• 7th Circuit Ruling Expands Rights of Whistleblowers to Sue their Employers
  • January 23, 2012 | Authors: Bryan B. Lavine; Megan Conway Rahman; John S. West
  • Law Firms: Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Norfolk Office
  • In what has been called a “landmark ruling” in favor of whistleblower rights, the Seventh Circuit in DeGuelle v. Camilli, No. 10-2172 (7th Cir. Dec. 15, 2011), held that a former employee could bring a civil action under the Racketeer Influenced and Corrupt Organizations Act (RICO) against his former employer and several of its managers arising from his termination in retaliation for reporting a tax fraud scheme to the company and federal law enforcement agencies under the Sarbanes-Oxley Act (SOX).

    The District Court had dismissed the employee’s complaint finding that it alleged two unrelated schemes - the tax fraud and the retaliation - with different actors, motives and victims. The Court of Appeals, however, disagreed, overturning the District Court, and finding that the employee had sufficiently pled that the Company’s motivation for terminating him was retaliation for reporting the tax scheme to the authorities. Notably, the Court held that “[w]hen an employer retaliates against an employee, there is always an underlying motivation. . . . Retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower.”

    The Court acknowledged that the Company had investigated the employee’s allegations of tax fraud, even hiring an outside law firm to conduct an investigation of the claims. Moreover, the Company revoked a negative performance evaluation that was determined to be potentially retaliatory. Despite these facts, which the Court conceded were “inconsistent with a finding” that all of the defendants were participating in the same conspiracy and were “inconsistent with any alleged involvement in the tax fraud scheme,” the Court held that there were enough allegations at this stage in the proceedings to find the employee had properly alleged a pattern of racketeering activity.

    The significance of this opinion is that it substantially expands the rights of whistleblowers to sue their employers. It is one of the first decisions to hold that retaliation against an employee who reports potential criminal activity to federal law enforcement agencies is a predicate act under RICO.

    This means that a company exposes itself to a RICO claim anytime it terminates or in any other way retaliates against a whistleblower. As RICO only requires a plaintiff to prove the commission of two predicate acts, this decision may result in additional litigation from disgruntled employees who seek to tie their termination to a single alleged bad act of their employer.