A recent Fourth Circuit Court of Appeals ruling may offer employers in North and South Carolina another defense against an employee’s retaliation claim: No liability for adverse action against an employee based on the employer’s genuine belief that the employee made a false complaint of discrimination.
Articles Discussing Employee Whistleblowers.
On June 26, 2017, the U.S. Supreme Court agreed to review whether the Dodd-Frank Act’s whistleblower anti-retaliation provisions protect employees who only complain internally to their employer, but do not complain directly to the U.S. Securities and Exchange Commission. In doing so, the Court may resolve a more than year old split among the circuit courts over what actions an employee must take in order to be considered a “whistleblower” for the purposes of Dodd-Frank’s whistleblower protections.
In Somers v. Digital Realty Trust, 15-17352 (9th Cir. March 8, 2017), a split Ninth Circuit Court of Appeals widened an existing circuit court split by ruling that Section 21F of the Dodd-Frank Act (“DFA”) protects individuals who make internal disclosures as well as those who make disclosures to the Securities and Exchange Commission (“SEC”).
A California federal jury awarded Sanford Wadler, former General Counsel of Bio-Rad Laboratories, $8 million for his claims against his former employer under the whistleblower provisions of Sarbanes-Oxley (SOX) and the Dodd-Frank Acts (DFA). This case implicates a number of key issues confronting companies and their in-house legal teams, including: (1) protections and scope of the attorney-client privilege; (2) what constitutes protected activity from an in-house attorney or compliance officer; (3) the importance of consistent and timely performance critiques; and (4) preparing adverse employment decisions to be scrutinized by a judge, jury, or arbitrator. The case also highlights the existing split among federal courts regarding what constitutes a “whistleblower” under the DFA.
On Friday, September 30, 2016, U.S. Department of Labor’s (DOL’s) Administrative Review Board (ARB) issued its highly anticipated decision in Palmer v. Illinois Central Railroad Company, ARB No. 16-035 (2016), correcting its much-criticized decision in Fordham v. Fannie Mae, ARB No. 12-061 (2014). In Fordham, the ARB held that, when analyzing whistleblower claims under the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, commonly known as “AIR-21” framework, a fact-finder may not consider an employer’s evidence when determining whether the employee’s alleged protected activity was a contributing factor in the challenged adverse employment action. As predicted when Fordham was issued,1 this was particularly problematic for employers.
On August 30, 2016, the U.S. Securities and Exchange Commission (“SEC”) announced that it surpassed the $100 million mark in monetary awards for whistleblowers. Through the enactment of the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), Congress established the whistleblower program to incentivize whistleblowers who possess “specific, credible and timely” information about federal securities laws violations to report information to the SEC.
Earlier this summer, in Beacom v. Oracle, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment dismissing the SOX and Dodd Frank Act claims of an employee who was fired from his Vice President position after he says that he complained about changes in his employer’s financial forecasting. The Court upheld dismissal of that claim based on the standard that a SOX plaintiff must prove that he “subjectively believe[d] the employer’s conduct violated a law relating to fraud against shareholders, and the employee’s belief must be objectively reasonable” (Emphasis added.) According to the Minnesota District Court that initially heard and dismissed Beacom’s claim and the Court of Appeals that affirmed, the plaintiff in this case could do neither.
Company agreements with employees continue to be under fire. In the latest example, the Securities and Exchange Commission has issued a cease-and-desist order against BlueLinx Holdings Inc. over the use of severance agreements the agency found improperly interfered with the rights of potential whistleblowers to obtain monetary rewards for reporting suspected illegal activity. The August 10, 2016, Order included a $265,000 fine and other specific non-monetary remedies against the company.
On August 10, 2016, the U.S. Securities and Exchange Commission issued a cease-and-desist Order and imposed remedial sanctions against a publicly traded company for including language in its severance agreements requiring outgoing employees to agree to waive recovery of any monetary award from the SEC after filing a whistleblower complaint with the agency. In BlueLinx Holdings, Inc., the SEC determined this waiver in the company’s severance agreements violated SEC Rule 21F-17(a) because it impermissibly would impede a whistleblower’s right to communicate directly with the SEC about a possible securities law violation.
On May 20, 2015, a split Fourth Circuit panel ruled Deltek, Inc., a Virginia-based software and information services provider, must pay a terminated whistleblower four years of front wages and thirty thousand dollars ($30,000) in college tuition. In doing so, two thirds of the panel affirmed the U.S. Department of Labor’s Administrative Review Board’s determination upholding an Administrative Law Judge’s finding the company retaliated against Dinah R. Gunther, a former financial analyst, in violation of the Sarbanes-Oxley Act, holding these decisions were supported by substantial evidence and reached through application of the correct legal standards.
The EEOC’s January 21, 2016 “Draft Proposed Enforcement Guidance on Retaliation and Related Issues” continues the pattern of governmental agencies probing deeply into your whistleblower program. Whether or not the guidance remains exactly as drafted, it is a window into the EEOC’s view of an effective anti-retaliation system. And its message is clear: employers need an integrated response system that involves supervisors and managers throughout the process, removes psychological deterrents to reports of retaliation, responds promptly and expertly to allegations, and avoids retaliation during the investigation and afterward.
Finding a former employee failed to “put up” sufficient facts to support the nexus between his termination and whistleblower activity protected by the Sarbanes-Oxley Act (SOX), the federal appeals court in Philadelphia, in effect, has told him to “shut up,” affirming summary judgment unanimously in favor of the employer. Wiest et al. v. Tyco Electronics Corp., No. 15-2034 (3d Cir. Feb. 2, 2016). Moreover, the Court clarified that a “contributing factor” to a SOX retaliatory firing must affect the outcome of the adverse employment decision.
There have been a series of legal battles since 2009 between Tyco Electronics Corp. and its former accounts payable manager, Jeffrey Wiest, fired for sexually harassing and engaging in inappropriate sexual relations with several female subordinates. In the latest skirmish, a Third Circuit panel unanimously backed Tyco, holding that Wiest was, in fact, discharged for sexual harassment and not for whistleblowing activity protected under the Sarbanes-Oxley Act.
Compliance professionals and attorneys received confirmation on Tuesday of what many have long expected: the U.S. Securities and Exchange Commission whistleblower program is steadily growing in scope and impact, and the SEC is taking more aggressive positions to obtain information from whistleblowers and protect informants from retaliation. These developments have profound implications for corporate business conduct and the compliance industry.
In a decision perhaps overshadowed by the Second Circuit’s subsequent decision in Berman v. Neo@Ogilvy LLC, 14-4626 (2d Cir. Sept. 10, 2015) two days later, a district court in California has added to the growing split among federal courts on the scope of the Dodd-Frank Act’s anti-retaliation provision. In Davies v. Broadcom Corporation, 2015 U.S. Dist. LEXIS 122812 (C.D. Cal. Sept. 8, 2015), the U.S. District Court for the Central District of California dismissed the plaintiff’s DFA whistleblower claim, finding she was not a “whistleblower” under the Act as she had not contacted the Securities and Exchange Commission.