Last month I wrote about DeGuelle v. Camilli, 664 F.3d 192 (7th Cir. 2011), the potentially landmark Seventh Circuit decision allowing a whistle-blower’s RICO case against his former employer to proceed.  The case was predicated upon Mr. DeGuelle’s alleged firing in retaliation for his blowing the whistle to the Feds about his employer’s pattern of filing false tax returns.   A bit of further discussion is needed to understand what constitutes a “whistle-blower” under 18 U.S.C. 1513(e), the section of the Sarbanes-Oxley Act made a type of “racketeering activity” in 2002 enabling Mr. DeGuelle to assert his RICO claim.  That section forbids an employer from retaliating against an employee (i.e., interfering with the terms of his or her employment by firing, demotion, suspension, etc.) after the employee “provid[es] to a law enforcement officer any truthful information relating to the commission of a federal offense.”  A different section of the statute defines “law enforcement officer” as a federal employee authorized to investigate or prosecute violations of federal law.  So the employee must actually report something to a “law enforcement officer,” the employer must know that the employee has done so, and the employer must thereafter retaliate against the  employee for blowing the whistle.

Complaints to an employer about possible illegal behavior or threats to report illegal behavior are not enough.  The employee must report it.  And the report must concern the violation of a federal law and be made to a federal official, such as the F.B.I., I.R.S., U.S. Attorney’s office, the Department of Homeland Security (overseeing immigration law), the Department of Labor (overseeing Sarbanes-Oxley Act violations), or some other federal agency.  Reporting a state law crime to a state or local official such as the police do not count.  (Although some state RICO laws have corresponding provisions which cover reports to state and local law enforcement officials.)

Mr. DeGuelle reported his employer’s alleged violations of the Sarbanes-Oxley Act to the Department of Labor.  He was subsequently fired.  He claims the firing was retaliatory.  His employer claims he was fired for violating company rules prohibiting the disclosure of confidential information to third parties. (This raises a catch-22.  How can an employee report a federal crime if his employer prohibits doing so?  And is the employer with such a rule then within its rights to terminate the employee without being subjected to a charge of retaliation?   I will not sort this out here.)  A jury in Wisconsin will ultimately decide who to believe.  Ironically, after receiving DeGuelle’s report, the Department of Labor responded by telling him his employer was not subject to Sarbanes-Oxley Act and took no action.  But this did not undermine his retaliation claim.  1513(e) does not require that the law enforcement officer do anything after receiving the employee’s report. In fact, the employer could be vindicated and the employee would still have a valid retaliation claim if he was punished for making the report.  1513(e) was enacted to encourage whistleblowers to come forward.  It does not require they be right.

Potential RICO plaintiffs must also keep in mind that a single RICO violation is never enough for a civil RICO case.  The statute requires at least two violations, but even two is usually insufficient.  A “pattern of racketeering activity” is needed. .  As I stated last month, Mr. DeGuelle cleverly combined his employer’s alleged racketeering activity about which he blew the whistle, tax frauds made to the I.R.S., with his own retaliatory firing, to create a pattern.  The District judge rejected that construction, believing they were unrelated “schemes.”  But the Seventh Circuit agreed with Mr. DeGuelle’s description of all of the acts as a single scheme in which all of the violations, the tax frauds, were related to his firing.  He categorized the firing as a “cover up” of the crimes, thereby tying them together, at least for pleading purposes.

Potential whistle-blowers should document their acts carefully.  If they complain to a federal law enforcement officer, they need to know who they spoke to, and which agency that person works for.  Then if they are subsequently retaliated against, they must have some basis for alleging the retaliation was indeed retaliation for the whistle-blowing and not for a legitimate cause.  Sometimes employers will tell an employee why they are being terminated.  Sometimes they will not.  Generally, under the employment at will doctrine, an employer can fire an employee for any reason or no reason.  But an employee whose employment contract requires cause for termination or demotion should demand to know why they are being let go.  In such cases, there is often a pretextual reason given.  A whistleblower with a good RICO lawyer should be able to do what Mr. DeGuelle did, craft a complaint which highlights the real (in his view) reason for his termination.