On March 8, 2017, a divided panel of the Ninth Circuit issued an opinion in Somers v. Digital Realty Trust Inc. that further widened a circuit split on the issue of whether the anti-retaliation provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act apply to whistleblowers who claim retaliation after reporting internally or instead only to those who report information to the SEC. Following the Second Circuit’s 2015 decision in Berman v. [email protected] LLC, the Ninth Circuit panel held that Dodd-Frank protections apply to internal whistleblowers. By contrast, the Fifth Circuit considered this issue in its 2013 decision in Asadi v. G.E. Energy (USA), LLC and found that the Dodd-Frank anti-retaliation provisions unambiguously protect only those whistleblowers who report directly to the SEC. READ MORE
Posts by: Renee Phillips
On December 5, 2016, the Seventh Circuit affirmed dismissal of a complaint filed by two University of Pennsylvania track and field athletes against the National Collegiate Athletic Association, the university, and more than 120 other NCAA Division I universities and colleges alleging that student athletes are entitled to minimum wage under the Fair Labor Standards Act (“FLSA”). In Berger v. NCAA, the court held that student athletes are not “employees” within the meaning of the FLSA and thus, are not entitled to a minimum wage for their athletic activities. READ MORE
The SEC released its Fiscal Year 2016 Annual Report (the “Report”) to Congress on the Dodd-Frank Whistleblower Program on November 15, 2016. The Report analyzes the tips received over the last twelve months by the SEC’s Office of the Whistleblower (“OWB”), provides additional information about the whistleblower awards to date, discusses the OWB’s efforts to combat agreements that chill whistleblowers, and describes the OWB’s recent activity in the anti-retaliation arena.
Breakdown of Tips Received in FY 2016
The OWB reported a modest increase in the number of whistleblower tips and complaints that it received in 2016–4,218 tips in 2016 compared to 3,923 tips in 2015. Overall, the 2016 whistleblower tips were similar in number and type of whistleblower tips reported in 2015. As in 2015, the most common types of allegations in 2016 were Corporate Disclosure and Financials (22%), Offering Fraud (15%), and Manipulation (11%). Most whistleblowers, however, selected “Other” when asked to describe their allegations.
The OWB received whistleblower tips and complaints from all 50 states, the District of Columbia, and Puerto Rico. Domestically, the largest number of whistleblower complaints and tips were from California (547), New York (296), Florida (239), and Ohio (230). Additionally, the OWB received whistleblower tips from individuals located in 67 foreign countries. Of these, the countries from which the largest number of tips originated were Canada (68), the United Kingdom (63), Australia (53), the People’s Republic of China (35), Mexico (29), and India (20), with Germany, Ireland, and Taiwan being other countries from which the SEC received more than 10 tips.
The Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”), 38 U.S.C. §§ 4301–4335, prohibits discrimination against members of the U.S. military and imposes various obligations on employers with respect to service members returning to their civilian workplace.
USERRA differs from other employment laws (e.g., Title VII) in many respects. READ MORE
Employment Partner & Co-chair of Orrick’s Whistleblowing Task Force Renee Phillips, and Cybersecurity & Data Privacy Associate Shea Leitch, recently authored an article in Corporate Counsel magazine titled “Cybersecurity Whistleblowing Is Murkier Than You May Think.”
The article covers the emerging issue of cybersecurity whistleblowing and discusses scenarios in which cybersecurity whistleblowers can step forward. In addition, the authors touch on best practices for companies when addressing internal complaints and how to mitigate potential scrutiny from regulatory agencies. To read the full article, please click here.
Two recent events may spur a rise in the number of high quality whistleblower tips filed with the SEC. First, on August 30, 2016, the SEC announced that it had awarded a $22.4 million bounty to a former Monsanto financial executive, whose report of alleged accounting fraud led to the company’s $80 million settlement with the SEC in February. This recent award brings the total amount paid out to whistleblowers by the SEC since the inception of the bounty program in 2011 up to $107 million, more than half of which has been paid out in 2016 alone. This most recent award follows a string of seven and eight-figure awards in 2016, most notably topping a $17 million bounty in June 2016, and is second in size only to a September 2014 award of $30 million. The $22.4 million award represents approximately 28% of Monsanto’s $80 million payment, just shy of the 30% award cap established for recoveries exceeding $1 million.
The Commodity Futures Trading Commission (“CFTC”) is proposing amendments to its Dodd-Frank whistleblower regulations to bring them more in line with the SEC’s whistleblower bounty program. This is perhaps not surprising given the relative success of the SEC’s program compared to the CFTC’s program to date (over $100 million in SEC bounties versus about $10 million in CFTC bounties). The proposed changes would include the following:
- Giving the CFTC the ability to bring anti-retaliation suits in its own name (previously it interpreted Dodd-Frank as only providing for private causes of action);
- Providing that “no person may take any action to impede an individual from communicating directly with the Commission’s staff about a possible violation of the Commodity Exchange Act, including by enforcing, or threatening to enforce, a confidentiality agreement….” This is much like the SEC’s Rule 21F-17, which that agency has used to aggressively prosecute cases against companies and collect significant fines; and
- Enhancing the ability of whistleblowers to recover bounties for “related” actions brought by agencies other than the CFTC.
In addition, the proposed regulations would extend the time frame for a whistleblower to report to the CFTC after reporting internally and still be award-eligible from 120 to 180 days. Comments will be accepted until September 29, 2016, and we will keep our readers posted on the rule-making in this area.
OSHA’s San Francisco region, which includes California, Nevada, and Arizona, launched a new pilot program on August 1, 2016 that would allow complainants, under certain circumstances, to ask OSHA to cease its investigation and issue findings for an ALJ to consider. The program is an effort to process cases more quickly in the region. To qualify for expedited treatment, the investigator must first interview the complainant, allow the respondent the opportunity to submit its position statement and meet with OSHA and present statements from witnesses if so desired, and allow the complainant an opportunity to respond to the respondent’s submission.
Today, the SEC announced that an Atlanta-based company, BlueLinx Holdings, is settling charges that its severance agreements contained provisions that it in its view might impede employees from communicating directly with the SEC about possible securities law violations. The company has agreed to pay a $265,000 sanction and to engage in other corrective actions as described below.
The specific provision at issue provided:
- Employee further acknowledges and agrees that nothing in this Agreement prevents Employee from filing a charge with…the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other administrative agency if applicable law requires that Employee be permitted to do so; however, Employee understands and agrees that Employee is waiving the right to any monetary recovery in connection with any such complaint or charge that Employee may file with an administrative agency. (Emphasis added.)
With respect to this bounty waiver, the Commission stated that “by requiring its departing employees to forgo any monetary recovery in connection with providing information to the Commission, BlueLinx removed the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations.”
Last week, Germany’s Financial Supervisory Authority (BaFin) unveiled a centralized platform for receiving whistleblower complaints, including anonymous complaints, of alleged violations of supervisory provisions within the financial sector. The move appears to represent a shift in German ideology toward a more favorable view of anonymous reporting, which for many years was discouraged in Germany and more broadly in the EU due to the risk of “organized systems of denouncement.” Under the new program, whistleblowers may submit reports in writing (on paper or electronically), by phone (with or without recording the conversation), or verbally. BaFin’s press release announcing the program states that it will make the anonymity of whistleblowers a “top priority,” and that it will not pass on the identity of whistleblowers to third parties. The program is “aimed at person with a special knowledge of a company’s internal affairs – for example because they are employed there or have some other contractual relationship or relationship of trust with the company.”
BaFin was required to implement this new platform due to an amendment to the German Act on Financial Services Supervision. Notably, the Act only applies to the financial services sector, not including external accountants, tax consultants and attorneys. It provides that employees working in the financial services sector may not be held liable for reporting potential or actual breaches of law under either employment law or criminal law, unless the report was false or grossly negligent.