Transferring Confidential Data to IRS Earns SOX Protection for Whistleblower


Not everyone can see the truth, but he can be it.

Franz Kafka 

The U.S. Department of Labor (DOL, in Vannoy v. Celanese Corporation, recently ruled in favor of a whistleblower who claimed retaliation after taking sensitive information from his employer and giving it to the Internal Revenue Service (IRS). While the decision indicates the DOL's intention to offer broad protection, it raises challenges to corporations interested in protecting their data. 

Potential tax fraud

From September 2004 until May 2005, Matthew Vannoy was a contract employee, hired through Venturi Staffing Resources to assist in reports being prepared for Celanese. Vannoy was hired by Celanese in May 2005 to be the Administrator of its U.S. Bank Visa Card Program. Vannoy's position required him to produce numerous reports where he revealed significant misstatements of company financial records and major underestimation of tax burdens. Vannoy began notifying superiors of the inaccuracies in 2007. Vannoy hired an attorney and eventually transferred data to the IRS. Two months after learning of Vannoy's cooperation with the IRS, Celanese terminated Vannoy. 

Defendant’s arguments

Celanese argued that Vannoy's taking of Personally Identifiable Information—employees' Social Security numbers—was unlawful and outside the scope of activity protected by SOX. Celanese also argued that it would have terminated Vannoy even in the absence of the protected activity because of his taking and transferring confidential data. 

The decision

The Administrative Law Judge (ALJ) concluded that Vannoy uncovered alleged accounting discrepancies and that he reasonably believed violated federal securities laws. The ALJ ruled that Vannoy only transferred sensitive data to the IRS for the purpose of supporting his IRS complaints. 

Furthermore, the ALJ held that Vannoy's protected activity caused his termination. The ALJ directed Celanese to pay $271,000 in back pay, $25,000 in emotional distress, more than $84,000 in front pay and legal fees. 

Significance to employers

Corporations have a major business interest in maintaining the confidentiality of its employee and customer data. The Vannoy decision serves as a warning to employers that an employee may transfer such sensitive data outside the company for the purpose of filing a whistleblower complaint. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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