Temple’s Leora Eisenstadt finds that employees who report workplace discrimination face a higher legal bar than those who report financial fraud.

An employee discovers evidence of financial fraud at work and reports it. Another employee comes forward to report racial discrimination.

In both cases, the employee is reporting conduct prohibited by federal law. But if they face retaliation for speaking up, the legal protections available to them can look dramatically different.

New research from Leora Eisenstadt, associate professor in the Department of Legal Studies at the Fox School of Business at Temple University and co-author Jennifer M. Pacella, associate professor in the Business Law and Ethics Department of the Kelley School of Business at Indiana University, finds that the difference extends beyond the legal protections themselves. Courts view the two groups of whistleblowers in strikingly different ways, showing greater skepticism toward employees who report workplace discrimination than those who report financial fraud.

“What we found is that the way the court talks about these kinds of whistleblowers feels very different,” Eisenstadt said. “In the fraud case, they’re laudatory, celebrating whistleblowers’ role in society as being essential to the public good and public welfare. But when it comes to discrimination, the court is exceedingly skeptical of whistleblowers, imagining them to be fakers who are inventing discrimination claims to protect themselves.”

Eisenstadt and Pacella examine this divide in The Whistleblower Perception Problem in Judicial Imagination and Treatment, forthcoming in the American Business Law Journal.

Their research compares protections for employees reporting securities fraud under the Sarbanes-Oxley Act (SOX) with retaliation protections for employees reporting discrimination under Title VII of the Civil Rights Act of 1964. The researchers found that the subject of a whistleblower’s complaint can significantly affect the legal standard they must meet when alleging retaliation.

The distinction can be complicated, but Eisenstadt offers a straightforward example.

Imagine an employee reports financial fraud and is later fired. The employer claims the termination had nothing to do with the report and instead points to the fact that the employee had also been late several times or received a poor performance review.

Under what is known as the “contributing factor” standard, the employee does not have to prove that reporting fraud was the only or the key reason for the termination. Instead, they must show that the report was one factor contributing to the employer’s decision.

Eisenstadt said the standard accounts for the reality that employers may have multiple reasons for taking action against an employee.

“Many people have something negative in their personnel record. But if you’re a fraud whistleblower, you just need to demonstrate that your report of unlawful conduct was one of the constellation of factors that led to your termination.”

That distinction matters because proving an employer’s motivation can be difficult. A company may point to poor performance, lateness or another legitimate reason for terminating an employee, even when the whistleblower’s report also played a role in the decision.

An employee alleging retaliation after reporting discrimination faces a tougher test.

Under the “but-for” standard applied to Title VII retaliation claims, the employee must demonstrate that, without the discrimination complaint, the adverse employment action would not have occurred.

“You have to show that if you hadn’t come forward with that discrimination claim, you wouldn’t have been fired,” Eisenstadt said.

That disparity is at the center of Eisenstadt and Pacella’s research. The researchers argue that it reflects not only different legal standards but fundamentally different perceptions of the people making the complaints.

In the Supreme Court’s 2024 decision in Murray v. UBS Securities LLC, the Court emphasized the important societal role played by fraud whistleblowers and endorsed the employee-friendly contributing-factor framework established by Congress.

By contrast, in the 2013 case University of Texas Southwestern Medical Center v. Nassar, the Court raised concerns about employees filing unfounded discrimination complaints to prevent or challenge legitimate employment actions. Eisenstadt and Pacella argue that the contrasting rhetoric reveals a deeper skepticism toward discrimination complainants.

The divide also appears in how courts determine whether employees reasonably believed the conduct they reported was unlawful. Under SOX, employees can receive protection when they report suspected fraud based on a genuine and reasonable belief that wrongdoing occurred, even if the conduct ultimately turns out not to violate the law. Discrimination complainants, the researchers argue, have faced a more demanding interpretation of what constitutes a reasonable belief with courts asking whether the reported conduct would be deemed unlawful by the courts.

For workers, those differences can have consequences far beyond the courtroom.

When employees see a colleague report discrimination and then lose their job, Eisenstadt said, others notice.

“The next person who experiences sexual harassment, or race discrimination, or sex discrimination is going to say to themselves, ‘I’m not coming forward, because I saw what happened to the last person, and it wasn’t good,’” Eisenstadt said. “You are clearly sending a message to people to keep quiet.”

The United States does not have one comprehensive federal whistleblower protection law. Instead, protections are spread across individual statutes, each with different requirements governing what employees report, how they report it and to whom.

Eisenstadt and Pacella argue that employees reporting discrimination should not receive weaker protection simply because of the type of unlawful conduct they expose. They propose applying the more lenient causation and reasonable-belief standards available to fraud whistleblowers to employees who report discrimination.

That change could come from the courts or Congress.

“Congress can amend that statute to specifically correct the Supreme Court,” Eisenstadt said. “Congress should say, ‘That’s not what we meant. We want these protections to look more like the protections that you’re providing under SOX.’”

For Eisenstadt, the underlying principle is straightforward: If exposing unlawful conduct serves the public good, the law should not value one whistleblower’s decision to speak up more than another’s.