By Glenn C. McGovern, Attorney Metairie, LA.

Employees won a three landmark decisions in the employment law area in December that are noteworthy.

Whistleblower’s Employee Wins Right to Bring Rico Suit due to Retaliation under 2002 Sarbanes-­Oxley Act (SOX) that makes it a felony to retaliate against whistleblowers who provide information on corporate fraud-­ Michael J. DeGuelle v. Kristen J. Camilli, et al No. 10-­2172 U.S.C.A. 7th Circuit issued Dec. 15, 2011.

Michael DeGuelle was an accountant/employee of S.C. Johnson & Son, Inc. who blew the whistle on a long-­‐term, complicated, alleged tax-­‐cheating scheme by S.C. Johnson & Son, Inc. He reported the underpayment millions of dollars of federal income taxes he discovered to his immediate supervisor who told him he had to think about what he was going to do. The company decided to continue with the tax fraud, not correct the company’s mistakes and then started to destroy records. DeGuelle had reported the fraud to the company’s higher officials and then finally to the IRS only after the company refused to correct the alleged fraud scheme. The scheme included taking advantage of a multi-­‐million dollar mistake in an IRS audit that was made, destroying records, and buying a tax shelter from an accounting firm, Arthur Anderson that is no longer in business. DeGuelle was terminated and even a civil suit was filed against DeGuelle awarding S.C. Johnson $50,000 in damages against DeGuelle in retaliation for giving documents to the IRS in the process DeGuelle’s reporting the fraud. The company refused to disclose the underpayment of millions of dollars of Federal taxes due the IRS. The trial court dismissed the DeGuelle suit and DeGuelle filed an appeal in proper person. The 7th Circuit Court of Appeals made the unusual decision to appoint an attorney for DeGuelle to represent him in his appeal after the trial court dismissed his retaliation and RICO claims.

In the 2002 Sarbanes-­‐Oxley Act (SOX) Congress made it a crime to, “knowingly, with intent to retaliate, take any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense. “ 18 U.S.C. 1513 (e). On page 16, of the DeGuelle opinion noted that some courts have ignored 18 U.S.C. 1513(e) and have not held that retaliation against an employee or interference with his lawful employment was not considered a racketeering act. The Seventh Circuit noted,” when an employer retaliates against and employee, there is always an underlying motivation….in this case the motivation was to retaliate against DeGuelle for disclosing the tax scheme. Retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower.” The Court noted the S.C. Johnson officials offered DeGuelle a raise and reimbursement of his attorney fees if he would sign a confidentiality agreement. The Court said this was witness "tampering" because, "it was intended to prevent DeGuelle from disclosing the company's alleged wrongdoing." The Court noted the tax counsel learned of a report DeGuelle made to the HR director (Camilli) and this joint action were part of the original conspirators agreement to conceal their fraud.

This is a landmark decision because it applied 18 U.S.C. 1513(e) which provides for an employee's private civil cause of action for obstruction of justice. The act provides for criminal penalties. The criminal penalties provided for are as set out in the Securities and Exchange Act of 1934 and are very steep. Section 32 of the Act provides significant criminal penalties for any willful violation of the law, including 20 years in prison and a $5,000,000 fine for each violation.

5th Circuit Rules for Federal Credit Union Whistleblower in Mary Evelyn Schroeder v. Greater New Orleans Federal Credit Union et al U.S.C.A 5th Circuit, No 10-­31169, issued December 19, 2011

Mary Schroeder worked for a federal credit union as a manager of collections, lending and call center departments. On about June 19 and 20, 2008, Schroeder made several phone calls to the National Credit Union Administration (NCUA) to report the possible fraud in several of the company's loans. She also called the FBI. She reported her concerns to GNOFCU's Supervisory Committee. In December 2007 Schroeder and CEO Sanders began to butt heads and Schroeder claimed Sanders dismissed her concerns over the loans. The CEO bosses assistant invited Schroeder's co-­‐worker over and learned Schroeder had called the NCUA and FBI. Within days the CEO Sanders was talking to the HR Director about how to confront Schroeder and "avoid the appearance of retaliation." Schroeder was demoted for "making negative comments that might stimulate discord" and that show "poor judgment on your part." Then they peppered Schroeder's file with employee complaints about her "attitude" and "management style." Schroeder made more complaints through her attorney, Glenn C. McGovern, who helper her make more complaints to the NCUA and FBI. Her attorney sent an email to the NCUA. A NCUA audit found that some of the GNOFCU loans were fraudulent, but the audit blamed the borrowers. On October 8, 2008, GNOFCU fired Mary Schroeder. A panel of the U.S. Court of Appeals for the Fifth Circuit ruled in favor of whistleblower Mary Schroeder on December 19, 2011. The panel reversed summary judgment and held that the jury could decide that CEO Sanders acted against Schroeder "as retaliation for her complaints to the NCUA." It also held on page 16, of the decision that a jury could decide if GNOFCU violated the Louisiana Whistleblower Protection law, La. R.S. 23:967(A). The court noted, "the state law seems to offer broader protections than the federal counterpart." Interestingly the Fifth Circuit did imply that calls to the FBI should also be protected since the FBI is under the Attorney General (see p. 12 footnote 6). However, the court did not have to decide this issue since it found that Schroeder's calls verified by cell phone records in evidence to the NCUA were sufficient for her case to proceed. The Fifth Circuit noted that Schroeder did not have any negative comments in her record before she complained about fraudulent loans and GNOFCU did not follow any policy in demoting her. This failure to follow policy "cuts in Schroeder's favor-­‐-­‐-­‐ particularly when considering that part of her poor reputation at work came from her persistence in repeatedly seeking help at all management levels with what she perceived to be fraud." The Court noted, "the timing between Schroeder's termination and her October email and letter also support a finding of causation." The Court noted "Which inference to draw about causation and questions on knowledge, are for a jury to decide." (Page 14). An amicus brief was filed by the National Whistleblower Center in the matter.

NLRB rules that employees cannot waive right to bring class actions suits -­ D.R. Horton, Inc. and Michael Cuda, Case No. 12-­CA-­25764 U.S.C.A. 7th Circuit issued January 3, 2012

National Labor Relations Board (NLRB) issued a landmark decision holding that employees have an inalienable right to bring collective and class action lawsuits. Employers have been requiring employees to sign forced arbitration agreements as a condition of employment and for employees to give up their rights to a trial as a condition of employment. Thus, the long-­‐recognize right of employees to bring collective and class actions is denied by these forced arbitration agreements. More and more companies have been demanding employees give up these rights as a condition of employment. The National Employment Lawyers Association (NELA) and the National Whistleblowers Center (NWC) filed amicus briefs. What is interesting in this case D.R. Horton Company, the employer, attempted to use the AT&T Mobility LLC v. Conception, 131 S. Ct. 1740, (2011) case which held companies can use the Federal Arbitration Act, (FAA) to block consumers from bringing class action arbitrations. In that case the Supreme Court was only examining California's attempt to hold such arbitration agreements unconscionable. The Supreme Court did not consider the effect of the National Labor Relations Act (NLRA), 29, U.S.C. § 157, which protects the rights of covered employees to act in concert for their mutual aid and protection. Eastex Inc. v. NLRB, 437 U.S. 556,566 (1978). The NLRB cited Eastex Inc. stated that:

"Section 7 "protects employees from retaliation by their employer when they seek to improve their working conditions through administrative and judicial forums." Id. at 565-­‐566.

The NLRB held the same is equally true of resort to arbitration. This decision applies to only private employers, employees in the U.S. and employees that have a right to organize a union, whether they actually have a union or not.