whistleblower Awards
Whistleblower Law Firm Representing Sarbanes-Oxley (SOX) Whistleblowers
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- Matt Stock is a Certified Public Accountant, Certified Fraud Examiner and former KPMG external auditor. As an auditor, Mr. Stock developed an expertise in financial statement analysis, internal controls testing and fraud recognition, and he uses his auditing experience to help whistleblowers investigate and disclose complex financial frauds to the government and obtain damages for retaliation. He is lead author of SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.
- Both Bachman and Zuckerman served in senior positions at the Office of Special Counsel, where they oversaw investigations of whistleblower retaliation claims and whistleblower disclosures, and enforced the Whistleblower Protection Act.
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Client Testimonials from Executives and Senior Professionals in SOX Whistleblower Retaliation Matters
- “Jason is the consummate professional when it comes to SOX retaliation claims. He is, without question, one of the most deeply knowledgeable, technical, and astute attorneys in this very specialized body of law. During one of the most difficult times in my professional career, Jason not only provided exceptional legal guidance, but equally as important, he provided emotional support that was vital to my family and me. Jason ran circles around the “major national law firm” team that was assigned to defend my employer. In fact, Jason made them look silly at times. Jason always advocated my best interests, not his own. Jason is not only an exceptional attorney who helped my family to achieve a favorable outcome, but he is a friend. I’ve worked with major law firms throughout my career and when it comes to SOX and employment law matters, there is not a finer, more talented attorney than Jason Zuckerman.”
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