SOX Whistleblower Must Actually Believe Employer's Conduct Was Illegal, Says Eleventh Circuit

An employee claiming whistleblower protection under the Sarbanes-Oxley Act must have actually believed that his company’s conduct was illegal in order to state a claim under the Act, according to a recent decision by the Eleventh Circuit Court of Appeals, Gale v. U.S. Department of Labor, Case No. 08-14232 (11th Cir., June 25, 2010).

The case arose when Michael Gale was terminated from his employment at World Financial Group (“WFG”). Gale filed a whistleblower complaint with the Occupational Safety and Health Administration, which enforces the SOX whistleblower provisions. Gale alleged that he was terminated because he opposed decisions made by company officers relating to waste and misuse of corporate funds, and because he raised concerns regarding the alleged violation of SEC rules and regulations. 

Under SOX, a publicly traded company and its officers are prohibited from discharging an employee for providing information to a supervisory authority about conduct that the employee “reasonably believes” constitutes a violation of federal laws against mail fraud, wire fraud, bank fraud, securities fraud, any SEC rule or regulation, or any provision of federal law relating to fraud against shareholders. 18 U.S.C. § 1514A(a)(1). 

OSHA dismissed Gale’s complaint on the grounds that WFG was not a covered employer.  Gale appealed the decision to an administrative law judge of the Department of Labor, who allowed pre-hearing depositions. During his deposition, Gale testified that he was “uncomfortable” with some of the practices he observed and “expressed reservations” about them, but that he did not actually believe the company was engaging in illegal or fraudulent activities. The ALJ recommended that WFG’s motion for summary decision be granted on the grounds that Gale could not prove that he reasonably believed WFG’s practices were illegal or fraudulent. The Administrative Review Board agreed with the ALJ and granted WFG’s motion. Gale appealed the ARB's decision to the Eleventh Circuit. 

The question presented in Gale was what “reasonably believes” means. In answering this question, the Eleventh Circuit joined several other federal circuit courts in holding that the term encompasses both a subjective and an objective component. That is, the employee must actually believe that the employer’s conduct was illegal, and his belief must be objectively reasonable under a “reasonable person” standard.  The court noted that it has employed the same standard in the context of other retaliation statutes such as Title VII. 

Because Gale did not actually believe his employer’s conduct was illegal, the Eleventh Circuit affirmed the ALJ’s summary decision in favor of WFG. The court did not have to reach the question of whether a reasonable person would have believed WFG’s practices were illegal or fraudulent. 

For employers in the Eleventh Circuit, Gale is a reminder of the importance of both components of a retaliation case. Whether a belief is “objectively reasonable” is often a difficult question, and one that may not be amenable to a summary judgment motion. But where an employer is fortunate enough to obtain an admission from a plaintiff that she did not actually believe her employer’s conduct was illegal – or in the case of a Title VII sexual harassment case, that she did not actually perceive the harassment as sufficiently severe or pervasive to alter the terms and conditions of her employment – defending a retaliation case becomes a piece of cake. 

Preparing for the Worst: Hurricane Guidance for Florida Employers

The following article is adapted from an article aimed at Texas employers authored by EBG lawyer David Barron.  With hurricane season approaching, it should be of interest to all Florida employers

 

Introduction

Hurricanes pose unique human resources challenges for employers with operations in Florida and other states in the Southeastern U.S. According to the Congressional Budget Office, Hurricane Katrina alone wiped out as many as 400,000 jobs. The economic effects of hurricanes have long term consequences on businesses in the region. While many employers are working around the clock on recovery efforts, other employers find themselves unable to function for extended periods because of damage or loss of utilities. 

Although one can never be fully prepared for such natural disasters, it is important to be aware of the employment laws that may be implicated in such situations. The information contained below may be applicable to other disasters, such as fires, flu epidemics and workplace violence.

 

Hurricane FAQs

 

1.      Is there any law that protects employees who are absent from work during or after a hurricane?

 

Unlike some states, such as Texas, Florida does not have a law which prohibits employers from taking action against employees who refuse to work because of an impending hurricane. An analogous situation was presented in Gillyard v. Delta Health Group, Inc., 757 So. 2d 601, 603 (Fla. 5th DCA 2000). There, the employee of a nursing home alleged that she was terminated in violation of the Florida Whistleblower’s Act because of her refusal to report to work; she claimed that reporting to work would have violated the Governor’s mandatory order to evacuate the county due to severe fires. The court held that the governor's executive order was not a law, rule or regulation as defined by the FWA.

 

2.      If a work site is closed because of weather, or unable to reopen because of damage and/or loss of utilities, am I required to pay affected employees?


The FLSA requires employers to pay non-exempt employees only for hours that the employees have actually worked. Therefore, an employer is not required to pay non-exempt employees if the employer is unable to provide work to those employees due to a natural disaster. An exception to this general rule exists where there are employees who receive fixed salaries for fluctuating workweeks. These are non-exempt employees who have agreed to work an unspecified number of hours for a specified salary. An employer must pay these employees their full weekly salary for any week in which any work was performed.


For exempt employees, an employer will be required to pay the employee’s full salary if the worksite is closed or unable to reopen due to inclement weather or other disasters for less than a full workweek. However, an employer may require exempt employees to use allowed leave for this time.

 

3.      Is it lawful to dock the salaries of exempt employees who do not return to work when needed after an emergency or disaster?


The DOL considers an absence caused by transportation difficulties experienced during weather emergencies, if the employer is open for business, as an absence for personal reasons. Under this circumstance, an employer may place an exempt employee on leave without pay (or require the employee to use accrued vacation time) for the full day that he or she fails to report to work. If an employee is absent for one or more full days for personal reasons, the employee’s salaried status will not be affected if deductions are made from a salary for such absences. However, a deduction from salary for less than a full-day’s absence is not permitted. 

 

We recommend caution, however, in docking salaried employees’ pay, and suggest you first consult with legal counsel. Moreover, many employers instead require employees to “make up” lost time after they return to work, which is permissible for exempt employees. This practice is not allowed for non-exempt employees, who must be paid overtime for all hours worked over 40 in a work week.

 

4.      What are other wage and hour pitfalls that employers should be aware of following a hurricane or other natural disaster?


On Call Time: An employee who is required to remain on call at the employer’s premises or close by may be working while “on call” and the employer may be required to pay that employee for all of his time. For example, maintenance workers who remain on premises during a storm to deal with emergency repairs must be compensated, even if they perform no work, if they are not free to leave at any time.


Waiting Time: If an employee is required to wait, that time is compensable. For example, if employees are required to be at work to wait for the power to restart, that is considered time worked.


Volunteer Time: Employees of private not-for-profit organizations are not volunteers if they perform the same services they are regularly employed to perform. They must be compensated for those services. Employers should generally be cautious about having employees “volunteer” to assist the employer during an emergency, if those duties benefit the company and are duties regularly performed by employees.

 

5.      Can employees affected by a hurricane seek protected leave under the Family and Medical Leave Act (“FMLA”)?


Yes, employees affected by a natural disaster are entitled to leave under the FMLA for a serious health condition caused by the disaster. Additionally, employees affected by a natural disaster who must care for a child, spouse, or parent with a serious health condition may also be entitled to leave under the FMLA. Some examples of storm related issues might include absences caused by an employee’s need to care for a family member who requires refrigerated medicine or medical equipment not operating because of a power outage. 

 

 

6.      If a work site or business is damaged and will not reopen, what notice must be provided to affected employees?


The WARN Act, a federal law, imposes notice requirements on employers with 100+ employees for certain plant closings and/or mass layoffs. However, an exception does exist where the closing or layoff is a direct result of a natural disaster. Nonetheless, the employer is required to give as much notice as is practicable. If an employer gives less than 60 days notice, the employer must prove that the conditions for the exception have been met. If such a decision is contemplated, it is advisable to consult with legal counsel about the possible notice requirements to ensure compliance with the WARN Act.

 

7.      Our human resources department has been disrupted, and it may be weeks before things are back to normal—will the government extend any of the customary deadlines governing employer payment for benefits, pension contributions, and other subjects during this recovery effort?


During previous natural disasters, many governmental agencies and entities did extend the deadlines for certain reports and paperwork. Therefore, it is expected that with future natural disasters, the government will provide some deadline extensions, but as with every natural disaster, the government’s response will vary. 

8.      Employees from other states want to donate leave to affected employees in Florida, is this lawful?


Yes. Employers can allow employees to donate leave to a leave bank and then award the donated leave to the affected employees. 

 

 

 

Hurricane and Disaster Preparation Checklist

 

  •  Identify and notify those employees you believe should be deemed “emergency services personnel” who will be required to work during a storm or evacuation order. Make arrangements for providing these employees with food and shelter. Make sure to have procedures in place for evacuation of these employees in the event the hurricane or other disaster causes the workplace to become unsafe.
  • Identify your “essential employees.” These are employees that you cannot require to be at work during a hurricane or evacuation but you believe are vital to the continued operations of your company. Determine what incentives you can provide these employees to entice them to work during a disaster or to return to work as soon as possible. These incentives can include shelter, hot meals, fuel, as well as arrangements for family members.
  • Establish a contingency plan to address the needs of those employees who may be temporarily living in company facilities during a storm or disaster. Ensure you can provide such necessities as gas, food, and shelter to these employees.
  •  Establish a contingency plan to ensure security of payroll data and the ability to continue payment of wages to your employees if offices are damaged or power is lost. 
  • Review your existing policies to determine how to distribute paychecks to employees who cannot come to work because of weather or lack of power. 
  •  Establish a communication plan. This will include identifying ways to keep the lines of communication open with your employees even if power is out in the local community. Collect primary and secondary contact sources from your employees. Consider establishing a toll-free phone line where employees can obtain updated information regarding the company’s status during an emergency.
  •  Review applicable leave policies and procedures to address and allow for disaster-related leave requests, including how such leave will be treated (i.e. paid or unpaid). 
  •  Formulate a team of decision makers who will have authority to make crucial decisions in the midst of the hurricane or other disaster related to other human resources matters. This team should establish a method of communicating with each other during the hurricane. 
  • Review any existing Employee Assistance Programs and ensure employees know how to utilize these programs during the aftermath. A successful Employee Assistance Program can promote the fast and efficient return of your employees. 
  • Remember to be sensitive to the needs of your employees who have experienced extensive property damage or personal devastation. Always keep in mind that human life and safety trumps all other business necessities.

 

 

 

Third DCA Applies Federal Standards for Florida Whistleblower Coverage

The Florida private sector Whistleblower's Act ("FWA") covers "any private individual, firm, partnership, institution, corporation, or association that employs ten or more persons."  See section 448.101, Florida Statutes.  However, the statute does not address the circumstances under which the number of employees at two related firms can be aggregated for purposes of establishing liability under the FWA. 

In Diaz v. Impex of Doral, Inc. (Fla. 3d DCA, March 18, 2009), the Third District Court of Appeals held that the trial court erred in not applying the federal "single employer" and "joint employer" doctrines to a case brought under the FWA.

As explained by the United States Court of Appeals for the Second Circuit,

A "single employer" situation exists "where two nominally separate entities are actually part of a single integrated enterprise so that, for all purposes, there is in fact only a 'single employer.'" The single employer standard is relevant when "separate corporations are not what they appear to be, that in truth they are but divisions or departments of a 'single enterprise.'" 

In contrast, in a "joint employer" relationship, there is no single integrated enterprise. A conclusion that employers are "joint" assumes that they are separate legal entities, but that they have merely chosen to handle certain aspects of their employer-employee relationships jointly.

Clinton's Ditch Coop. Co. v. NLRB, 778 F.2d 132, 137 (2d Cir. 1985) (citations omitted) (cited by the Eleventh Circuit Court of Appeals in Virgo v. Riviera Beach Assocs., 30 F.3d 1350, 1360 n.6 (11th Cir. 1994)).

In Diaz, the plaintiff, Luis Diaz, claimed that the forklift he was operating, which was owned by defendant Impex of Doral Logistics ("Impex Logistics"), was unsafe and improperly maintained, in violation of the Occupational Safety and Health Administration’s (“OSHA”) regulations. Diaz alleged that when he complained about the safety of the forklift, defendant Impex of Doral ("Impex"), from whom Diaz received a paycheck, unlawfully retaliated by terminating his employment. Oscar Perez, the manager of both Impex and Impex Logistics, fired Diaz. The action proceeded to a jury trial.

At trial, Diaz presented evidence of the close operational relationship between Impex and Impex Logistics.  Nevertheless, Impex Logistics moved for directed verdict against Diaz, asserting it did not have the required number of employees to make it liable as an “employer” under the FWA.  Diaz’s attorney did not dispute that Impex Logistics, by itself, did not have the requisite number of employees to make it a covered employer under the FWA. However, he argued that the jury could find that Impex and Impex Logistics were either a “single employer” or a “joint employer” of Diaz.  The trial court declined to apply these federal concepts and granted Impex Logistics' motion for directed verdict.

The Third DCA reversed.  Citing its earlier decision in Martinolich v. Golden Leaf Management, Inc., 786 So. 2d 613 (Fla. 3d DCA 2001), the court held that the federal “single employer” and “joint employer” doctrines are applicable in FWA actions.

The Diaz holding is not surprising.  It is not unusual for Florida courts to borrow employment law doctrines from federal courts, which generally have more experience in the area of employment law. Moreover, the Third DCA had expressly ruled in 2001 that the federal “single employer” and “joint employer” doctrines are applicable in FWA actions.  It is not clear from the Diaz opinion why the trial court did not follow this authority.

What is clear from the Diaz decision is that employment practitioners in Florida should be fully versed in both Florida and federal law to serve their clients well.

Florida Supreme Court to Decide Church Whistleblower Case

Archdiocese of MiamiThe Florida Supreme Court will decide whether the principal of a Miami Catholic school, who alleged that she was terminated for complaining that her immediate supervisor assaulted and battered her, has a claim under the Florida Whistleblower's Act. 

Yolanda Miñagorri, who was the principal of St. Kevin's Catholic school, alleges that in August 2005, her immediate supervisor, Father Jesus Saldaña, assaulted and battered her when he grabbed her by the arm and verbally threatened her.  She alleges that the Archdiocese of Miami subsequently terminated her employment in retaliation for her complaints about Saldaña's conduct. 

Miñagorri asserted a claim under the Florida Whistleblower Act.  Section 448.102(3) of the FWA prohibits employers from taking retaliatory action against employees who object to or refuse to participate in activities, policies or practices of the employer which are “in violation of a law, rule, or regulation.” 

However, in a March 2007 decision, the Third District Court of Appeals ruled that the claim was barred under the “ecclesiastical abstention doctrine,” which precludes courts from exercising jurisdiction where an employment decision concerns a member of the clergy or an employee in a ministerial position.  This doctrine is rooted in the First Amendment to the U.S. Constitution, which the U.S. Supreme Court has interpreted as placing matters of church government and administration beyond the purview of civil authorities.  The Third DCA noted that under the ecclesiastical absention doctrine, where a claim challenges a religious institution’s employment decision, the inquiry is whether the employee is a member of the clergy or serves a ministerial function.  The parties agreed that Miñagorri was a ministerial employee.  The Third DCA concluded that "allowing the whistleblower claim to proceed would especially run afoul of the First Amendment because the requested remedy of reinstatement would require the Archdiocese to employ Miñagorri, a concededly ministerial employee."

Now the Florida Supreme Court will decide whether the Third DCA was correct.  In her appellate brief, Miñagorri argues that "[t]he First Amendment to the United States Constitution does not create an absolute bar to civil court jurisdiction over employment disputes between religious institutions and their ministerial employees."  "Rather the courts must, on a claim by claim basis, examine each claim and its elements and determine whether the court will be required to interpret religious doctrine or whether excessive entanglement is likely to result. If the court finds that it will not be required to interpret religious doctrine and that excessive entanglement is not likely to result, the court must consider the claim."  In response, the Archdiocese argues that this type of inquiry is inappropriate, because "[a] religious institution has no responsibility to tell a civil court the reason why it terminated a ministerial employee."

I will follow-up to this post as soon as the Florida Supreme Court issues its decision.

UPDATE:  The Florida Supreme Court will not review the case after all.  In a short opinion issued on July 3, 2008, the Court determined that that "jurisdiction was improvidently granted," and accordingly, discharged its jurisdiction and dismissed its review of the case.