SOX

Take Heart, Companies Can Win Whistleblower Cases: Two Key Victories Last Week in SOX and Dodd-Frank Cases

Two victories for employers last week in Dodd-Frank and SOX whistleblower cases may provide a basis for at least a sliver of optimism among employers and whistleblower defense lawyers hammered by a recent series of employee-favorable decisions under the two main federal statutes covering whistleblowing activity. READ MORE

SOX Gone Wild: Misappropriation and Transmission of Confidential Company/Employee Data to the Government Protected under SOX

Whistle

A whistleblower who took sensitive company data from his employer and turned it over to the IRS has won his retaliation claim at the Department of Labor under the Sarbanes-Oxley Act’s (“SOX”) whistleblower protection provisions. In Vannoy v. Celanese Corp., ALJ Case No. 2008-SOX-00064, ARB Case No. 09-118 (ALJ July 24, 2013), an Administrative Law Judge was presented with the question of whether Vannoy’s removal of highly sensitive company data and transmission of that data to the IRS constituted protected activity under SOX. Vannoy, who was formerly employed as the administrator of Celanese’s corporate credit card program, first allegedly complained internally that the company “misstated their financial records and underestimated their required tax burden potentially in millions.” Vannoy sought legal counsel and eventually reported the company’s alleged accounting misconduct to the IRS.  READ MORE

Tenth Circuit Issues its First Decision Interpreting SOX: Offers Broad Reading of the Act

Whistle

On Tuesday, June 4th, the Tenth Circuit Court of Appeals issued its first decision interpreting the Sarbanes Oxley Act’s whistleblower protection provision, affirming a decision by the U.S. Department of Labor’s Administrative Review Board (“ARB”), which held that Lockheed Martin violated SOX by constructively discharging employee Andrea Brown after she had engaged in protected activity. The court applied Chevron deference to the ARB’s employee-friendly interpretations of SOX’s requirements. READ MORE

Will the Latest Opinion by A District Court Adopting a Broad Definition of Who is a Whistleblower Encourage More Internal Reporting?

Whistle

In May, another New York federal district court ruled that an employee need not report a disclosure directly to the Securities and Exchange Commission (“SEC”) to be afforded the protections under the anti-retaliation provisions of the Dodd-Frank Act, but that internal disclosures within a company are covered. READ MORE

Federal Court Decisions Permit Two Dodd-Frank Whistleblower Cases to Proceed

Whistle

 

Two federal district courts recently issued decisions adopting a broad interpretation of the anti-retaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and allowed Dodd-Frank whistleblower claims to proceed past motions to dismiss. Significantly, these cases stand for the proposition that to be protected as a whistleblower under the retaliation provision of Dodd-Frank, an individual does not have to meet the definition of a whistleblower for purposes of obtaining a bounty under Dodd-Frank and in particular, does not necessarily have to make a disclosure to the Securities and Exchange Commission (the “SEC”) in the manner required in connection with the bounty provision of the statute. While the issue is far from settled as Dodd-Frank retaliation cases are just beginning to work their way through the federal courts, these decisions could contribute to further increases in the number of Dodd-Frank whistleblower retaliation claims filed against employers. READ MORE

Dodd-Frank Amendment Applies Retroactively, “Clarifies” SOX Section 806

Whistle

On July 9, 2012, a Southern District of New York court held that the Dodd-Frank Act applies retroactively to protect whistleblowers employed by subsidiaries of publicly-traded companies.

In Leshinsky v. Telvent GIT, S.A., Case No. 1:10-cv-04511-JPO (S.D.N.Y. July 9, 2012), the plaintiff, an employee of a non-publicly-traded subsidiary of a public company, brought a retaliation claim under Sarbanes-Oxley (“SOX”) Section 806. The plaintiff’s claims arose prior to Dodd-Frank’s amendments to Section 806 providing that no public company, including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company, may retaliate against a whistleblowing employee.

In analyzing whether the Dodd-Frank amendment to SOX applied to the plaintiff’s claims, the court explained that generally speaking, a statute does not apply retroactively to conduct that occurred prior to a statute’s enactment; there is a presumption against retroactive legislation. When an amendment merely clarifies existing law, rather than substantively changing existing law, however, retroactivity may be appropriate. The court applied three factors to determine whether Dodd-Frank clarified Section 806: (1) whether Congress expressed legislative intent that Dodd-Frank Section 929A was a clarification that should be applied retroactively; (2) whether there was a conflict or ambiguity in the pre-amendment statutory text; and (3) whether the amendment was consistent with a reasonable interpretation of the original statute. The court determined that the Dodd-Frank amendment clarified the legislative intent of Dodd-Frank’s predecessor retaliation provision under SOX.

The court noted that the First Circuit’s April decision in Lawson v. FMR LLC, 690 F.3d 61 (1st Cir. 2012), did not preclude its holding and arguably supported its conclusion that the Dodd-Frank amendments were a necessary clarification to prevent an improper reading of the statute’s protections. See previous blog entry.

NEW OSHA Whistleblower Protection Program Web Site!

Whistle

There is a new OSHA Whistleblower Protection Program Web site. The site includes SOX complaint and outcome statistics at OSHA, as well as statistics for all of the other whistleblower statutes administered by OSHA. Here is a link to the statistics OSHA is tracking.

Current data on the site runs through 3/31/12 (Q2 of FY2012). So far this year there has been a slight uptick in SOX complaints compared to last year, but not by much, and not yet approaching complaint levels from prior years (2005-2010). According to the statistics, there have been zero merits findings for SOX complainants in OSHA investigations so far in FY2012, and there were only 2 such findings in FY 2011.

ARB Holds Private Firm Accountants Are Covered By SOX

Whistle

In Spinner v. David Landau and Associates, LLC, the Department of Labor’s Administrative Review Board (“ARB”) held that an accountant for a private firm was a covered employee under SOX where the firm performed services for publicly traded clients. In so holding, the ARB rejected the First Circuit’s contrary interpretation of SOX in Lawson v. FMR LLC. The Spinner decision provides new ammunition for employees of non-public companies seeking to bring SOX whistleblower claims against their firms and raises significant liability concerns for firms that have operated under the assumption that their employees were not covered by SOX’s whistleblower provisions. READ MORE

Department of Labor Rejects Title VII Framework in SOX Whistleblower Cases

Whistle

A new opinion from the Department of Labor (“DOL”) makes clear that the department will treat the burden of proof in whistleblower retaliation claims under the Sarbanes-Oxley Act (“SOX”) differently from typical retaliation claims under Title VII.  In an opinion issued in late MarchZinn v. American Commercial Lines Inc. – the DOL’s Administrative Review Board (“ARB”) reversed an administrative law judge’s decision that applied Title VII’s “burden shifting” framework to dismiss Zinn’s whistleblower retaliation claim.  Specifically, the ARB removed the third prong of the traditional “burden shifting” analysis as discussed further below.

Under Title VII, once an employee makes a prima facie case of retaliation, the burden shifts to the employer to provide a legitimate non-retaliatory reason for taking the adverse employment action at issue in the case.  If an employer provides such a reason, the burden then shifts back to the employee to show that the employer’s reasons were actually a pretext for retaliation.  In Zinn, the ARB found it was incorrect to apply this framework and “conflat[e] the SOX burden of proof standard with the Title VII burden of proof.”  Under SOX, the employee needs to show that she engaged in protected activity that contributed to an adverse employment action.  The burden then shifts to the employer to demonstrate, by clear and convincing evidence, that it would have taken the same adverse action absent the protected activity.  However, the ARB clarified that it was unnecessary for the employee to then show that the employer’s actions were pretextual.  Instead, once an employer produces evidence to support that its actions were non-retaliatory, an administrative law judge should “weigh the circumstantial evidence as a whole” to “gauge the context of the adverse action in question” and determine whether the case should proceed.  With this distinct standard and its rejection of the familiar Title VII framework, the DOL has made it evident that SOX whistleblower cases will continue to be a unique and developing area of employment law.