The Sarbanes Oxley Whistleblower process continues to shake out standards for what comprises an actionable complaint of retaliation. A Department of Labor Administrative Law Judge recently refined the requirements for a valid whistleblower claim in a case involving Lexmark International, Inc. The employee, a director of supply chain programs for Lexmark, complained about inventory tracking procedures and was fired the following work day. After refusing to grant summary judgment to Lexmark, the ALJ dismissed the case following the hearing, finding that the complainant's concerns did not mention the Security and Exchange Commission, or claim an impact on investors or stock price.
The opinion is noteworthy because it looks directly at a key subjective element for a SOX complaint -- the reasonable belief of the individual that false information is being reported or that there is a violation of the SEC filing requirements. Specifically, the ALJ noted that the complainant had a graduate degree in business and described him as a person with sophistication, experience and extensive knowledge of supply chain practices. This high-level and specialized knowledge of the supply chain industry creates a higher standard for complainant to show that he reasonably believed there was fraud or an SEC violation. This is a key point, because it is quite possible that a lower ranking employee, or someone without the specialized knowledge of complainant, might allege a valid SOX complaint under exactly the same circumstances.
In addition to his failure to establish that he reasonably believed that fraud or an SEC violation occurred, Complainant could not overcome the issue of timing. It was undisputed in the record that Lexmark had been discussing and planning Complainant's termination for several months prior to his complaint. The ALJ held that Complainant would have been fired even if he had not raised concerns about the inventory accounting process. This is a classic example of one of the affirmative defenses available to an employer in a SOX whistleblower case and points again to the necessity of carefully documenting these kinds of decisions so that an accurate record can be put in evidence. An employer that can establish a termination has been made, even if the timing has not been finalized, can establish the affirmative defense and prevail at the hearing.