Dodd-Frank's Ambiguous Definition of "Whistleblower" Construed Broadly to Favor Employee Protection

by Allen B. Roberts, Frank C. Morris, Jr., and Michael J. Slocum

In what has been reported to be the first decision permitting a retaliation claim under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) to survive dismissal, the U.S. District Court for the District of Connecticut (“Court”) has adopted a broad view of who qualifies as a “whistleblower” under that law. The Court rejected an employer’s request for a literal construction of Dodd-Frank’s definition and protection of whistleblowers, and instead relied upon what it saw as an ambiguity in the statutory language to endorse the Security and Exchange Commission’s (“SEC” or “Commission”) Final Rule implementing the whistleblower provisions of Dodd-Frank (“Final Rule”) that liberally expands protections to individuals who do not fit within the statutory definition of “whistleblowers.” In Kramer v. Trans-Lux Corp., 11-cv-01424 (D. Conn. Sept. 25, 2012), the Court declined to dismiss the lawsuit of an employee who claimed a “reasonable belief” of a “possible” securities law violation governed by the Sarbanes-Oxley Act but did not follow explicit statutory procedures for reporting it. 

Kramer’s broad interpretation of Dodd-Frank’s whistleblower protection provisions may not carry the day upon review by a Circuit Court of Appeals and in other district courts, but for now, it can be anticipated that employees claiming retaliation under Dodd-Frank will point to Kramer (and to two other supportive district court cases that themselves did not advance for other reasons) in an effort to survive motions to dismiss.  

Kramer Claimed That He Was Fired in Retaliation for Disclosing Alleged Violations of Trans-Lux’s Employee Pension Plan to the Company’s Board and the SEC          

Richard Kramer had been the Vice President of Human Resources and Administration of Trans-Lux Corp. (“Trans-Lux”) for nearly two decades. Among his responsibilities were managing his employer’s relationship with the firm, overseeing the company’s ERISA-governed employee pension plan, ensuring compliance with applicable laws and regulations, and serving as plan fiduciary. 

According to Kramer’s lawsuit, starting in March 2011, he began to voice a number of alleged concerns regarding composition of the pension plan committee, potential conflicts of interest in the administration of plan investment funds, and required approval and filing of plan amendments and reports. After raising his concerns with the CFO to whom he reported and the CEO, Kramer notified the audit committee of Trans-Lux’s board of directors in May 2011, and followed that with a letter to the SEC. Kramer claims that he began receiving letters of reprimand within hours of sending his communication to the audit committee and that a loss of support and stripping of job responsibilities followed. In July 2011, Trans-Lux announced that July 22, 2011, would be the last day of employment for all human resources personnel, including Kramer.

Kramer sued under, among other statutes, Dodd-Frank’s whistleblower protection provisions, codified at 15 U.S.C. § 78u-6, alleging that he had been terminated in retaliation for reporting his concerns about the company’s pension plan.

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Minimum Pleading Standard for Whistleblower Cases Reset - ARB Rejects Supreme Court's "Plausibility" Standard, Holds "Fair Notice" Is Sufficient for Administrative Complaints to Survive Dismissal Motion, and Gives Complainant a Chance to Amend

by Allen B. Roberts, Stuart M. Gerson, Frank C. Morris, Jr., and Michael J. Slocum

Our previous postings have noted the progression of decisions during the past two years by the U.S. Department of Labor (“DOL”) Administrative Review Board (“ARB”) that have liberally expanded substantive provisions of whistleblower statutes under its jurisdiction. Now, the ARB has enabled whistleblowers to maintain their administrative complaints and survive dismissal in circumstances where recital of the factual bases of their claims would be fatally deficient if filed in federal court instead of a DOL administrative proceeding. The currently constituted ARB has rejected the heightened pleading standards, announced by the U.S. Supreme Court and applicable in federal district courts, requiring that a complaint set forth sufficient factual allegations to “state a claim to relief that is plausible on its face.” Instead of that judicial standard, the ARB has elected to require that an administrative whistleblower complaint filed before the Occupational Safety and Health Administration (“OSHA”) and the DOL’s Office of Administrative Law Judges (“OALJ”) need only “give ‘fair notice’ of the protected activity and adverse action” in order to withstand a motion to dismiss; and complainants are afforded “sufficient opportunity to amend or supplement” a complaint that does not measure up in the first instance. Evans v. U.S. Environmental Protection Agency, ARB Case No. 08-059 (July 31, 2012).     

The new standards announced in Evans articulate the legal standard for analyzing the sufficiency of complaints, lowering the hurdle that a whistleblower must clear to bring a claim for retaliation under the twenty-one federal statutes administered by OSHA, meaning employers will likely find it increasingly difficult to obtain early dismissal of claims that lack merit on their face.

Evans Claimed EPA Exposed Employees to Excessive On-the-Job Hazards, and Retaliated Against Him for Complaints About the Practice.          

The vehicle for the ARB’s pronouncement is a case brought against the U.S. Environmental Protection Agency (“EPA”), the governmental agency responsible for enforcement of various environmental laws.  The EPA hired Douglas Evans as an Environmental Protection Specialist in Las Vegas, Nevada. In 2004, Evans wrote to the EPA Administrator, claiming that EPA had forced employees to participate in emergency response duties without adequate experience, and had assigned employees hazardous duty responsibilities that were not part of their previous job descriptions. Accusing Evans of making threats of violence at work, the EPA suspended him in May 2006, and Evans then filed a complaint with OSHA alleging retaliation in violation of several federal employee protection laws administered by OSHA, including the Clean Air Act, the Comprehensive Environmental Response, Compensation, and Liability Act, and the Safe Drinking Water Act. During the next roughly sixteen months, Evans filed a series of amended complaints, each of which alleged a further retaliatory action taken in response to the preceding complaint. 

In March 2008, an Administrative Law Judge (“ALJ”) dismissed Evans’ complaint, concluding that he had not alleged facts demonstrating that he had engaged in any protected activity under the various laws he cited. The ARB affirmed in April 2010, holding that Evans’ complaint had failed to state a claim under the standards articulated by the Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). In the Iqbal/Twombly decisions, the Supreme Court had held that in order to survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff in federal court must allege sufficient facts to state a claim “that is plausible on its face.” 

Dissatisfied with the ARB’s determination, Evans sought review by the Ninth Circuit Court of Appeals, but the DOL moved to return the case to the ARB because the ARB’s 2010 dismissal of Evans’ case could be altered by applying the 2011 decision by a differently constituted ARB in Sylvester v. Parexel Int’l, LLC, ARB Case No. 07-123 (ARB May 25, 2011). In Sylvester, a case brought under the whistleblower protection provisions of the Sarbanes-Oxley Act of 2002 (“SOX”), the ARB stated that “Rule 12 motions challenging the sufficiency of the pleadings are highly disfavored by the SOX regulations and highly impractical under the [OALJ] rules.” The Court granted the DOL’s unopposed motion and remanded Evans’ case for the ARB to reconsider the applicability of the Iqbal/Twombly decisions to an OSHA whistleblower complaint.

ARB Holds Iqbal/Twombly Federal Court Pleading Standards Inapplicable to Administrative Whistleblower Complaints, Adopts a “Fair Notice” Standard Instead.

The ARB began by reiterating its observation in Sylvester that litigation in the federal courts “materially differs” from litigation of administrative whistleblower complaints filed for investigation by OSHA, a procedural prelude to the OALJ adjudicatory process, commenced if a party files objections to an OSHA determination and requests a hearing with the OALJ. The ARB’s revised position is that whistleblower complaints “are informal documents that initiate an investigation” and are “often filed by a complainant acting without the assistance of counsel.” Furthermore, the ARB reasoned, “OSHA regulations expressly allow for investigatory complaints to evolve into complaints containing a prima facie claim of discrimination” and “an ALJ should not act on a Rule 12 facial challenge until it is clear that the complainant has filed a document that articulates the claims presented to the OALJ for hearing following OSHA’s findings.” 

Pointing to its Sylvester decision, the ARB therefore again deemed the “plausibility” standards required by Iqbal/Twombly and previously applied by the ARB to Evans’ case to be “inappropriate given the nature of the administrative whistleblower complaint process.” Rather, the ARB concluded that “administrative whistleblower complainants that give ‘fair notice’ of the protected activity and adverse action can withstand a motion to dismiss for failure to state a claim.” The ARB described the de minimis detail required:

[I]n deciding a Fed. R. Civ. P. 12(b)(6) facial challenge, fair notice is the proper legal standard for any complaint filed by the complainant or required by the ALJ in administrative whistleblower proceedings before the DOL. More specifically, a sufficient statement of the claims need only provide (1) some facts about the protected activity, showing some “relatedness” to the laws and regulations of one of the statutes in our jurisdiction, (2) some facts about the adverse action, (3) a general assertion of causation and (4) a description of the relief that is sought.

The ARB then turned to Evans’ challenge that the ALJ had not permitted him an opportunity to amend his complaint prior to dismissing it, and found the ALJ’s decision on this point to have been in error. The ARB stressed the “need for an ALJ to liberally provide a whistleblower complainant an opportunity to amend” and “emphasized” its view that “the assessment of facial challenges to whistleblower complaints must be conducted in a manner consistent with informal administrative procedures.” The ARB opined that:

Given the informal nature of an investigatory complaint filed with OSHA, and the absence of a regulatory requirement that supplemental information be forwarded to the OALJ on the filing of objections and request for hearing under 29 C.F.R. § 24.105(b), it is reasonable and prudent to expect ALJs to provide a complainant an opportunity to amend the complaint with additional factual information …. The ALJ should not dismiss a complaint for failure to state a claim until he or she has allowed the complainant a sufficient opportunity to amend or supplement the claim(s) contained in the complaint.

Because the ALJ had not afforded Evans such an opportunity, the ARB remanded.

Evans Marks ARB’s Further Complainant-Friendly Moves Away From Supreme Court Precedent.    

By reversing itself and rejecting the minimal pleading standards articulated by the Supreme Court in Iqbal/Twombly, the ARB has significantly lowered the threshold procedural hurdle that a whistleblower complainant must clear. Under Evans, rather than alleging sufficiently detailed facts to state a claim that is “plausible on its face,” a whistleblower complainant need only meet a far more lenient standard: (1) “some facts” about the protected activity showing “some ‘relatedness’” to a statute providing protection, (2) “some facts” about an adverse action taken by the employer, (3) a “general assertion” that these are causally related, and (4) a demand for relief.

Seen as part of a continuum, the ARB’s reversal of its prior Evans decision now adds a procedural foothold to the ARB’s steady expansion of substantive protections discussed in several prior postings, such as Sarbanes-Oxley Whistleblower Coverage Expanded by Department of Labor to Private Firms Serving Publicly Traded Companies, ARB Adopts Expansive View of Protections Afforded Whistleblowers Under the Consumer Product Safety Improvement Act, and Expansion of Protected Activity Under Sarbanes-Oxley Continues. The new Evans opinion will allow whistleblower complainants to secure administrative adjudication of their cases and survive dismissal they would encounter if similar pleadings were filed in federal court.  Federal court litigation is an alternative avenue generally available to whistleblower complainants under various statutes if administrative processes do not yield a final DOL decision within a specified time after a complaint is filed with OSHA (e.g., 365 days for Evans’ environmental claims; 180 days for SOX claims).

As with other ARB decisions altering precedent and expectations of employers, the ARB’s new revisionist interpretation of the pleading requirements for administrative whistleblower complaints will be subject to challenge by way of federal appellate court review.       

OSHA's Final Rule Implementing Whistleblower Protections of Surface Transportation Assistance Act Impacts Employers That Own, Lease, or Operate Commercial Motor Vehicles

by Allen B. Roberts and Michael J. Slocum

Under a final rule (“Final Rule”) issued by the Occupational Safety and Health Administration (“OSHA”), commercial motor carriers that own or lease a vehicle in a business affecting interstate commerce or assign employees to operate such a vehicle are impacted by Surface Transportation Assistance Act of 1982 (“STAA”) whistleblower protections available to drivers of commercial motor vehicles (including independent contractors when personally operating a commercial motor vehicle), mechanics, and freight handlers, as well as others who directly affect commercial motor vehicle safety or security in the course of employment. OSHA explained that the Final Rule, issued and published in the Federal Register on July 27, 2012, implements amendments to the STAA made by the Implementing Recommendations of the 9/11 Commission Act of 2007 (the “9/11 Commission Act”), and also seeks to “clarify and improve OSHA’s procedures for handling STAA whistleblower claims, as well as to set forth interpretations of STAA.”  

We highlight some significant features of the revised regulations:

·         Protected Activity Expanded – Prior to passage of the 9/11 Commission Act, STAA’s whistleblower provision had extended only to certain activities regarding commercial motor vehicle safety. The 9/11 Commission Act expanded that protection to activities regarding commercial motor vehicle security as well.

·         Burden of Proof Relaxed – Before passage of the 9/11 Commission Act, whistleblower complaints under the STAA were analyzed using the burden-shifting framework applicable to claims under Title VII of the Civil Rights Act of 1964. Under that framework, once a complainant established a prima facie case of discrimination, an inference of retaliation arose and the burden shifted to the employer to demonstrate evidence of a legitimate and non-retaliatory motivation. If an employer satisfied this requirement, the burden shifted back to the complainant to show by a preponderance of the evidence that the employer’s proffered motivation was only a pretext for retaliation. The 9/11 Commission Act, however, replaced this burden-shifting analysis with the less stringent framework established by the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR21”). Under the AIR21 structure, which is applicable also to several other statutes, including the Sarbanes-Oxley Act, the Consumer Product Safety Improvement Act, the Food Safety Modernization Act, and the Consumer Financial Protection Act, a complainant’s burden is met by demonstrating only that the protected activity was a “contributing factor” to the adverse employment action; once that burden is carried, to defend and avoid liability, an employer must produce “clear and convincing” evidence that it would have taken the adverse employment action absent the whistleblower’s alleged protected activity.

·         Remedies Expanded – In addition to prior remedies of reinstatement and backpay, the 9/11 Commission Act allows whistleblowers to be awarded interest on backpay as well as compensation for any special damages sustained as a result of unlawful discrimination, including litigation costs, expert witness fees, and reasonable attorneys’ fees, plus punitive damages of up to $250,000.

·         Access to Federal Courts for Jury Trial – While the filing of a complaint with OSHA remains a requirement for pursuit of an STAA whistleblower claim of retaliation, the complainant may elect to discontinue the administrative action and proceed instead in a U.S. district court, with the right to a jury trial, if there has not been a final Department of Labor decision within 210 days after the administrative filing and the delay is not due to the complainant’s bad faith.

·         Waivers Not Effective – Rights and remedies of STAA whistleblowers may not be waived by any agreement, policy, form, or condition of employment.

·         Filing Liberally Construed – For purposes of determining whether there has been a timely filing within the STAA’s 180-day statute of limitations, a complaint will be considered ‘‘filed’’ onthe date of postmark, facsimile transmittal, electronic communication transmittal, hand delivery, delivery to a third-party commercial carrier, in-person filing at an OSHA office—and even a telephone call. No particular form is required for the filing of a complaint; oral complaints will be reduced to writing by OSHA, and OSHA will accept complaints in other languages if the complainant is unable to file a complaint in English.

The significant changes evident in the Final Rule show that employers operating businesses covered by the STAA should assess its impact on their existing policies and procedures—and any potential whistleblower complaints that may be facilitated by it.  


District Court Holds That Dodd-Frank's Extension of Sarbanes-Oxley Whistleblower Protection to Employees of Subsidiaries of Public Companies Applies Retroactively

by Allen B. Roberts, Frank C. Morris, Jr., Stuart M. Gerson, and Michael J. Slocum

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) extended Sarbanes-Oxley’s whistleblower protection provision beyond employees of publicly-traded companies to reach the employees of their privately-held subsidiaries as well.  Reasoning that this extension was “a clarification of Congress’s intent with respect to the Sarbanes-Oxley whistleblower provision,” a federal court held that the extension applies retroactively to cover whistleblowers whose claims arise from events predating the Dodd-Frank amendments. Leshinsky v. Telvent GIT, S.A., No. 10-4511, (S.D.N.Y. July 9, 2012).

Although expanding employers’ exposure to retaliation claims at the margins, the practical impact of the Leshinsky decision will likely be minimal given the 180-day limitations period applicable to whistleblower claims under Sarbanes-Oxley. In other words, the decision should not revive claims by employees of privately-held subsidiaries who have not already filed and are therefore beyond the limitations period.                

Plaintiff Claimed Retaliation for Objecting to Proposed Fraud in Obtaining a Government Contract  

Phillip Leshinsky had been employed by two privately-held subsidiaries of the publicly-traded firm Telvent GIT, S.A. He was terminated in July 2008, and filed a claim under the whistleblower protection provisions of Sarbanes-Oxley Section 806, claiming that he had been fired in retaliation for having objected to a proposal to use fraudulent information in a bid to win a contract with the New York Metropolitan Transit Authority. 

Defendants argued that because Leshinsky had been an employee of Telvent GIT’s privately-owned subsidiaries, rather than a direct employee of the publicly-traded parent, Section 806 did not apply. Plaintiff countered that Dodd-Frank’s 2010 amendments, expanding the scope of Section 806 to cover not only employees of publicly-traded companies but also the employees of their privately-held subsidiaries, applied retroactively to afford him protection.                     

Court Agreed with ARB that Dodd-Frank’s Amendments to Sarbanes-Oxley Are Retroactive

District Judge J. Paul Oetken agreed with Plaintiff. Citing the Department of Labor, Administrative Review Board’s (“ARB”) decision in Johnson v. Siemens Bldg. Tech., Inc., ARB No. 08-032 (ARB March 31, 2011), Judge Oetken reasoned that Congress’s amendment to Section 806 was “a mere clarification of the previous statute, intended to make ‘what was intended all along ever more unmistakably clear.’” The court pointed to aspects of Dodd-Frank’s legislative history in support of its conclusion, including the Senate Report accompanying its enactment that referred to the amendment as a “clarification” of Section 806. The court also concluded that retroactive application was consistent with Congress’s evident intention, through Sarbanes-Oxley, “to provide protection for whistleblowers at all levels of a public company’s corporate structure, and not solely for those who were employed directly by the public entity itself.” In so concluding, Judge Oetken chose not to follow the contrary holding in Pezza v. Investors Capital Corp., 767 F.Supp. 2d 225 (D. Mass. 2011).

The Leshinsky decision may well result in a marginal increase in employers’ exposure to retaliation claims under Sarbanes-Oxley, but that increase is likely to prove minimal in practice. Even if other courts follow Judge Oetken’s lead and conclude that Dodd-Frank’s amendment to Section 806 applies retroactively, nonetheless an employee should be required to comply with Sarbanes-Oxley’s 180-day limitations period. Claims by employees of privately-held subsidiaries arising from events predating Dodd-Frank and that have not already been filed should be time-barred, and the decision in Leshinsky should not revive them.

District Court Holds That Dodd-Frank Whistleblower Protection Does Not Have Extraterritorial Reach--Longstanding Presumption Against Extraterritoriality May Also Apply to Other Statutes

by Allen B. Roberts and Michael J. Slocum

Global whistleblowers cannot look to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) for protection against retaliation, according to a recent federal court decision.  Taking an important step towards clarifying the reach of Dodd-Frank, and potentially impacting other statutes having similar provisions, the court ruled that the “Anti-Retaliation Provision” protecting whistleblowers under Dodd-Frank does not apply outside the territorial United States. Asadi v. G.E. Energy (USA), LLC, No. 12-345 (S.D. Tex. June 28, 2012).

The decision may prove to be a powerful weapon in employers’ defensive arsenal against claims of retaliation by employees working outside the United States. Not only does the decision articulate a compelling rationale for limiting Dodd-Frank’s whistleblower protections to the territorial United States by reaffirming precedents establishing a presumption of non-extraterritoriality, but it also provides a guide to courts considering the foreign applicability of other whistleblower statutes.              

Plaintiff Claimed Retaliation for Reporting Potential Violations of the Foreign Corrupt Practices Act  

Khaled Asadi, a dual citizen of Iraq and the United States, had been employed in Amman, Jordan, by a General Electric Company (“GE”) subsidiary—G.E. Energy (USA), LLC—as the GE-Iraq Country Executive responsible for securing and managing energy service contracts between GE and various Iraqi governing bodies.  In connection with the negotiation of a joint venture agreement with the Iraqi Ministry of Electricity in June 2010, Asadi was advised that GE had hired a woman “closely associated” with the Senior Deputy Minister in an apparent effort “to curry favor with the Minister while negotiating a lucrative Joint Venture Agreement.” Concerned that, if true, the allegations might constitute a violation of both company policies and the Foreign Corrupt Practices Act (“FCPA”), Asadi reported the situation to his superiors and was interviewed by GE’s ombudsperson. 

Asadi alleged that:

·        “shortly after his interview,” he received a “surprisingly negative” performance review that “did not identify specific performance issues or give him the opportunity to correct or improve his performance”;

·        he was subjected to “pressure to step down” or to accept “a reduced role in the region with little or no responsibility”;

·        GE initiated “constant and aggressive severance negotiations”; and

·        on June 24, 2011, GE abruptly ended discussion with him and terminated his employment.              

Court Finds No Congressional Intent to Extend Dodd-Frank’s Private Whistleblower Protection Extraterritorially

Asadi filed a lawsuit under one of the whistleblower anti-retaliation provisions of Dodd-Frank, 15 U.S.C. § 78u-6(h)(1)(B)(i), asserting that his employment termination was in retaliation for reporting potential FCPA violations. The court’s analysis focused on the U.S. Supreme Court’s “longstanding principle” that “unless there is the affirmative intention of the Congress clearly expressed to give a statute extraterritorial effect, we must presume it is primarily concerned with domestic conditions.” In other words, “When a statute gives no clear indication of an extraterritorial application, it has none.” Looking to the language of Dodd-Frank, the court found no such indication of extraterritorial application.

The court noted three reasons for not extending the reach of the Dodd-Frank Anti-Retaliation Provision: (i) the statute is silent regarding extraterritorial application to whistleblowers; (ii) in contrast, it expressly confers limited extraterritorial jurisdiction over certain enforcement actions brought by the Securities and Exchange Commission (“SEC”) or federal authorities; and (iii)  the statute directs further public comment and SEC study on whether private anti-fraud actions should be extended to include conduct or transactions outside the United States. The court concluded that these provisions evince a Congressional intention that a private right of action under Dodd-Frank’s Anti-Retaliation Provision does not have extraterritorial reach. 

The court also rejected Asadi’s arguments to extend the reach of Dodd-Frank’s whistleblower protections beyond U.S. shores on a theory that his reports implicated the provisions of the Sarbanes-Oxley Act of 2002 (“SOX”) and the FCPA. Citing precedents that limit SOX to the territorial United States and finding no provision within the FCPA that protects or requires an internal report of alleged bribery, the court concluded that neither SOX nor the FCPA provides Asadi a basis for statutory protection.      

Consideration of Dodd-Frank Protection of Whistleblowers Reserved for Another Day—and Another Case

Because it disposed of Asadi’s claims on extraterritoriality grounds, the court found it unnecessary to opine on the important issue of whether activity like Asadi’s could eventually qualify for Dodd-Frank whistleblower protection.  The Dodd-Frank section analyzed by the court expressly defines a “whistleblower” as an individual who provides information relating to a violation of the securities laws to the SEC in a manner established by SEC rule or regulation. 15 U.S.C. § 78u-6(a)(6). Asadi could not fit within the statutory definition of a “whistleblower” under Dodd-Frank because he had not made his reports to the SEC. Nevertheless, he claimed that he was entitled to invoke Dodd-Frank whistleblower protection for two additional reasons, even though he had not complained to the SEC. Asadi asserted Dodd-Frank coverage because SOX protects internal communications to a supervisor or someone with authority to investigate, discover, or terminate misconduct and because the SEC has jurisdiction over FCPA violations. Thus, he argued that Dodd-Frank should be read to confer statutory protection on him as a “whistleblower” making disclosures that are “required or protected” under SOX; the Securities Exchange Act of 1934; a law, rule, or regulation subject to the jurisdiction of the SEC; or a federal criminal statute outlawing intentional retaliation against individuals who provide truthful information to law enforcement officers relating to the commission or possible commission of any federal offense. The court cited two district court decisions giving a liberal reading to the broadened construction advocated by Asadi. However, because it disposed of Asadi’s claims on the basis of extraterritoriality, the court did not express its own opinion on the issue—leaving that question open for another day or another court.

Decision Provides Guide to Determining Extraterritorial Application of Whistleblower Statutes Beyond Dodd-Frank   

The court’s conclusion concerning the extraterritoriality of Dodd-Frank is unequivocal: “The Court holds that Dodd-Frank’s Anti-Retaliation Provision per se does not apply extraterritorially.” Thus, Asadi stands as a powerful defense against Dodd-Frank claims of retaliation brought by employees working outside the United States.   

Moreover, the Asadi court laid out a guide for other courts asked to determine the extraterritorial applicability of whistleblower provisions in statutes other than Dodd-Frank. With increased global prominence of whistleblower issues and particular focus on existing and expanded legislation, employees and the plaintiffs’ bar are exploring the limits of whistleblower protections in numerous industries and under an array of statutes. By reaffirming the Supreme Court’s “longstanding principle” of presumptively domestic application, Asadi has given employers accused of retaliation by their foreign employees a basis for saying that individual employment protections must be determined by the law applicable in the country of employment.

Sarbanes-Oxley Whistleblower Coverage Expanded by Department of Labor to Private Firms Serving Publicly Traded Companies - Accountants, Lawyers, Consultants, and Advisors, Beware!

by Frank C. Morris, Jr., and Allen B. Roberts

The U.S. Department of Labor (“DOL”) Administrative Review Board (“ARB”) has sounded an alarm that needs to be heard by accounting firms, law firms, and other consultants, advisors, and providers of services to publicly traded companies.  With its recent decision in Spinner v. David Landau & Associates, LLC, ARB Case Nos. 10-111, 10-115 (May 31, 2012), the ARB continued its expansion of whistleblower protection, holding that Sarbanes-Oxley (“SOX”) whistleblower protections extend to employees of privately held businesses that merely contract with publicly traded companies.  The ARB’s decision significantly expands the number and type of organizations whose employees it says are covered by SOX whistleblower protections.  But the result was accomplished by direct rejection of the opposite conclusion reached by the U.S. Court of Appeals for the First Circuit in its well-reasoned recent decision in Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012).  While this is not the first instance of contrasting administrative and judicial interpretations of the definition and reach of SOX protections, it clearly indicates the current climate in which a wide swath of employers need to reassess their compliance programs, provisions for receipt of whistleblower reports, and procedures for addressing claims and avoiding retaliation.

For a complete analysis of this decision, see our HEAL Advisory.

New FINRA Rule Confirms That Whistleblower Claims Need Not Be Arbitrated

Written by Lauri F. Rasnick

Before the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) was enacted, whistleblower claims by registered representatives, including those arising pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) were subject to mandatory arbitration at FINRA. See FINRA Notice 12-21 (PDF). Dodd Frank changed that. Dodd Frank specifically amended SOX to provide that “[n]o dispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” In addition, SOX was also amended to provide that rights and remedies provided for in the statute cannot be waived, including by having a predispute arbitration agreement. In order to be consistent with SOX and to make it clear that FINRA will not require the arbitration of other similar statutory claims, as of May 21, 2012, FINRA amended Rule 13201 of the Code of Arbitration Procedure for Industry Disputes (the “FINRA Code”) to address the arbitrability of statutory whistleblower claims.

Prior to the amendment, Rule 13201 made it clear that statutory employment discrimination claims were not subject to mandatory arbitration unless the parties to the dispute specifically agreed to arbitrate such claims. See FINRA Rules 13201 and 13802: Arbitrating Statutory Employment Discrimination Claims.

In that regard, Rule 13201 of the FINRA Code (PDF) provided:

A claim alleging employment discrimination, including sexual harassment, in violation of a statute, is not required to be arbitrated under the Code. Such a claim may be arbitrated only if the parties have agreed to arbitrate it, either before or after the dispute arose. If the parties agree to arbitrate such a claim, the claim will be administered under Rule 13802.

Rule 13201 has now been supplemented with regard to statutory whistleblower claims: “a dispute arising under a whistleblower statute that prohibits the use of predispute arbitration agreements is not required to be arbitrated under the Code. Such a dispute may be arbitrated only if the parties have agreed to arbitrate it after the dispute arose.”

It should be noted that unlike Rule 13201’s provision regarding statutory discrimination claims, FINRA’s new provision regarding whistleblower statutes only covers claims arising under those whistleblower statutes that prohibit the use of predispute arbitration. Accordingly, whistleblower claims that arise under laws with no such limitations may still be subject to mandatory arbitration before FINRA. In addition, unlike statutory discrimination claims which parties can agree to arbitrate before or after a dispute arises, covered whistleblower claims may only be arbitrated if the parties agree after the dispute arises.

Together with the change to Rule 13201, FINRA revised the disclosure requirement for registered representatives signing new or amended Form U4s. See FINRA Rule 2263 (PDF). FINRA’s new disclosure form explicitly sets forth that certain statutory whistleblower claims are not required to be arbitrated.

What employers should do now?

  • Review arbitration agreements. Employers should make sure that their current or proposed arbitration agreements do not include SOX claims or claims under other whistleblower laws that prohibit predispute arbitration. Employers should keep in mind, however, that predispute arbitration agreements may still require the arbitration of statutory employment discrimination claims. While there are pros and cons of arbitration, employers who wish to require it for employment discrimination claims should make sure to draft the inclusion of such claims into an arbitration agreement specifically.
  • Use the New Disclosure Form. When registered representatives sign new or amended Form U4s, they should be given the revised FINRA disclosure form pursuant to Rule 2263.
  • Review policies and employment agreements. Employers should review their written policies and outstanding employment agreements to determine whether any policy or contract is too broadly drafted and could be interpreted to include the prohibited whistleblower claims.

OSHA Announces Creation of the Whistleblower Protection Advisory Committee, In Effort to Improve Efficiency and Transparency of Whistleblower Protection Program

The Occupational Safety and Health Administration (“OSHA”) announced in a May 17, 2012 notice published in the Federal Register that it will establish a Whistleblower Protection Advisory Committee (“Committee”) in an effort “to improve the fairness, efficiency, effectiveness, and transparency of OSHA’s whistleblower protection activities.” Creation of the Committee follows OSHA’s March 2012 reorganization providing for direct reporting to the Department of Labor’s Office of the Assistant Secretary, and further evidences the agency’s intention to devote increased efforts and resources to this area in the future. 

Committee Will Make Recommendations to the Secretary of Labor, Hold Public Meetings

The Federal Register announcement explained that the Committee’s “duties will be solely advisory and consultative.” The Committee “will advise, consult with, and make recommendations to the Secretary [of Labor] and the Assistant Secretary [of Labor for Occupational Safety and Health] on ways to improve the fairness, efficiency, effectiveness, and transparency of OSHA’s whistleblower protection activities.” 

In particular, the Committee will be asked to make recommendations in several key areas:

  • Better customer service to both workers who raise complaints and employers who are the subject of investigations
  • Improvement in the investigative and enforcement process, and the training of OSHA investigators
  • Improvement of regulations governing OSHA investigations
  • Cooperative activities with federal agencies responsible for areas also covered by the whistleblower protection statutes enforced by OSHA
  • Other matters concerning the fairness, efficiency and transparency of OSHA’s whistleblower investigations as identified by the Secretary or Assistant Secretary

The Committee will be governed by the Federal Advisory Committee Act, 5 U.S.C. Appx. 2. Among other things, this will require that the Committee’s meetings be open to the public, that its records be publicly available pursuant to the Freedom of Information Act, 5 U.S.C. § 552, and that “interested persons” be provided the opportunity to appear before and file statements with the Committee on matters under its consideration. 

The announcement did not provide information, however, on such details as the number of members who will be on the Committee, whether any seats will be specifically reserved for employee or employer representatives, how OSHA will go about seeking individuals to serve on the Committee, or when the Committee’s first meeting would be held. 

Assistant Secretary David Michaels, who oversees OSHA’s Whistleblower Protection Program, said in a statement that “establishing a federal advisory committee is another important effort to strengthen protections for whistleblowers.” Michaels added that the Committee “will help our agency sustain an open dialogue with stakeholders and experts, and will promote the transparency and accountability that are the cornerstone of this administration.” 

Employers would be well advised to closely monitor the establishment of this Committee. Taken together with other recent developments, many of which we have discussed in earlier articles, OSHA’s announcement may suggest a tendency to tilt the field in favor of whistleblower complainants. For example, OSHA’s March 2012 restructuring of its Whistleblower Protection Program, was described by Assistant Secretary Michaels as demonstrating the agency’s “steadfast commitment to strengthening a program that is critically important to the protection of workers’ rights.” Now, Michaels has described creation of the Committee as “another important effort to strengthen protections for whistleblowers.” Likewise, recent decisions from the ARB – including, for example, Brown v. Lockheed Martin Corp. (February 2011), Sylvester v. Parexel International, LLC (May 2011), and Saporito v. Publix Super Markets, Inc. (March 2012) – suggest a tendency to favor complainant-oriented interpretations of the federal whistleblower statutes, often at the cost of greater fidelity to either statutory language or Congressional intent. As we have noted in earlier postings, whether these interpretations will withstand Circuit Court review remains to be seen.      

As did the March restructuring, establishment of the Committee strongly indicates OSHA’s intention to bring more resources to bear in its enforcement of the whistleblower protection statutes it oversees. Employers can expect to see a growing emphasis on the Whistleblower Protection Program as a tool in the government’s law enforcement efforts, and a continued vibrancy in this area of employment litigation. 

Second Circuit Holds That Participation in Purely Internal Investigation Does Not Trigger Title VII "Participation Clause" Protections, Maintaining Uniform Approach Among Courts of Appeals

On May 9, 2012, the Second Circuit held that Title VII’s “participation clause,” prohibiting an employer from retaliating against any employee who participates in an investigation “under” Title VII, requires participation in a formal investigation involving the Equal Employment Opportunity Commission (“EEOC”) – participating in purely internal investigations, conducted pursuant to the employer’s own policies and procedures, is not sufficient to trigger the statutory protections. Townsend v. Benjamin Enterprises, Inc., No. 09-0197. 

The Second Circuit thereby reaffirmed the approach taken by its sister courts in the Fifth, Sixth, Seventh, Ninth and Eleventh Circuits, leaving intact a significant legal defense against retaliation claims under Title VII.        

Plaintiff Claimed that She Had Been Terminated in Retaliation for Participating in an Internal Investigation into Alleged Sexual Harassment of Another Employee

Martha Townsend was hired as an office manager and receptionist by Benjamin Enterprises, Inc. (“BEI”) in June 2002. She claimed that from the summer of 2003 through March 2005, Hugh Benjamin, BEI’s sole corporate Vice President and a corporate shareholder, had sexually harassed her. In March 2005, Townsend reported the sexual harassment to BEI’s Human Resources Director, Karlean Grey-Allen. 

Grey-Allen began an investigation, interviewed Townsend and Benjamin, and discussed the allegations with both a private management consultant and the New York State Division of Human Rights. Claiming that her conversation with the private management consultant had been a breach of confidentiality, BEI’s President, Michelle Benjamin – who was also Hugh Benjamin’s wife – fired Grey-Allen and took over responsibility for the investigation. Critically, at the time Grey-Allen conducted her investigation and when she was terminated, no formal charge had been filed with the EEOC on Townsend’s underlying sexual harassment claims.           

Second Circuit Follows Lead of Sister Courts in Adopting a Limited Approach, Leaves Open Question of Participation in Post-Charge Independent Investigations  

Grey-Allen claimed that BEI had terminated her in violation of Section 704(a) of Title VII, 42 U.S.C. § 2000e-3(a), the so-called “participation clause,” which makes it unlawful for an employer to retaliate against an employee “because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this subchapter.” The Second Circuit noted at the outset that “whether the participation clause covers internal investigations not associated with a formal EEOC charge is a question of first impression in this Court.” 

The court looked first to the language of Title VII itself, in particular the participation clause’s requirement that the investigation in which the employee participates be one “under this subchapter.” Reasoning that “much of this subchapter is devoted to describing the enforcement powers of the EEOC and the procedures by which the EEOC carries out its investigations and hearings,” the court agreed with the Eleventh Circuit’s decision in EEOC v. Total System Services Inc., 221 F.3d 1171 (11th Cir. 2000), that an investigation “under this subchapter” thus refers solely to an investigation occurring in conjunction with the filing of a formal EEOC charge and does not include purely internal investigations conducted by an employer pursuant to its own policies and procedures.

Grey-Allen argued that “because internal investigations are integral to the deterrent aims and effective operation of Title VII,” her participation in BEI’s internal investigation should have afforded her the protections of the participation clause. In an amicus brief, the EEOC had likewise argued in favor of a more expansive interpretation of the participation clause. Observing that every Court of Appeals to have considered the issue had rejected such an interpretation, the Second Circuit likewise “decline[d] to adopt such a strained interpretation of the language of the statute.” 

The Second Circuit in Townsend was quick to note that it “express[ed] no opinion on whether participation in an internal investigation that is begun after a formal charge is filed with the EEOC falls within the scope of the participation clause.” Although it made clear that, because no EEOC charge had been filed at the time Grey-Allen participated in the internal investigation, the question was not before it, the Second Circuit acknowledged that “some courts have answered this question in the affirmative.”

It remains to be seen, then, whether the Second Circuit would extend the protections of the participation clause to an employee who participates in an internal investigation commenced in response to an EEOC charge. There is an argument to be made that, because such an investigation is nonetheless conducted pursuant to the employer’s policies rather than the EEOC’s own enforcement and investigative procedures, it should not be considered “under” Title VII any more than an internal investigation begun before a charge has been filed. 

For the time being, however, Townsend reaffirms the principle, adopted by every Court of Appeals to have considered the issue, that Title VII’s participation clause does not extend its protections to employees who participate in purely internal investigations. This principle thus remains a strong potential defense which should be considered by employers facing claims of retaliation under Title VII.


ARB Holds That After-Acquired Evidence Justifying Termination May Limit Back Pay Damages in Whistleblower Cases Under AIR21 Statute, Asks ALJ to Clarify Employer's Burden of Proof

The Administrative Review Board (“ARB”) on April 27, 2012 held that where an employer charged with retaliation under the AIR21 Statute can point to evidence of misconduct by a whistleblower which would have justified termination, but which was acquired after the termination had already occurred, that evidence may be used to limit the period for which back pay damages are recoverable. Clemmons v. Ameristar Airways, Inc., ARB Case No. 08-067. The ARB remanded the matter to the Office of Administrative Law Judges (“OALJ”) to clarify whether the employer must prove that it would have terminated the employee based upon the misconduct by a preponderance of the evidence, or by the heightened “clear and convincing evidence” standard.   

Although Complainant Had Proved Retaliation, Respondent Argued That Evidence of Improper Email Communications Would Have Resulted in Legitimate Termination

Complainant Thomas Clemmons had been Director of Operations for Ameristar Airways, and claimed that he had been terminated in retaliation for reporting air safety issues to the Federal Aviation Administration. He filed a claim under the whistleblower protection provisions of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR21 Statute”), 49 U.S.C. § 42121. Following a hearing, the Administrative Law Judge (“ALJ”) found that Clemmons had been terminated in violation of the AIR21 Statute, and awarded back pay. 

During the hearing, Ameristar had submitted evidence of an email Clemmons had sent to other Ameristar employees on January 13, 2003 – one week prior to his discharge on January 20, 2003. Although Clemmons admitted that the email was “vulgar, rude, and improper for a manager to do,” the ALJ found that it could not provide a legitimate and non-retaliatory reason for his discharge as his managers were unaware of the email until March 28, 2003, more than two months after Clemmons had already been terminated. 

On appeal, the Fifth Circuit questioned whether the award of back pay should run from the January 2003 termination through the July 2004 hearing, as the ALJ and ARB had held, or should have been cut off in March 2003, as Ameristar arguably would have legitimately discharged Clemmons at that time because of the email. Ameristar Airways, Inc. v. ARB, 650 F.3d 562 (5th Cir. 2011). Citing the Supreme Court’s holding in McKennon v. Nashville Banner Publ’g Co., 513 U.S. 352 (1995), that “where there is after-acquired evidence of wrongdoing that would have led to termination on legitimate grounds had the employer known about it,” an award of back pay should be limited to the period “from the date of the unlawful discharge to the date the new information was discovered,” the court remanded for determination of whether the back pay award should be adjusted in light of the email.       

ARB Extends McKennon to AIR21 Statute, Asks ALJ to Consider Employer’s Burden of Proof  

At the outset, the ARB held McKennon applicable to limit back pay awards in whistleblower cases under the AIR21 Statute. Reasoning that the purpose of the AIR21 Statute is “to eliminate employer discrimination and retaliation against employees who report violations of air safety regulations” – a goal similar to that espoused by the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, and the Equal Pay Act of 1963 considered by the Court in McKennon – the ARB concluded that McKennon’s holding was equally applicable to claims under the AIR21 Statute.

This left a remaining question, however, concerning an employer’s burden of proof as to after-acquired evidence of misconduct justifying termination: “must Ameristar prove by a preponderance of the evidence or clear and convincing evidence that it would have fired Clemmons on this alleged misconduct alone?” Although the ARB remanded the question to the ALJ for initial determination, it nonetheless hinted strongly that the stricter “clear and convincing” burden seemed more appropriate in its view:

In enacting AIR 21, Congress clearly imposed a heavy burden on an employer in the liability phase of a mixed motive case by requiring the employer to prove by clear and convincing evidence that it would have discharged the employee in the absence of the protected activity. It seems strange that the burden of proof would change in this case where the after-acquired evidence involved an incident occurring before the termination but merely discovered afterwards; that would result in a windfall to the employer solely because it learned of such information later. 

Although it will be up to the ALJ to determine the applicable standard in the first instance, indications are that clear and convincing evidence will ultimately be required by the ARB. The distinction is significant, as the ARB has described the clear and convincing evidence standard as “more rigorous than the preponderance-of-the-evidence standard.” In the ARB’s view, “clear and convincing evidence denotes a conclusive demonstration; it indicates ‘that the thing to be proved is highly probable or reasonably certain.’” Clark v. Airborne, Inc., ARB Case No. 08-133 (Sept. 30, 2010). By suggesting its likely insistence on this heightened standard of proof, then, the ARB has stayed true to its recent complainant-friendly inclinations. Even in cases such as Clemmons, where the severity of the employee’s misconduct is admitted, the ARB would require the employer to prove to a reasonable certainty that it would have terminated the employee based upon that misconduct, a heavy burden on the employer that can be expected to prove a boon to the employee.   

As catalogued in our earlier articles, it is still too early to know if the ARB’s expansive interpretation of various whistleblower protection statutes will pass muster as employers seek court review of some of these principles, and there appear to be ample grounds to question the current ARB’s fidelity to both statutory text and Congressional intent. But for the time being at least, it can be fully anticipated that this expansive approach to whistleblower protections will find its place in the ARB’s future whistleblower jurisprudence.

ARB Adopts Expansive View of Protections Afforded Whistleblowers Under the Consumer Product Safety Improvement Act, Continuing Recent Trends in Whistleblower Cases

The Administrative Review Board (“ARB”) on March 28, 2012 held that the whistleblower protection provisions of the Consumer Product Safety Improvement Act of 2008 (“CPSIA” or “Act”) are not limited to those who raise concerns only as to a “consumer product” as defined in the Act, but extends to any matter falling within the jurisdiction of the Consumer Product Safety Commission. Saporito v. Publix Super Markets, Inc., ARB Case No. 10-073. The ARB has thereby significantly expanded the number of manufacturers, distributors and retailers whose employees enjoy the whistleblower protections of the CPSIA.

Complainant Had Alleged Improper Handling of Food Products Specifically Excluded from CPSIA Coverage, Resulting in Dismissal of His Complaints Before OSHA and the ALJ

Complainant Thomas Saporito had been a Maintenance Technician in the dairy production area of a facility operated by Respondent. Claiming that he had been subjected to a hostile work environment and eventually terminated in retaliation for having complained to supervisors about potential contamination of milk products, Saporito sued under the CPSIA’s whistleblower protection provision, 15 U.S.C. § 2087.

The Occupational Safety & Health Administration (“OSHA”) declined to investigate Saporito’s claim, noting that food products are expressly excluded from the definition of a “consumer product” under the CPSIA and therefore outside the scope of the CPSIA. The Administrative Law Judge (“ALJ”) agreed with OSHA, holding that Saporito’s claims involved matters regulated by the Food & Drug Administration and were therefore not covered under CPSIA.       

ARB Rejects View that CPSIA Covers Only “Consumer Products”

The ARB held that OSHA and the ALJ were wrong to suggest that the CPSIA is limited to concerns about consumer products alone. The ARB began with the premise that among the Act’s “expressed ‘purposes’ is to ‘protect the public against unreasonable risks of injury associated with consumer products.’” In furtherance of those purposes, Congress had established the Consumer Product Safety Commission (“Commission”). That food products are specifically excluded from the CPSIA’s definition of “consumer products” did not bar Saporito’s claims, reasoned the ARB, because the Act’s whistleblower provisions extend not only to reported violations of the CPSIA itself, but also to reported violations of “any other Act enforced by the Commission.” Observing that the Commission is also charged with enforcement of such statutes as the Federal Hazardous Substances Act and the Poison Prevention Packaging Act, the ARB concluded that “[c]learly, the Commission’s power extends beyond regulation of ‘consumer products.’” The ARB therefore held that Saporito’s CPSIA claims could proceed. 

Saporito Decision Continues ARB’s Expansion of Whistleblower Protections, and Offers Alternate Avenue to Whistleblowers under the 2011 Food Safety Modernization Act

Saporito stands as another in a growing line of recent ARB decisions expanding the protections afforded whistleblowers under the twenty-one statutes administered by OSHA’s Whistleblower Protection Program. In particular, and as discussed in some of our recent postings, the ARB has greatly expanded the scope of protections available under the Sarbanes-Oxley Act of 2002 through its decisions in Brown v. Lockheed Martin Corp. (February 2011), Sylvester v. Parexel International, LLC (May 2011), and Zinn v. American Commercial Lines Inc. (March 2012). The Saporito decision continues this trend – and indeed, the ARB hinted at the possibility that it might soon extend its groundbreaking Sylvester holding beyond the Sarbanes-Oxley context. 

Equally noteworthy, the Saporito decision provides would-be whistleblowers in the food industry with supplemental protections to those afforded them under the FDA Food Safety Modernization Act (“FSMA”), Pub. Law 111-353, signed by President Obama in January 2011. Section 402 of the FSMA created a cause of action for food industry workers who suffer retaliation for reporting violations of the FSMA’s food safety standards. 21 U.S.C. § 399d.  The FSMA was not in effect when Saporito brought his claims under the CPSIA in September 2008. But by holding that the CPSIA extends to reported violations of food safety standards, the ARB has now created multiple layers of protection for food industry whistleblowers and further demonstrated its tendency to espouse a broad and expansive view of whistleblower protections generally. 

It remains to be seen if the ARB’s extremely expansive interpretation of various whistleblower protection statutes will pass muster as employers seek court review of principles announced in these recent decisions, and there appear to be ample grounds to question the current ARB’s fidelity to both statutory text and Congressional intent. But for the time being at least, it can be fully anticipated that this expansive approach to whistleblower protections will find its place in the ARB’s future whistleblower jurisprudence.

Expansion of Protected Activity Under Sarbanes-Oxley Continues

By:  Allen B. Roberts and Frank C. Morris, Jr.

Continuing its trend from 2011, the Department of Labor (DOL) Administrative Review Board (ARB) seems intent on extending whistleblower protection under the Sarbanes-Oxley Act of 2002 (SOX) beyond allegations of securities fraud – even where that means reversal of its own administrative law judges who believe they are applying the law as Congress intended and consistent with ARB precedent. For now, whistleblowers and their attorneys can expect a more hospitable reception in this administrative forum for innovative claims alleging that adverse employment actions have occurred in reprisal for activity claimed to be covered by SOX Section 806. 


The ARB’s March 28, 2012 decision in Zinn v. American Commercial Lines Inc. (pdf) builds from the groundbreaking May 2011 holding in Sylvester v. Paraxel, Int’l LLC that “a reasonable belief about a violation of any rule or regulation of the Securities and Exchange Commission could encompass a situation in which the violation, if committed, is completely devoid of any type of fraud,” and a whistleblower need not prove fraud to win a retaliation claim. Zinn, at 8. Further, even if the whistleblower’s belief is mistaken, and no actual violation of the law has occurred, whistleblower protections are available and will be enforced.  Id. at 10.

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OSHA's Whistleblower Protection Program Will Now Report Directly to Assistant Secretary of Labor, Signaling Increased Priority for Whistleblower Enforcement

The Occupational Safety and Health Administration (“OSHA”) announced on March 1, 2012 that its Office of the Whistleblower Protection Program (“WPP”) will now report directly to the Department of Labor’s Office of the Assistant Secretary, rather than to its Directorate of Enforcement Programs. The restructuring signals an elevated priority placed on enforcement of the whistleblower protection laws falling under OSHA’s jurisdiction, and suggests that the Agency intends to devote increased efforts and resources to this area in the future.

WPP Had Not Been Sufficiently Meeting Its Mission to Protect and Incentivize Whistleblowers

OSHA’s WPP is responsible for enforcing the various whistleblower protection provisions of twenty-one separate federal statutes. These include such laws as the Occupational Safety and Health Act, Sarbanes-Oxley, and the Affordable Care Act, and they offer protections to employees who bring to light violations of a wide variety of laws, including airline safety, environmental remediation, food safety, public transportation and railroad, maritime and securities laws. While some differences exist between the details of the particular statutes, in general they prohibit an employer from terminating or otherwise discriminating or retaliating against an employee who reports or provides information regarding a suspected violation of the law, either to internal audit personnel or to the government. The statutes vest OSHA with jurisdiction to investigate complaints of retaliation against whistleblowers, and to award appropriate relief which frequently includes reinstatement, attorneys’ fees and costs, compensatory damages, and in some cases even punitive damages.

A pair of Government Accountability Office audits in 2009 and 2010 had identified substantial problems with the WPP. In particular, an August 2010 GAO Report No. 10-722, titled “Whistleblower Protection: Sustained Management Attention Needed to Address Long-Standing Program Weaknesses,” found that “OSHA has done little to ensure that investigators have the necessary training and equipment to do their jobs, and that it lacks sufficient internal controls to ensure that the whistleblower program operates as intended.”

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By: Stuart M. Gerson

Lawson v. Fidelity Management & Research LLC, et al., No. 10-2240 (1st Cir. Feb. 3, 2012) (pdf), discussed in our February 16 posting, comes as a welcome development to privately-held companies that are providers of health care goods and services because it should, if followed generally, preclude whistleblowers from bringing the kinds of audit-related and financial accounting claims that are within the compass of the Sarbanes-Oxley Act (SOX). Many of these companies are, however, the recipients of payments that directly or indirectly involve funds generated through federally-financed health care programs like Medicare and Medicaid. Thus, before breathing a sigh of ultimate relief, such companies should recognize that, especially in view of the amendments to the Federal False Claims Act (FCA) made in the Patient Protection and Affordable Care Act, a clever whistleblower and his or her attorney can transmogrify a claim based on alleged accounting manipulations or misstatements into one that sounds of a so-called “reverse false claim,” i.e., knowingly withholding from the government funds that were improperly reimbursed to the provider. The FCA not only provides for the recovery of treble-damages and attorneys’ fees, but also has an anti-retaliation provision (that was the basis for the anti-retaliation protections included in Dodd-Frank). The Department of Health & Human Services, whose Inspector General is a principal arbiter of compliance and eligibility for participation in federal health care programs, has opined that, under the FCA, overpayments must be remitted to the government within 60 days of detection. And the agency recently has published a proposed rule on the subject. Companies potentially subject to the rule, whether public or not-for-profit, should review the proposed rule and discuss it with counsel or their trade association and, in any event, should be attentive to managing a thorough-going internal compliance program.

First Circuit Limits SOX Whistleblower Protection to Employees of Public Companies

By: Christina Fletcher

Confronting an issue of first impression, the U.S. Court of Appeals for the First Circuit recently held that the “whistleblower” protections of the Sarbanes-Oxley Act of 2002 (“SOX”) cover only employees of public companies, and do not extend to the employees of a public company’s contractors or subcontractors which are themselves private companies. Lawson v. Fidelity Management & Research LLC, et al., No. 10-2240 (1st Cir. Feb. 3, 2012) (pdf). This holding provides private-company employers with a potentially strong defense to claims of retaliation against employees. However, it should be anticipated that Congress may revisit the scope of the protections and ultimately expand them in response to Lawson.

Section 806 of SOX prohibits discrimination against employees who engage in protected whistleblowing activities and work for publicly traded companies subject to the requirements of the Securities Exchange Act of 1934. 18 U.S.C. § 1514A(a).  In Lawson, Fidelity Investments, a public company covered by Section 806 of SOX, contracted with a private investment advisory firm to provide investment advisory services. Plaintiff Zang alleged that he had been terminated in retaliation for raising concerns about inaccuracies in a draft revised registration statement for certain Fidelity funds. Plaintiff Lawson alleged retaliation for raising concerns relating to cost accounting methodologies. She resigned her employment in September 2007, claiming constructive discharge. Defendants’ motions to dismiss the complaints argued that the plaintiffs were not covered employees under Section 806 of SOX. The district court agreed with the plaintiffs, holding that subcontractors to a public company subject to SOX were protected by SOX’s whistleblower provision.

The First Circuit reversed, basing its decision on the language of SOX, principles of statutory interpretation, and SOX’s legislative history. The Court noted that plaintiffs’ suggested reading of the Act created anomalies and provided very broad coverage not intended by Congress. The Court explained that the clause “officer, employee, contractor, subcontractor, or agent of such company” in the whistleblower protection provision goes to who is prohibited from retaliating or discriminating, not to who is a covered employee. Thus, covered employees are limited to employees of public companies

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