SW Legal studies in Business

Employee May Sue for Retaliatory Discharge for Refusing to Falsify Financial Statements
Description

Tennessee high court held that an employee has a right to sue for retaliatory discharge based on the claim that he refused to falsify financial statements in violation of federal securities law. The suit could proceed even though the employee did not report the alleged wrongdoing.

Topic Employment Law
Key Words

Retaliatory Discharge; Public Policy; Illegal Activity; Financial Reporting

C A S E   S U M M A R Y
Facts

Gossett was an Inventory Control Manager in the accounting department of Tractor Supply. He prepared inventory analyses to show the reserves the company needed each quarter to cover excess inventory. The slow-moving inventory would reduce earnings that were reported in SEC filings. Gossett claims he was told to remove products from the inventory reserve so as to artificially increase earnings. That would be a violation of securities law. Gossett refused and was fired. He sued for common law retaliatory discharge based on a violation of public policy for refusing to participate in illegal activity. The trial court dismissed the suit because Gossett did not report the alleged illegal activity to anyone. The appeals court reversed. Tractor Supply appealed to the Tennessee Supreme Court.

Decision

Affirmed. In a common law retaliatory discharge case, an employee has the burden of proving the four elements of the claim: (1) that an employment-at-will relationship existed; (2) that the employee was discharged; (3) that the reason for the discharge was that the employee attempted to exercise a statutory or constitutional right, or for any other reason which violates a clear public policy evidenced by an unambiguous constitutional, statutory, or regulatory provision; and (4) that a substantial factor in the employer’s decision to discharge the employee was the employee’s exercise of protected rights or compliance with clear public policy. Proof of a causal link between the employee’s exercise of a protected right or compliance with clear public policy and the employer’s decision to discharge the employee then imposes upon the employer the burden of showing a legitimate, non-pretextual reason for the employee’s discharge. An employee asserting retaliatory discharge arising from employer’s discharge for refusing to participate in illegal activity in violation of federal securities laws, is not required to have reported employer’s alleged illegal activity, as an element of claim. This is a change in the rule that applies in such matters under Tennessee law.

Citation Gossett v. Tractor Supply Co., ---S.W.3d--- (2010 WL 3633459, Sup. Ct., Tenn., 2010)

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