Seventh Circuit Revives Whistleblower Claim Brought Under RICO

A new federal court ruling creates an avenue for employees to rely on the Sarbanes-Oxley Act (SOX) to pursue retaliation claims under the Racketeer Influenced and Corrupt Organizations Act (RICO).

RICO was originally enacted in 1970 as a way to combat organized crime. 18 U.S.C. §§ 1961–1968. Today, RICO sets forth dozens of federal statutes that serve as "predicate acts" to support a RICO violation. Before SOX, retaliation against an employee was not considered a predicate act under RICO, and courts routinely denied RICO standing to employees terminated for refusing to cooperate in alleged racketeering activity. In 2002, Congress enacted SOX and made it a felony to retaliate against whistleblowers who provide information about corporate fraud to law enforcement officers. Although Congress also amended RICO to include retaliation under SOX as a predicate act, courts until recently have refused to recognize retaliatory discharge under SOX as a racketeering activity. In DeGuelle v. Camilli, No. 10-2172, 2011 U.S. App. LEXIS 24868 (7th Cir. Dec. 15, 2011), a federal court of appeals for the first time concluded that alleged retaliation under SOX could provide a predicate act for racketeering activity under RICO.

The Underlying Facts

In the case, a former tax employee of S.C. Johnson & Son alleged that he discovered the company had improperly received more than $5 million in foreign tax credits, beginning in 2000. He allegedly reported his concerns to his supervisor, who the employee claimed directed him to "alter or destroy records so that the errors would not be detected." The employee alleged that the pattern of fraudulent activity continued and that, on each occasion, he voiced his concerns to his supervisor and other management personnel.

In 2007, the employee met with Human Resources and claimed his supervisor was creating a "hostile work environment" and that the employee was being directed to engage in fraudulent tax practices. Human Resources investigated the allegations and hired outside counsel to conduct an internal investigation. The investigation revealed no evidence of fraud.

In 2008, the employee received a negative performance evaluation and claimed that it was "retaliation for his whistleblowing activities." While the company later rescinded the review, the employee stated that he intended to file a SOX whistleblower suit against the company with the Department of Labor. The employee alleged he was offered a severance in...