Will Wiest v. Tyco Have a Lasting Impact on SOX Whistleblowers?

February 18, 2016

An accountant is asked to approve a few expenses from the company’s latest events. He is assured by his supervisor that the expenses are routine and can be approved without delay. Once the accountant takes a look, however, he discovers that the company’s “event” at a Bahamas resort included mermaid greeters, costumed pirates and fire dancers. Concerned about some of these charges and invoices—and charges for other events—the accountant reports to his supervisor that the expenses at a minimum violate company polices and, at most, could violate federal tax laws. For the following months, the office environment chills, and employees stop communicating with the accountant. Eventually, the accountant is fired on other grounds.

Does the accountant have an actionable whistleblower retaliation claim?

An Analysis of Wiest v. Tyco Electronics

The 3rd Circuit Court of Appeals recently made a ruling based on this fact pattern in Wiest et al. v. Tyco Electronics Corp., No. 15-2034 (3d Cir. Feb. 2, 2016). Following his discharge, Jeffrey Wiest, the former accounts payable manager for Tyco Electronics Corporation, filed a claim in late 2009 with the U.S. Occupational Safety and Health Administration (OSHA) against his former employer for retaliation in violation of the Sarbanes-Oxley Act (SOX). In 2010, he moved his claim into the U.S. District Court for the Eastern District of Pennsylvania and has been engaged in a series of legal battles ever since (one of which partner David Marshall has previously written about).

In this latest development, the 3rd Circuit agreed with the district court’s decision that Wiest did not sufficiently show that raising concerns about company expenses—his protected activity—was a “contributing factor” to Tyco’s decision to fire Wiest.

At issue before the court was whether Wiest could show that there was a causal relationship between his protected activity and termination. The plain language of the SOX statute allows for liability where the protected activity is merely a “contributing factor” in the decision to take adverse action. The 3rd Circuit had not previously ruled on what constitutes a contributing factor. The court utilized the 4th and 10th Circuit’s definition to conclude that a contributing factor is “any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.”

Accordingly, the panel decided that Wiest did not meet this standard, in particular because of the delay between him raising his complaints and his termination (about eight months) and other intervening factors that occurred during that time.

Wiest also raised in the appeal that it was legally inappropriate for the court to consider the facts related to the causation standard at this stage of litigation. The Court distinguished the standard for a motion to dismiss, which Wiest had already survived, and a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. The Court stated simply that on a motion for summary judgment, it was “put up or shut up” time for Wiest, and he had to show that he had enough facts to support the allegations he had made. The Court found that Wiest failed to “put up” sufficient facts.

The Sarbanes Oxley Whistleblower Causation Standard

The causation standard in SOX whistleblower actions has long been considered by courts as very favorable to whistleblowers, and cases undercutting or denying whistleblowers claims based on causation are few and far between. Under SOX requirements, where the employee proves that the protected activity was a contributing factor in the adverse employment action, the employer can only avoid liability if it proves “by clear and convincing evidence” that it would have taken the same action against the employee in absence of the protected activity. While the ramifications of the Wiest decision are only nascent, it is unlikely that the landscape of SOX litigation will be changed by the case. The “contributing factor” standard has been called a “light burden” and “broad” by the courts and is generally interpreted to be forgiving toward employees.

In light of that, the 3rd Circuit’s ruling will not necessarily lead to courts regularly finding that an employee has failed to make a showing that his protected activity under SOX is connected to his discharge. However, the true impact is yet to be fully determined. While employers may feel empowered under the reasoning in Wiest to show facts precluding causation in order to defeat a SOX claim, employers cannot circumvent its burden to show non-retaliatory reasons for taking adverse action against their employees.

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