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Reductions in Force: Oklahoma Employment Law Letter -- R.I.P.: RIF at funeral home didn't violate Sarbanes-Oxley's whistleblower provision
     


Charles S. Plumb and Sam R. Fulkerson, Editors
McAfee & Taft

Vol. 16, No. 4
April 2008

EMPLOYER RETALIATION

R.I.P.: RIF at funeral home didn't violate Sarbanes-Oxley's whistleblower provision

Elizabeth W. Carroll

The Fifth Circuit recently found in favor of a funeral home in a lawsuit by former employees who were unable to show that their whistleblowing activities were protected under the Sarbanes-Oxley Act (SOX). According to the court, to be protected by SOX, an employee must have a reasonable belief that his employer intended to violate federal law addressing fraud against shareholders.

Facts

After a New Orleans funeral home initiated a reduction in force (RIF), three of its employees claimed they were fired for raising concerns about the company's accounting practices. According to the employees, they reported accounting errors and concerns that the funeral home wasn't properly recognizing revenue. The employees claimed that after they raised those concerns, the errors were counted against them in salary adjustments, they were relocated to unsatisfactory working areas, and they were excluded from receiving e-mails and attending meetings. Later, all three employees were terminated during the companywide RIF.

Because the company attempted to terminate only employees that had minimal impact on customer service, most of the workers included in the RIF were administrative employees. The three employees still maintained that they were selected for the RIF because of their complaints about the company's accounting practices.

SOX claims

SOX allows employees to sue their employers when they're retaliated against for reporting conduct that they reasonably believe constitutes mail fraud, bank fraud, securities fraud, or other violations of federal law that relate to fraud against shareholders. Reporting suspicions of fraud is protected activity under SOX.

The following factors are used to assess SOX claims:

  1. the employee engaged in protected activity;
  2. the employer knew about it;
  3. the employee suffered some unfavorable personnel action; and
  4. the protected activity contributed to the unfavorable personnel action.
Court's decision

Ultimately, the court concluded that the employees didn't engage in protected activity. An employee must reasonably believe that the reported activity is a violation of federal law, and his reasonable belief must be both subjective and objective. The employee's objectively reasonable belief is examined in light of the knowledge available to a person in the same circumstances and with the same training and experience. If his belief is reasonable but mistaken, his actions are still protected.

Because the employees were educated professional accountants, the court concluded that they didn't reasonably believe the funeral home violated federal law. It also found that they didn't reasonably believe that their employer was acting with any intent to deceive or defraud shareholders because the funeral home took actions to correct the problems. As a result, the court allowed the funeral home's RIF to rest in peace. Allen, et al. v. Administrative Review Board, United States Dep't of Labor, Case No. 06-60849 (5th Cir., January 22, 2008).

Protect your company from similar claims

Although the employer won this time, you'll want to avoid the hassle and expense associated with a lawsuit in the first place. Make sure your company follows these guidelines:

  • If an employee comes to you with a concern that your company is doing something improper, illegal or not, document his concerns in keeping with written company policy.
  • Review the employee's concerns with the appropriate management personnel. If his concerns are legitimate, take proactive steps to implement change.
  • Show appreciation to employees who point out problems. Although it may be painful in the short term to know that you'll have to make changes, those changes will be beneficial to your company in the long term.
You can reach the author at ecarroll@dsda.com.
Copyright 2008 M. Lee Smith Publishers LLC

OKLAHOMA EMPLOYMENT LAW LETTER does not attempt to offer solutions to any individual problems or to provide legal advice to its readers. Rather, the OKLAHOMA EMPLOYMENT LAW LETTER seeks to provide information about current developments in Oklahoma employment law. Questions about individual problems or requests for legal advice should be addressed to an employment law attorney of your choice.

M Lee Smith Publishers