Whistleblower retaliation exposes Playboy to $6 million liability

Nicholas C. Stewart
Published May 1, 2014

A federal jury recently ordered Playboy Enterprises to pay $6 million to a former accounting executive who was wrongfully terminated in retaliation for blowing the whistle internally on what she perceived was improper executive compensation.  The executive-turned-whistleblower, Catherine Zulfer, learned that the CEO and CFO intended to pay themselves $1 million in bonuses without first obtaining board approval.  Zulfer reported her concerns internally to Playboy’s general counsel and outside Securities and Exchange Commission counsel.  

The company’s CFO – to whom Zulfer reported directly – did not respond well.  The jury’s verdict suggests he stopped communicating with her, excluded her from meetings, and increased her workload.  The CFO also implemented a plan to terminate employees who had been with the company for more than 10 years.  Playboy terminated Zulfer about a year later, despite positive reviews over her 30-year career at the company.  

Zulfer filed a whistleblower lawsuit for violations of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, et seq., and for age discrimination.  The California jury returned a verdict for Zulfer and awarded her a $6 million judgment.  As part of an undisclosed settlement agreement, Zulfer voluntarily dismissed her claims for punitive damages, even though the jury found that Playboy acted with malice. 

This case serves to remind companies of the importance of taking employee concerns seriously and treating workers fairly when they have the courage to report concerns internally.  Companies that adopt best practices encourage internal whistleblowing.  They investigate employee concerns, report back to the whistleblower to the extent possible (given competing confidentiality obligations), and avoid human resources moves which might be perceived as retaliation.  

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