Issue 3 - 2006

Combating Employees' Destruction of Company Computer Files
The Supreme Court Expands the Scope of Employer Retaliation
Whistleblower Actions Under Sarbanes-Oxley

Employers always face the possibility that an employee with access to company electronic data deliberately will destroy that data for purposes contrary to the company's interests. The data might be destroyed as revenge against the company for failing to promote, for disciplining, etc. An employee might destroy data to protect himself/herself prior to an investigation of misconduct. An employee also might destroy data as a part of a plan to compete with the employer. The federal courts have given employers another arrow in their arsenal of potential redress for these wrongs.

In International Airport Centers, LLC, et. al. v. Citrin, a federal court decided that an employer could bring a claim against a former employee under the federal Computer Fraud and Abuse Act for deleting all data, including evidence of his own misconduct, from his company-owned laptop.

In this case, a group of affiliated real estate companies hired an employee, Citrin, to identify properties they might want to acquire. Citrin was provided a laptop in order to record the information he collected in the course of his work. While still employed, Citrin decided to quit and go into a similar business for himself in violation of his employment contract. Before returning the company laptop, Citrin deleted all the business data he had collected and all data that would reveal he had breached his employment agreement. Citrin also installed a secure-erasure program to ensure the information he deleted could not be recovered.

The real estate companies sued Citrin under the federal Computer Fraud and Abuse Act, which prohibits "knowingly" causing the transmission of a program, code or command that intentionally causes unauthorized damage to a computer. Citrin argued that merely erasing a file from a computer is not a "transmission" prohibited by the Act. The Court disagreed with Citrin. First, Citrin did more than erase a file from a computer-Citrin installed a program designed to make recovering the deleted files impossible. Second, the Court decided that the exact manner the program or command causing damage to information stored on the computer is transmitted did not matter for the purposes of the Act. The Act is meant to protect from both types of attacks: "attacks by virus and worm writers, on the one hand, which come mainly from the outside, and attacks by disgruntled programmers who decide to trash the employer's data system on the way out (or threaten to do so in order to extort payments), on the other."

The Court also decided that Citrin's deletion of the computer files was unauthorized. Citrin lost any authorization to access the company laptop when he breached his duty of loyalty to his employer by deciding to start a competing business and deciding to destroy computer files that belonged to his employer and incriminated him.

Employers should take all steps possible to maintain digital security against both external and internal attacks. One way to do that is to establish a policy clearly prohibiting employees from a variety of actions that might be injurious to the employer's interests. That policy should include a prohibition against employees permanently deleting any digital data without express authorization. For help in drafting this policy or other policies, contact the attorneys at SGI.

Federal and state law both prohibit employers from retaliating against employees who complain of workplace discrimination. While many employers know that it is unlawful to terminate or demote an employee for making such a complaint, employers should be aware that a multitude of other actions may now also constitute prohibited retaliation.

The federal courts have long disagreed about what constitutes "retaliation" under Title VII of the Civil Rights Act. In Burlington Northern and Santa Fe Railway co. v. White, ___U.S. ___ 2006; U.S. Lexis 4895 (2006), the U.S. Supreme Court settled the dispute last month by ruling that retaliation can come in forms other than an ultimate employment decision such as a demotion or termination. The Court ruled that "retaliation" includes any action that a reasonable employee would find materially adverse, meaning that it would dissuade the employee from making or supporting a charge of discrimination.

The Supreme Court pointed out that what is "materially adverse" will often depend on the particular circumstances. For instance, a change in an employee's work schedule may not make much difference to some workers, but may matter enormously to a mother with school age children. A supervisor's failure to invite an employee to lunch would be, in most circumstances, a trivial, non-actionable harm. On the other hand, the employee's exclusion from training lunches that contribute to the employees' professional advancement could constitute retaliation if it deters a reasonable employee from complaining about discrimination.

In the Burlington Northern case, the plaintiff, a forklift driver, complained of sexual harassment by her supervisor. She was then reassigned from her forklift duty to less desirable track laborer duties, which fell within the same job description. A few days later, the plaintiff was suspended without pay for alleged insubordination. The company later concluded that the plaintiff had not been insubordinate, reinstated her to her position and awarded her back pay for the time she was on suspension. Although the plaintiff did not suffer demotion or termination, the Supreme Court upheld the jury's finding of retaliation. The Court determined that the jury reasonably found that both the reassignment and the temporary suspension would have been materially adverse to a reasonable employee.

Because what is "materially adverse" depends upon the specific circumstances, it is impossible to list all employer actions which could constitute retaliation. It is clear, however, that the Court's decision will make it much easier for some employees to establish that they have suffered retaliation and will almost certainly result in more employee retaliation claims. Accordingly, it is imperative that when an employee complains of workplace discrimination, the employer and its supervisors refrain from making any changes in the employee's terms and conditions of employment which might later be construed as retaliation. When in doubt, consult your employment counsel prior to taking any action.

When can an employee claim to be a whistleblower under the Sarbanes-Oxley Act? To state a whistleblower claim under Sarbanes-Oxley, an employee must demonstrate that: (1) he or she provided information that he or she reasonably believed constitutes a violation of any SEC rule, any SEC regulation or any federal law relating to shareholder fraud; (2) that his or her employer knew the employee provided the information; (3) that he or she suffered an unfavorable personnel action; and (4) there are circumstances that suggest the provision of information was a contributing factor in the unfavorable personnel action. (Fraser v. Fiduciary Trust Co., (2006).

A Vice-President at a global investment management company claimed he was terminated due to his whistleblowing activities in violation of the Sarbanes-Oxley Act. The Vice-President alleged that after he put his manager on notice of suspected accounting misconduct, his manager started a campaign of retaliation that ended with his termination.

The Vice-President claimed he put the company on notice of possible federal law violations in several ways. First, he claimed that he sent emails to several managers stating that they were responsible for poor investment account performance because they had not followed his investment strategy advice. Second, he claimed that he told a manager via email that the New York office's decision to sell WorldCom bonds from New York-based accounts was not communicated to all accounts firm-wide, resulting in substantial losses for ERISA and trust accounts in other cities.

The Court found that the Vice President could not assert a whistleblower claim under Sarbanes-Oxley based his emails chiding managers for not following his investment advice. Those emails did not contain any information that would have alerted the company that he believed the company was violating any federal law related to fraud on its shareholders. However, the Court did allow the Vice-President to proceed on his claim based on the email regarding the failure to communicate the New York office's decision to sell its WorldCom bonds to all the firm's offices. While the Vice-President did not explicitly state that the company was violating a federal law related to fraud on its shareholders, the Court felt that the circumstances surrounding the email-namely, the fact that clients of other offices suffered losses because the decision to sell was not communicated to those offices-was enough to bring a claim.

Like many other laws protecting employee whistleblowers, Sarbanes-Oxley does not require that an employee recite any "magic words" in order to be protected. Any communication which can reasonably be interpreted as providing information that he/she believes constitutes an SEC violation or shareholder fraud will trigger the protection. Exercise caution when dealing with complainers!