Tesla, Musk Are Free of Former Worker’s Whistleblower Claim

A former Tesla Inc. employee can’t pursue allegations that he was fired for reporting improper record keeping because the underlying issues were resolved through arbitration, a split federal appeals panel ruled Tuesday.

Although an arbitrator’s decision can never preclude a claim under the Sarbanes-Oxley Act, “a confirmed arbitral award can sometimes preclude relitigation of the issues underlying such a claim,” Judge Holly A. Thomas said for the US Court of Appeals for the Ninth Circuit.

Hansen’s work for Tesla included internal investigations concerning allegations of, among other things, theft, narcotics trafficking, wiretapping, and hacking, according to the opinion. After relaying this information to Tesla’s management, which Hansen says reached CEO Elon Musk, he was terminated due to alleged “internal restructuring.”

He was later hired by US Security Associates, which provides its security services to Tesla, and continued his investigations at the car manufacturer’s Nevada Gigafactory, Thomas said. He sought help from local and federal law enforcement and made a report about the alleged misconduct to the US Securities Exchange Commission. But after being spotted by Musk at the factory, Hansen said his position was eliminated and he was reassigned to a post unrelated to Tesla.

Hansen claimed that the defendants—Tesla, USSA, and Musk—breached and interfered with his employment contract and violated whistleblower retaliation protections under SOX, according to the opinion. The defendants forced arbitration, under an agreement mandating arbitration of disputes arising out of his assignment at Tesla, of all except the SOX claims, which are statutorily prevented from being subject to mandatory predispute arbitration agreements.

He later raised additional claims under the Dodd-Frank Wall Street Reform and Consumer Protection Act, but the arbitrator granted summary judgment to the defendants on all claims, Thomas said. The district court confirmed the arbitration and granted the defendants’ motion to dismiss the SOX claim.

Hansen argued that the SOX claim shouldn’t be precluded by the arbitrator’s award due to the statutory prohibition.

But Thomas pointed out that the Federal Arbitration Act contains express language giving a district court’s confirmation of an arbitrator’s decision the same effect, including the same preclusive effect, as any other federal judgment. Because Hansen failed to meaningfully differentiate his Dodd-Frank claim from his SOX retaliation allegations, preclusion was appropriate.

Hansen also failed to identify any deficiencies with the arbitrator’s procedures, was adequately represented by counsel, and was able to submit relevant evidence, Thomas said..

Judge Anthony D. Johnstone joined the opinion.

Judge Daniel P. Collins dissented in part, saying that federal common law should apply, and that it wouldn’t preclude Hansen’s SOX claim.

Brownstone PA represented Hansen. Seyfarth Shaw LLP represented Tesla and Musk. Martenson Hasbrouck & Simon LLP and Holland & Hart LLP represented USSA.

The case is Hansen v. Musk, 9th Cir., No. 23-15296, 12/10/24.