Katz, Marshall & Banks partner David J. Marshall co-edited the 2015 Sarbanes-Oxley Midwinter Report, issued on February 26, 2015, by the Sarbanes-Oxley Act (SOX) subcommittee of the Federal Labor Standards Legislation Committee of the American Bar Association's Section on Labor and Employment. Senior associate Michael A. Filoromo, III, was a contributor to the project.
The Report provides an overview of the current state of the anti-retaliation provision of SOX and the evolution of SOX jurisprudence. As the Report describes in its introduction:
The general trend in SOX (and Dodd-Frank) case law over the past several years has been toward more expansive protections for employees, and that shift continued in 2014. For example, in March 2014, the Supreme Court handed down a decision that has wide-ranging implications for the scope of SOX coverage. In Lawson v. FMR, discussed in Section III, infra, the Court held that SOX 806 protects employees of private contractors of publicly-traded companies, resolving a longstanding circuit split in favor of broad coverage. . . . Despite the pro-employee trend noted above, many key questions regarding SOX and Dodd-Frank remain unresolved. The Lawson decision left the door open for lower courts to define the contours of the Court’s broadened interpretation of SOX 806’s protections, and a few courts have taken the opportunity to narrow the scope. . . . Courts also continue to disagree on whether Dodd-Frank’s anti-retaliation provisions apply to whistleblowers who only report securities violations internally, which has major implications for the issue of whether a significant class of individuals covered by SOX 806 are also protected by Dodd-Frank.
Click here to view or download a PDF copy of the Report, or read the full text of the Report below.
AMERICAN BAR ASSOCIATION
SECTION OF LABOR AND EMPLOYMENT LAW
COMMITTEE ON FEDERAL LABOR STANDARDS LEGISLATION
2015 MIDWINTER MEETING REPORT
SUBCOMMITTEE ON THE SARBANES-OXLEY ACT OF 2002
|Harry W. Wellford, Jr. Co-Chair|
Littler Mendelson, P.C.
211 North Broadway
St. Louis, Missouri 63102
David J. Marshall, Co-Chair
Katz, Marshall & Banks, LLP
1718 Connecticut Ave., N.W.
Washington, D.C. 20009
David J. Marshall and Harry W. Wellford, Jr.
Connie N. Bertram, Proskauer Rose, LLP
Michael A. Filoromo, III, Katz, Marshall & Banks, LLP
Cori K. Garland, Littler Mendelson, P.C.
Jay P. Lechner, Jackson Lewis, LLP
David J. Marshall, Katz, Marshall & Banks, LLP
Harry W. Wellford, Jr., Littler Mendelson, P.C.
Daniel P. Westman, Morrison & Foerster, LLP
Jason M. Zuckerman, Zuckerman Law
I.......... Introduction.............................................................................................................. 1
II......... DODD-FRANK ACT OF 2010 AND ITS EFFECT ON SARBANES-OXLEY WHISTLE-BLOWER PROTECTIONS................................................................................................................. 2
A........ Dodd-Frank Amendments to SOX Section 806........................................................ 3
1......... Section 929A – Subsidiaries Covered........................................................... 3
2......... Retroactivity of Pre-Dispute Arbitration Ban................................................. 4
3......... Scope of the Pre-Dispute Arbitration Ban and Implications for SOX and Dodd-Frank Claims.......................................................................................................... 6
B......... SEC Award Program............................................................................................... 7
1......... Whistleblower Status.................................................................................... 8
2......... Rules Designed to Support Internal Compliance Programs........................... 11
3......... Information that Leads to Successful Enforcement....................................... 12
4......... Monetary Sanctions Totaling More than $1 million...................................... 12
5......... Determining the Amount of an Award......................................................... 13
C........ New Cause of Action............................................................................................. 14
1......... Procedure and Remedies............................................................................ 15
2......... Disagreement Regarding Protections for Internal Whistleblowers................. 15
III....... COVERED EMPLOYERS................................................................................................ 17
A........ Publicly Traded Companies.................................................................................... 18
B......... Subsidiaries............................................................................................................ 18
1......... Post-Dodd-Frank ARB Decisions.............................................................. 18
2......... Post-Dodd-Frank Court Decisions............................................................. 18
C........ Agents/Contractors/Officers................................................................................... 19
1......... The Lawson Decision................................................................................. 19
2......... Defining the Bounds of Lawson................................................................... 20
3......... Employee Of Publicly-Traded Company Reporting Violation By Company’s “Contractor, Subcontractor Or Agent”............................................................................ 20
4......... Retaliation By “Contractor, Subcontractor Or Agent” Against Employee Of Publicly Traded Client......................................................................................................... 21
D........ Individual Liability................................................................................................... 21
1......... Scope Of Individual Liability....................................................................... 21
2......... Must Exhaust Administrative Remedies As To Individual Defendants........... 22
E......... Extraterritorial Application...................................................................................... 22
1......... Supreme Court Decision In Morrison v. National Australia Bank................. 22
2......... ARB Application Of Morrison.................................................................... 23
3......... Extraterritorial Application of Dodd-Frank.................................................. 23
F......... Covered Employees............................................................................................... 23
1......... Applicants.................................................................................................. 24
2......... Former Employees..................................................................................... 24
3......... Independent Contractors............................................................................ 24
4......... Officers and Directors................................................................................ 25
G........ Criminal Provision.................................................................................................. 25
1......... Criminal Liability Under Section 1107......................................................... 26
2......... Whistleblowing Must Be “To A Law Enforcement Officer”.......................... 27
3......... Civil Liability Under Section 1107............................................................... 28
4......... Civil RICO Implications.............................................................................. 28
IV....... PROTECTED CONDUCT............................................................................................... 29
A........ Reasonable Belief................................................................................................... 30
1......... Subjective Belief......................................................................................... 30
2......... Objective Belief.......................................................................................... 32
B......... Enumerated Fraud Provisions................................................................................. 35
C........ “Provide Information”............................................................................................. 39
1......... Specificity of Information Provided............................................................. 39
2......... Internal Reporting....................................................................................... 40
3......... Reporting Future Misconduct...................................................................... 42
4......... Reporting Information Already Known to the Public or Management........... 42
5......... Impact of Complainant’s Job Duties............................................................ 43
6......... Reporting Illegal Conduct of a Covered Third Party.................................... 43
D........ “Supervisory Authority” or “Authority to Investigate, Discover, or Terminate Misconduct” 44
E......... Participation Clause................................................................................................ 45
V........ VIOLATIVE CONDUCT - RETALIATION.................................................................... 46
A........ Statutory Language................................................................................................. 46
B......... “Adverse Employment Action” under Burlington Northern & Santa Fe Railway v. White 46
C........ Initial Application of Burlington Northern to “Adverse Employment Action” under Section 806(a).............................................................................................................................. 48
D........ Tenth Circuit Expands View of Adverse Action....................................................... 50
E......... Fifth Circuit Continues to Expand the Defintion of Adverse Action........................... 51
F......... Contributing Factor: The Causal Connection between Protected Activity and the Adverse Action.............................................................................................................................. 53
1......... Prior Knowledge, Particularly by the Decisionmaker, of Complainant’s Protected Conduct.................................................................................................................. 54
2......... Temporal Proximity.................................................................................... 55
3......... Intervening Events Sever the Causal Connection.......................................... 56
4......... Pre-existing Performance Problems............................................................. 56
5......... Previously Planned Decisions...................................................................... 57
6......... Post-termination Acts of Retaliation............................................................ 57
7......... Hostile Environment.................................................................................... 58
8......... De Minimis Acts of Retaliation.................................................................... 59
VI....... PROCEDURES................................................................................................................. 59
A........ Procedures and Burden of Proof............................................................................. 60
1......... Statutory Provisions.................................................................................... 60
2......... Dodd-Frank Act Amendments................................................................... 60
3......... Agency Interpretations................................................................................ 60
4......... Filing of Complaint..................................................................................... 60
5......... Preliminary Prima Facie Showing................................................................ 64
6......... Notice of Receipt....................................................................................... 65
7......... Notice to SEC........................................................................................... 65
8......... Respondent’s Statement of Position............................................................ 66
9......... Investigation and Determinations................................................................. 66
10....... Preliminary Orders of Reinstatement........................................................... 67
11....... Objections................................................................................................. 67
12....... Discovery and Hearing Before ALJ............................................................. 68
13....... Appeal to Administrative Review Board...................................................... 75
14....... Appeal to Court of Appeals........................................................................ 79
15....... Removal to Federal Court On or After 180 Days........................................ 80
16....... Burdens of Proof........................................................................................ 82
17....... Confidentiality............................................................................................ 84
B......... ADR...................................................................................................................... 85
C........ Settlement Agreements........................................................................................... 86
1......... General...................................................................................................... 86
2......... Enforcement............................................................................................... 88
D........ Effect of Bankruptcy Proceedings........................................................................... 88
VII...... REMEDIES....................................................................................................................... 89
A........ Introduction............................................................................................................ 89
B......... Back Pay............................................................................................................... 90
1......... Basic Entitlement........................................................................................ 90
2......... Promotions and Salary Increases................................................................ 91
3......... Accrued Vacation...................................................................................... 91
4......... Bonuses..................................................................................................... 91
5......... Valuating Fringe Benefits............................................................................ 91
6......... Loss of Health Insurance Coverage............................................................. 92
7......... Stock Options............................................................................................ 93
8......... Tax Bump Relief......................................................................................... 93
9......... Mitigation of Damages................................................................................ 94
10....... Seasonal Employment................................................................................. 95
11....... Interest....................................................................................................... 96
C........ Special Damages.................................................................................................... 97
1......... Emotional Distress/Pain and Suffering.......................................................... 97
2......... Reputational Damages................................................................................ 99
3......... Damage to Credit Rating............................................................................ 99
D........ Punitive Damages................................................................................................. 100
E......... Reinstatement....................................................................................................... 100
F......... Front Pay in Lieu of Reinstatement........................................................................ 104
G........ Right to Jury Trial................................................................................................. 106
H........ Recent Large Verdicts.......................................................................................... 106
I.......... Abatement Orders................................................................................................ 107
J.......... Attorneys’ Fees and Costs................................................................................... 107
K........ Sanctions............................................................................................................. 110
L......... Issues Associated with Settlements....................................................................... 110
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (“SOX”), Pub. L. 107-204. Enacted in the wake of the Enron and WorldCom scandals, the Act was designed to restore investor confidence in the nation’s financial markets by improving corporate responsibility through required changes in corporate governance and accounting practices and by providing whistleblower protection to employees of publicly traded companies who report corporate fraud.
SOX contains both a civil and a criminal whistleblower provision:
- Section 806, codified at 18 U.S.C. §1514A, creates a civil cause of action for employees who have been subject to retaliation for corporate whistleblowing. Under Section 806, publicly traded companies may not “discharge, demote, suspend, threaten, harass or in any other manner discriminate against an employee in the terms and conditions of employment” because of any protected whistleblowing activity. 18 U.S.C. § 1514A(a). Section 806 addressed Congress’s concern that corporate whistleblowers had been subject to a “patchwork and vagaries” of state laws, with a whistleblowing employee in one state being more vulnerable to retaliation than a similar employee in another state. See 148 Cong. Rec. S7420 (daily ed. July 26, 2002) (statement of Senator Leahy). Section 806 was intended to set a national floor for employee protections and not to supplant or replace state law.
- Section 1107, SOX’s criminal whistleblower provision, codified at 18 U.S.C. §1513(e), makes it a felony for anyone to knowingly retaliate against or take any action “harmful” to any person, including interfering with the person’s employment, for providing truthful information to a law enforcement officer relating to the commission or possible commission of a federal offense. As part of a criminal obstruction of justice statute, Section 1107 is enforced by the U.S. Department of Justice. Retaliation under Section 1107 is listed as a possible predicate act under RICO.
The Department of Labor Office of Administrative Law Judges hears Section 806 whistleblower claims following the filing of objections to OSHA investigative findings. SOX also contains a kick-out provision which allows a complainant to file a de novo action in federal court if the DOL does not issue a final decision within 180 days. Many early decisions of the ALJs and courts from 2002 – 2007 were criticized as interpreting the whistleblower provisions in an unduly restrictive, pro-employer manner, which was perceived by many as limiting whistleblowers’ ability to have their claims heard on the merits. Partially in response to such criticism, in 2010 Congress enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd-Frank, inter alia, significantly expanded SOX’s civil whistleblower protections, created additional anti-retaliation requirements for employers, and established a whistleblower incentive program to encourage the reporting of securities violations to the Securities and Exchange Commission (“SEC”). The Dodd-Frank amendments are discussed in greater detail in Section II, infra.
The general trend in SOX (and Dodd-Frank) case law over the past several years has been toward more expansive protections for employees, and that shift continued in 2014. For example, in March 2014, the Supreme Court handed down a decision that has wide-ranging implications for the scope of SOX coverage. In Lawson v. FMR, discussed in Section III, infra, the Court held that SOX 806 protects employees of private contractors of publicly-traded companies, resolving a longstanding circuit split in favor of broad coverage. The Court of Appeals for the Second Circuit, meanwhile, adopted the position of the DOL’s Administrative Review Board (“ARB”), rejecting the requirement that an employee’s complaint “definitively and specifically” relate to a violation of one of the enumerated categories of SOX 806 in order to be protected. Instead, in Nielsen v. AECOM Tech. Corp., the Second Circuit held that an employee must only have a “reasonable belief” that a violation occurred, even if that belief is not clearly conveyed to her employer. Section V describes recent decisions holding that constructive discharge and “outing” a whistleblower may be materially adverse actions for purposes of SOX 806. Finally, as described in Section VII, 2014 also saw two of the largest jury verdicts in the history of SOX.
Despite the pro-employee trend noted above, many key questions regarding SOX and Dodd-Frank remain unresolved. The Lawson decision left the door open for lower courts to define the contours of the Court’s broadened interpretation of SOX 806’s protections, and a few courts have taken the opportunity to narrow the scope. Additionally, notwithstanding Nielsen and other similar decisions, a split remains on whether the “definitively and specifically” standard for protected activity remains viable. There is a similar lack of consensus regarding how long an individual has to file a SOX complaint in federal court after utilizing the kick-out provision of SOX 806 to remove the case from the DOL. Courts also continue to disagree on whether Dodd-Frank’s anti-retaliation provisions apply to whistleblowers who only report securities violations internally, which has major implications for the issue of whether a significant class of individuals covered by SOX 806 are also protected by Dodd-Frank.
This Report provides an overview of the current state of SOX 806 and the evolution of SOX jurisprudence.
President Obama signed Dodd-Frank, Pub. L. 111-203, into law on July 21, 2010. The new law, which Congress intended to effect a sweeping overhaul of the nation’s financial sector in response to the deepest economic downturn since the Great Depression, created two controversial “bounty” programs that would reward individuals who reported securities or commodities-trading violations to federal regulators. At the same time, the Dodd-Frank Act significantly added to the protections available to corporate whistleblowers in several ways, including by amending Section 806 to expand its reach, and by creating a new cause of action in federal court directly under Dodd-Frank.
Although the Dodd-Frank amendments to Section 806 have not attracted as much attention as the new whistleblower-incentive programs, the changes are equally significant. Sections 922(b) and (c) of Dodd-Frank double the statutory filing period for SOX retaliation complaints from 90 to 180 days, give parties a right to a jury trial in district court actions, exclude SOX whistleblower claims from the reach of pre-dispute arbitration agreements, and extend protection from retaliation to employees of nationally recognized statistical rating organizations. 18 U.S.C. §§ 1514A(a), 1514A(b)(2). In addition, Section 929A expands the coverage of SOX 806 to include subsidiary entities of publicly traded corporations. 18 U.S.C. § 1514A(a). The Dodd-Frank amendments to SOX have begun to generate a body of case law, and the ARB and some courts have addressed a few issues in particular – the retroactivity of the Act’s subsidiary coverage, the ban on the arbitration of SOX claims, and the scope of the arbitration ban.
Section 929A of the Dodd-Frank Act expanded the scope of SOX coverage to include subsidiary entities of publicly traded corporations “whose financial information is included in the consolidated financial statements of [publicly traded companies].” 18 U.S.C. § 1514A(a). Prior to enactment of the Dodd-Frank Act, except in limited circumstances, the Department of Labor frequently interpreted SOX’s whistleblower protection provisions to apply solely to publicly traded companies subject to the registration and reporting requirements of the Securities Exchange Act of 1934. Because of this, wholly-owned subsidiaries of publicly traded companies – entities that were not subject to the registration and reporting requirements of the Securities Exchange Act – often avoided the application of SOX 806 without ever reaching the merits stage of a proceeding.
Section 929A of the Dodd-Frank Act now explicitly provides that the anti-retaliation provisions of SOX apply to employees of publicly traded companies and to employees of subsidiaries of publicly traded companies whose financial information is incorporated into the consolidated financial statements of publicly traded companies. Accordingly, employers falling under this latter category can no longer avoid coverage of SOX merely because they do not file directly with the SEC.
As discussed in Section III.B, infra, the ARB has issued several post-Dodd-Frank opinions in which it has found that this amendment was simply a “clarification” of existing law, and thus need not be given retroactive effect in order for Section 806 to apply to subsidiaries in pre-amendment cases. See, e.g., Johnson v. Siemens Building Technologies, Inc., ARB No. 08-032, ALJ No. 2005-SOX-15, 2011 WL 1247202, at *11 (ARB Mar. 31, 2011) (en banc); Mara v. Sempra Energy Trading, LLC, ARB No. 10-051, ALJ No. 2009-SOX-018, 2011 WL 261435, at *5-6 (citing Johnson). A number of district court decisions from the Southern District of New York have followed the ARB in this regard. See, e.g., Leshinsky v. Telvent GIT, S.A., 873 F. Supp. 2d 582 (S.D.N.Y. 2012); Ashmore v. CGI Group, Inc., No. 11 Civ. 8611, 2012 WL 2148899 (S.D.N.Y. June 12, 2012); Andaya v. Atlas Air, Inc., No. 10-cv-7878, 2012 WL 1871511 (S.D.N.Y. Apr. 30, 2012). However, at least one court has reached the opposite conclusion. The Northern District of Illinois, in Mart v. Gozdecki, Del Giudice, Americus & Farkas LLP, 910 F. Supp. 2d 1085, 1095 (N.D. Ill. 2012), held that Dodd-Frank altered, rather than clarified, section 806 of SOX with respect to the coverage of subsidiaries, and, therefore, applied the anti-retroactivity principle.
Previously, the Act’s retaliation provisions had only sometimes been applied to private subsidiaries of publicly traded companies. See, e.g., Collins v. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365 (N.D. Ga. 2004) (“covered employee” where the officers of a publicly traded parent company had the authority to affect the employment of the employees of the subsidiary); Platone v. Atlantic Coast Airlines Holdings Inc., 2003-SOX-27 (ALJ Apr. 30, 2004) (employee of a non-publicly traded subsidiary was a covered “employee” where the company’s parent was the alter ego of the subsidiary and had the ability to affect the complainant’s employment). As noted above, however, the DOL and courts often dismissed SOX complaints because the whistleblower worked for a subsidiary. See Savastano v. WPP Group, PLC., 2007-SOX-34 (ALJ July 18, 2007) (employee not covered where complaint did not allege facts supporting a finding that the non-publicly traded employer and its non-publicly traded holding company were acting as agents of a publicly traded parent company).
The pre-Dodd-Frank period produced a number of interesting cases addressing the applicability of Section 806 to subsidiaries of publicly traded companies. See, e.g., Klopfenstein v. PCC Flow Technologies, Inc., ARB No. 04-149, 2004-SOX-11 (ARB May, 31, 2006) (applying agency theory to find application to subsidiary would be likely on remand to ALJ); Walters v. Deutsche Bank, et al., 2008-SOX-70, slip op. at 23 (ALJ Mar. 23, 2009) (structure and purpose of SOX requires application to “all employees of every constituent part of the publicly traded company, including subsidiaries and subsidiaries of subsidiaries which are consolidated on its balance sheets, contribute information to its financial reports, are covered by its internal controls and the oversight of its audit committee, and subject to other Sarbanes-Oxley reforms imposed upon the publicly traded company”). With the Dodd-Frank Act’s “clarification” of this issue, it is settled that Section 806 applies to subsidiaries, and that it is unnecessary for complainants to set forth arguments based on theories of agency, integrated employer, intertwined entities and the like.
Courts have reached inconsistent decisions regarding whether another provision of Dodd-Frank’s amendments to Section 806 – the pre-dispute arbitration ban – will apply retroactively. Compare Taylor v. Fannie Mae, 839 F. Supp. 2d 259, (D.D.C. 2012) (holding ban does not apply retroactively) and Blackwell v. Bank of America Corp., No. 7:11-2475, 2012 WL 1229673, at *3 (D.S.C. Mar. 22, 2012) (same), report and recommendation adopted, No. 11–2475, 2012 WL 1229675 (D.S.C. Apr.12, 2012) and Holmes v. Air Liquide USA LLC, No. H-11-2580, 2012 WL 267194 (S.D. Tex. Jan. 30, 2012), aff’d sub nom. Holmes v. Air Liquide USA, L.L.C., 498 Fed. App’x 405 (5th Cir. 2012) (same) and Henderson v. Masco Framing Corp., 2011 WL 3022535, at *3–4 (D. Nev. July 22, 2011) (same) with Pezza v. Investors Capital Corp., 767 F. Supp. 2d 225 (D. Mass. 2011) (applying ban retroactively) and Wong v. CKX, Inc., --- F. Supp. 2d ---, No. 2012 WL 3893609, 2012 WL 3893609 (S.D.N.Y. Sept. 10, 2012) (same).
Each of these courts has evaluated the question of retroactive effect according to the framework established by the Supreme Court of United States in Fernandez-Vargas v. Gonzales, 548 U.S. 30, 37-38 (2006) and Landsgraf v. USI Film Prods., 511 U.S. 244, 271 (1994). Under Fernandez and Landsgraf, in the absence of an express statement of Congressional intent, the court applies the normal rules of statutory construction to infer the intent of Congress as to the statute’s temporal reach. If Congress’s intent is unclear, the court then inquires “whether applying the statute to the person objecting would have a retroactive consequence in the disfavored sense of affecting substantive rights, liabilities, or duties on the basis of conduct arising before its enactment.” Id. If so, the court applies the presumption against retroactivity. All courts that have addressed the issue have determined that Congress did not state any express intent regarding the retroactive application of the pre-dispute arbitration provision and that Congress’s intent with respect to the ban’s retroactivity is unclear. Courts disagree, however, about whether retroactive application of the pre-dispute arbitration ban would affect the substantive rights of the parties – prohibiting retroactive application – or procedural rights, in which case retroactive application is acceptable pursuant to Landsgraf.
In Pezza v. Investors, the first case to address the issue, the court held that the provision voiding pre-dispute arbitration bans, as applied to SOX whistleblower claims, applied retroactively. 767 F. Supp. 2d at 233-234. The Pezza court acknowledged that Section 922 affected contractual and property rights because it would effectively void a contractual provision agreed upon by the parties in the employment agreement, and conceded that the presumption against retroactivity would usually apply in such instances because these statutes related to “matters in which predictability and stability are of prime importance.” Id. at 233 (quoting Landsgraf, 511 U.S. at 271 (1994)). However, the court determined that retroactive application was nonetheless appropriate because the arbitration ban was essentially a jurisdictional statute. Id. The court explained that the parties did not claim that the choice of venue – the Financial Industry Regulatory Authority or a court – would affect the substantive result of the case, and thus “conclude[d] that Section 922 of the Act should also be applied to conduct that arose prior to its enactment.” Id.
Like the court in Pezza, the court in Wong v. CKX, Inc., 890 F. Supp. 2d 411, 2012 WL 3893609 (S.D.N.Y. Sept. 10, 2012), concluded that while that retroactive application of the arbitration ban could fall within the category of case that affects contractual and property rights, it “more appropriately falls within the second category because it . . . ‘principally concerns the type of jurisdictional statute envisioned in Landsgraf,’ and does not affect the substantive rights of either party.” Id. at *9 (internal citation omitted). Wong relied on precedent from the Supreme Court stating that, “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute[,]” but rather submits “their resolution to an arbitral, rather than judicial forum.” Id. At 9 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 628)).
Pezza and Wong are now outnumbered by decisions holding that a retroactive application of the pre-dispute arbitration ban would affect the parties’ substantive, rather than procedural rights, and is therefore improper. In Taylor v. Fannie Mae, one of the only published cases on the issue, the U.S. District Court for the District of Columbia emphasized that, at the time the plaintiff signed the dispute resolution policy in 2010, “the parties had the right to contract for the arbitration of Sarbanes-Oxley claims.” 839 F. Supp. 2d at 263. The agreement the plaintiff signed specifically provided that the arbitration clause applied to all claims associated with legally protected rights that directly or indirectly related to the termination of his employment. Id. The court thus “fail[ed] to see how a retroactive application would not impair the parties’ rights possessed when they acted.” Id.
The Henderson court likewise held that the Dodd-Frank Act’s SOX provisions were not retroactive, disagreeing with the Pezza court’s conclusion that retroactive application of Section 922 affected only the conferral of jurisdiction and not substantive contract rights. 2011 WL 3022535, at *3–4. Instead, the Nevada court found, the “retroactive application of Dodd-Frank’s SOX provisions would not merely affect the jurisdictional location in which such claims could be brought; it would fundamentally interfere with the parties’ contractual rights and would impair the ‘predictability and stability’ or their earlier agreement.” Id. In contrast with Wong’s reliance on Mitsubishi Motors, Henderson emphasized that the Supreme Court “has explicitly indicated on numerous occasions that the right of parties to agree to arbitration is a contractual matter governed by contract law.” Id. at *4 (citing AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740); see also Blackwell, 2012 WL 1229673, at *2 (quoting same).
Most recently, in Neal v. Asta Funding, Inc., No. 13-cv-2438 (D.N.J. Dec. 4, 2013), the district courts stayed court proceedings pending the outcome of arbitration, and the judge deferred to the arbitrator to determine whether the plaintiff’s claims, which included claims under SOX, were arbitrable. While not deciding the question, the court noted that the plaintiff had signed a consulting agreement containing an arbitration clause in 2009, before the enactment of Dodd-Frank’s amendments to SOX. The judge cited with approval the majority rule, i.e., that the amendments banning mandatory arbitration of SOX claims did not apply retroactively.
In addition to raising issues about retroactivity, Dodd-Frank’s ban on pre-dispute arbitration agreements for SOX claims has generated questions regarding its scope, including its applicability to related anti-retaliation claims.
Where a common nucleus of operative facts existed between an employee’s SOX claim and another claim, a few courts have held that SOX, as amended by the Dodd-Frank Act, barred arbitration of both the SOX claim and the intertwined state claim. See Laubenstein v. Conair Corp., No. 5:14-CV-05227, 2014 WL 6609164, at *3 (W.D. Ark. Nov. 19, 2014). The District Court stated that “forcing SOX whistleblowers with entangled claims to choose between either engaging in duplicative and costly litigation in multiple forums or abandoning potentially meritorious claims” would frustrate the purpose of the anti-arbitration provision. Id. The Laubenstein court cited to another recent decision that had reached the same conclusion where the intertwined claim was for breach of contract based on alleged retaliation against the plaintiff for sending a memorandum to his company’s Audit Committee in which he detailed concerns about potential violations of SOX’s financial disclosure requirements. Steward v. Doral Fin. Corp., 997 F. Supp. 2d 129, 139 (D.P.R. 2014). The Laubenstein court made clear, however, that its decision was limited to the facts of the case at hand, and should not be interpreted broadly for the proposition that Congress “intended to bar arbitration of every claim brought alongside a SOX claim.” Laubenstein, at *3.
Where a Dodd-Frank anti-retaliation action is brought alone, and not in conjunction with an intertwined SOX claim that could have been brought, the Dodd-Frank claim is likely arbitrable. In Khazin v. TD Ameritrade Holding Corp., No. 14-1689, --- F.3d ----, 2014 WL 6871393 (3d Cir. Dec. 8, 2014), the Court of Appeals for the Third Circuit held that a retaliation claim brought under the Dodd-Frank Act was not exempt from a pre-dispute arbitration ban. As the court noted, “The Anti-Arbitration Provision is expressly limited to a single category of disputes: those ‘arising under this section,’ meaning Section 1514A of the United States Code. That section contains the Sabanes-Oxley cause of action for retaliation against whistleblowers.” Id. at *3. The Khazin court rejected the plaintiff’s argument that it would be “counterintuitive for Congress to treat Sarbanes–Oxley claims differently than Dodd–Frank claims, and that requiring the arbitration of his claim would undermine Dodd–Frank’s broader purpose of enhancing protections for whistleblowers.” Id. The Third Circuit observed that the only two other courts to have addressed the issue directly also held that whistleblowers may be compelled to arbitrate Dodd-Frank retaliation claims. See Murray v. UBS Sec., LLC, No. 12 Civ. 5914(KPF), 2014 WL 285093, at *10–11 (S.D.N.Y. Jan. 27, 2014); Ruhe v. Masimo Corp., SACV 11–00734–CJC(JCGx), 2011 WL 4442790, at *4 (C.D. Cal. Sept. 16, 2011).
The conclusion that Dodd-Frank claims are arbitrable is significant because, as detailed in Section II.C below, there is a split among federal courts regarding the extent to which SOX and Dodd-Frank claims overlap for employees who only report securities violations within their companies. If an employee may bring a particular retaliation claim under both SOX and Dodd-Frank, the latter might be preferable because Dodd-Frank has a longer statute of limitations – three years instead of 180 days – affords an employee double back-pay, and allows an employee to circumvent the Department of Labor’s administrative process and file his or her claim directly in federal court. If an employee must file both a Dodd-Frank claim and an “entangled” SOX claim in order to avoid compulsory arbitration, then the decision to bypass the DOL becomes a more difficult one. This is especially so because of a recent holding that the Dodd-Frank anti-retaliation, unlike SOX (as amended by Dodd-Frank), does not guarantee a jury trial. See Pruett v. BlueLinx Holdnigs, Inc., No. 1:13-cv-02607-JOF (N.D. Ga. Nov. 13, 2013).
In addition to amending SOX Section 806, Dodd-Frank created a new SEC whistleblower award program which incentivizes the reporting of securities violations. Under the new program, the SEC is required to pay awards to eligible whistleblowers who voluntarily provide the commission with original information that leads to a successful enforcement action in which the SEC recovers monetary sanctions in an amount over $1 million. A whistleblower who meets this and other criteria is entitled to an award of 10% to 30% of the amount recovered by the SEC or by certain other authorities in “related actions.”
Dodd-Frank defines a “whistleblower” as an “individual . . . or two or more individuals acting jointly.” Section 21(F)(a)(6). The final rules make it clear that a corporation or other such entity is not eligible for whistleblower status. Rule 21-F2(a).
- “Voluntarily Provide”
In order to qualify for a reward under Section 21F(b)(1) of the Act,  a whistleblower must “voluntarily provide” the SEC with information concerning a securities violation. The SEC will view information provided as voluntary only if the whistleblower provides it to the Commission before he has received an official request, inquiry, or demand for it. Rule 21F-4(a)(1), (2). The SEC rules also made it clear that a whistleblower would be deemed to have submitted information “voluntarily” as long as an official inquiry had not been directed to him as an individual, so employees remain eligible even if an inquiry has been directed to their employer. Id. If a whistleblower is obligated to report information to the SEC as a result of a preexisting duty, it will not be considered voluntary. Rule 21F-4(a)(3). This disqualification is not triggered by an employee’s contractual obligation to his employer or another third party or the receipt of a request for the same or related information as part of an internal investigation, so an employer cannot remove the incentives that are key to the effectiveness of the program by requiring all employees to sign agreements requiring them to report any perceived securities violations to the SEC. Adopting Release at 35-37.
- “Original Information”
In order to qualify as “original information” that will support a claim for an award, the whistleblower’s tip must consist of information that is 1) derived from the individual’s “independent knowledge” or “independent analysis,” 2) not already known to the SEC from any other source (unless the whistleblower is the original source of the information, such as where she has reported the information first to the Department of Justice, which passed the information to the SEC), and 3) not “exclusively derived” from certain public sources, including government reports, hearings, audits or investigation, or the news media, unless the whistleblower is a source of the information contained therein. Rule 21F-4(b)(1).
Independent Knowledge and Independent Analysis
Rule 21F-4(b)(2) defines “independent knowledge” simply as “factual information … this is not derived from publicly available sources.” The whistleblower may have observed the facts first-hand, but may also come into possession of the knowledge through her “experiences” or communications. This suggests that the whistleblower can have “independent knowledge” of facts despite having learned them from someone else such as a co-worker, customer or client, as long as that third person is a company attorney, compliance officer or other representative who would be ineligible for a reward under Rule 21F-4(b)(4), discussed below.
In declining to heed the warning of business-side commentators that allowing tips based on third-party information would encourage frivolous claims, the SEC noted that excluding such information could deprive the Commission of highly probative information that could aid significantly in an enforcement action. Adopting Release at 47. The SEC noted that Congress had recently amended the False Claims Act to remove a similar requirement that a qui tam relator possess “direct” (or first-hand) knowledge of the facts. Id. n. 104.
“Independent analysis” refers to a whistleblower’s “examination and evaluation,” conducted by herself or with others, of information that might be publicly available if the analysis reveals information that is not “generally known or available to the public.” Rule 21F-4(b)(3). This might include, for example, expert analysis of data that could significantly advance an investigation. Adopting Release at 51.
Exclusion from Independent Knowledge and Analysis
- Consistent with its goal of promoting enforcement of securities laws while also respecting a company’s efforts to build and maintain an effective internal compliance program, the SEC has designated information in the possession of certain categories of employees and other individuals as not being derived from independent knowledge or analysis, making these individuals presumptively ineligible for participation in the whistleblower-reward program. Two of the exclusions that are carved out apply specifically to attorneys, both in-house and retained, and to non-attorneys who possess privileged information. The rules exclude: Information obtained through a communication subject to attorney-client privilege, unless disclosure would be permitted due to waiver or by a rule of the SEC or state rules governing attorneys, Rule 21F-4(b)(4)(i); and
- Information obtained in connection with the whistleblower’s (or her firm’s) legal representation of a client, unless disclosure would be permitted as described above, Rule 21F-4(b)(4)(ii).
In addition, the rules make certain individuals ineligible to receive awards in most circumstances because of their roles, formal or otherwise, in the internal compliance functions that the SEC believes are critical to the overall goal of increased adherence to securities laws. The SEC deems information to lack “independent knowledge or analysis” where the person obtained the information because she was:
- An officer, director, trustee or partner who learned the information in connection with the entity’s processes for identifying and addressing unlawful conduct, Rule 21F-4(b)(4)(iii)(A);
- An employee or contractor whose principal duties are in compliance or internal audit, Rule 21F-4(b)(4)(iii)(B);
- Employed by a firm retained to investigate possible violations of the law, Rule 21F-4(b)(4)(iii)(C); or
- Employed by a public accounting firm performing an engagement required by federal securities laws, who, through the engagement, obtained information about a violation by the engagement client, Rule 21F-4(b)(4)(iii)(D).
In addition, other individuals who learn information from these categories of persons will not be considered to be providing “original information” if they turn around and report the information to the SEC. Rule 21F-4(b)(4)(vi). Persons who obtain information for a tip using methods that a court finds to have violated criminal laws are also excluded. Rule 21F-4(b)(4)(iv).
The four non-attorney exclusions described above – those for upper-level management, compliance personnel and auditors set forth in Rule 21F-4(b)(4)(iii) – do not apply in all circumstances. The wording of the rules suggests that these persons might have “independent knowledge” as long as they obtain their information outside their roles in compliance, investigation or audit. In addition, the rules provide that these exclusions do not apply, and the person can be eligible for an award, where at least one of the following conditions is present:
- The would-be whistleblower “reasonably believes” that disclosure to the SEC is needed to prevent “substantial injury” to the entity or investors, Rule 21F-4(b)(4)(v)(A);
- The would-be whistleblower “reasonably believes” that the entity is acting in a way that would impede an investigation of the violations, Rule 21F-4(b)(4)(v)(B); or
- At least 120 days have passed since the whistleblower reported her information internally to the audit committee, chief legal officer of other appropriate official of the entity, or since she obtained the information under circumstance indicating that those officials were already aware of the information, Rule 21F-4(b)(4)(v)(c)
The SEC repeatedly makes it clear that the main purpose of the whistleblower program is to encourage individuals to provide high-quality tips to the Commission. The SEC notes in the Adopting Release at 105 that:
…the broad objective of the whistleblower program is to enhance the Commission’s law enforcement operations by increasing the financial incentives for reporting and lowering the costs and barriers to potential whistleblowers, so that they are more inclined to provide the Commission with timely, useful information that the Commission might not otherwise have received.
With this purpose in mind, the SEC rejected the business lobby’s near-unanimous insistence that it require whistleblowers submit their complaints internally before filing them with the SEC. Id. at 103. “[W]hile internal compliance programs are valuable,” the Commission observed, “they are not substitutes for strong law enforcement.” Id. at 104. The Adopting Release recognizes that whistleblowers might reasonably fear retaliation for raising their concerns, and also notes that law enforcement interests are sometimes better served when the Commission can launch an investigation before the alleged wrongdoers learn about it and are able to destroy evidence or tamper with potential witnesses. Id. For these and related reasons, the SEC leaves it to each whistleblower to decide whether to report first internally or to the SEC. Id. at 91 – 92.
At the same time, the Commission has included several provisions in the new rules that are expressly designed to encourage whistleblowers to utilize internal compliance programs. These include:
- Affording whistleblower status to the individual as of the date he reports the information internally, as long as the he provides the same information to the SEC within 120 days. This allows an employee to report internally while preserving his “place in line” for an award from the SEC for 120 days, even if another whistleblower provides the same or related information to the Commission in the interim. Rule 21F-4(b)(7).
- Giving a whistleblower full credit for information provided by his employer to the SEC where the employee reports the information internally and the employer investigates and “self-reports” that information (and even additional information that the whistleblower may not have had) to the SEC, and the information supplied by the employer “leads” to a successful enforcement action. Rule 21F-4(c)(3).
- Treating a whistleblower’s participation in an internal compliance and reporting system as a positive factor in determining the amount of the award. Rule 21 F-6(a)(4). Conversely, a whistleblower’s interference with internal compliance and reporting may decrease the amount of the award. Rule 21 F-6(b)(3).
These rules provide the whistleblower, who the SEC believes is in the best position to determine the effectiveness, or ineffectiveness, of the internal compliance system, flexibility in choosing how to report violations. See Adopting Release at 103. The rules enhance the SEC’s law enforcement operations by encouraging people who may otherwise be deterred to report violations. This group includes those who will be persuaded to use the internal compliance programs because of new financial incentives who may not have done so otherwise, as well as those who will report directly to the SEC who may not have reported any violations at all if required to go to the company first. Id.
The SEC also points out that the rules’ incentives to employees to report internally are likely to encourage companies to create and maintain effective internal compliance programs, as whistleblowers are more likely to participate in such a program. Id. at 104. Maintaining an effective program is in the best interests of a company because, as the SEC has in past enforcement actions, the Commission will often, upon receiving reports of a violation, notify the company and give it an opportunity to investigate the issue. In deciding whether to give a company that opportunity, the SEC will consider the company’s “existing culture related to corporate governance,” and, in particular, the effectiveness of the company’s internal compliance programs. Id. at 92 n. 197.
The final rules clarify the standard for determining when a whistleblower’s information has led to a successful investigation, entitling her to an award if the action results in monetary sanctions exceeding $1,000,000. When information concerns conduct not already under investigation or examination by the SEC, it will be considered to have led to successful enforcement if:
- It is “sufficiently specific, credible, and timely” to cause the staff to commence an examination, open an investigation, reopen an investigation that the Commission had closed, or to inquire concerning different conduct as part of a current examination or investigation, Rule 21 F-4(c)(1); and
- The Commission brings a successful judicial or administrative action based in whole or in part on the conduct identified in the original information. Rule 21 F-4(c)(1).
The standard is somewhat higher for information concerning conduct already under investigation or examination. Information will be deemed to have led to successful enforcement if it “significantly contributed” to the success of the action. Rule F-4(c)(2). In determining whether information “significantly contributed” to the success of an investigation, the Commission will consider whether the information allowed the SEC to bring a successful action in significantly less time or with significantly fewer resources, bring additional successful claims, or take action against additional parties. See Adopting Release at 100.
As discussed above, information reported by a whistleblower internally can also be credited to the whistleblower and deemed to have led to a successful investigation if it conforms to the criteria in Rule 21F-4(c)(1) or (2). Rule 21 F-4(c)(3).
Under the final rule, in determining whether recovery in an enforcement action exceeds the $1,000,000 threshold, the word “action” generally means a single judicial or administrative proceeding. Rule 21F-4(d). However, in certain circumstances actions can be aggregated. The SEC adopted this broad interpretation of the term “action” in accordance with congressional intent to increase the incentives for employees to report violations. Actions may include cases from two or more administrative or judicial proceedings that arise out of a common nucleus of operative facts, and any follow-on proceedings arising out of the same nucleus of operative facts may be aggregated as well. Rule 21F-4(d)(1). Factors that may be taken into account when determining whether two or more proceedings arise from the same nucleus of operative facts include parties, factual allegations, alleged violations of federal securities laws, or transactions and occurrences. See Adopting Release at 110.
Where the SEC has brought a successful enforcement action, the SEC will also issue awards based on amounts collected in “related actions” brought by the Attorney General of the U.S., certain regulatory authorities and self-regulatory organizations, and state attorneys general under certain circumstances. Rule 21F-3. The rule regarding related actions is discussed in detail in the Adopting Release at 20-24.
The final rules reiterate that the amount of a whistleblower’s award is within the sole discretion of the Commission as long as the award falls within the 10% to 30% range that Congress established in the Dodd-Frank Act. Rule 21 F-5. The total award cannot exceed 30% limit even where the Commission makes awards to more than one whistleblower. Id.
The final rules set forth a number of factors that the SEC may consider when calculating the final award. Factors that might increase an award include participation by the whistleblower in an internal compliance system, the significance of information provided by the whistleblower, the degree of assistance provided by the whistleblower, and the SEC’s programmatic interest in the particular securities violations at issue. Rule 21 F-6(a)(1)-(4). Factors that might decrease an award include the culpability of the whistleblower, unreasonable reporting delay, or interference with internal compliance and reporting systems. Rule 21 F-6(b)(1)-(3). In short, the rules enable a whistleblower to maximize his or her award by reporting violations timely and effectively, to use internal channels where practical, and to assist the SEC as needed.
The rules also balance concerns about culpable whistleblowers receiving awards with the understanding that, at times, those with the best access to information may have participated in wrongdoing at some level. In order to incentivize such whistleblowers to come forward with securities violations, the rules do not exclude culpable whistleblowers from awards altogether, but they do prevent them from recovering from their own misconduct. In determining whether the whistleblower has met the $1,000,000 threshold and in calculating an award, the SEC will exclude any monetary sanctions that the whistleblower is ordered to pay individually or that an entity is ordered to pay based substantially on the conduct of the whistleblower. Rule 21F-16. The rule thus allows culpable whistleblowers, who may be uniquely situated to provide information regarding securities violations, to come forward while not creating incentives that would encourage them to engage in securities violations.
The Commission paid out several awards during its first two years. The first recipient, an unidentified whistleblower, received nearly $50,000, which represented 30% of the amount collected at the time in the SEC enforcement action, and the maximum percentage payout under the law. The SEC announced the program’s second award on June 12, 2013, in a case in which the information provided by three anonymous whistleblowers allowed the Commission to bring a successful enforcement action against a fictitious, offshore hedge fund and its purported “manager” and impose more than $7.5 million in sanctions. So far the three whistleblowers have shared an award of $125,000, but they will receive additional installments if more assets are collected. On September 30, 2013, the SEC issued what to that point was the program’s largest award, paying more than $14 million to an individual whose information had allowed the SEC to move quickly to “recover substantial investor funds.”
During the 2014 fiscal year, the number of tips increased significantly, as did the frequency and size of awards. According to 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program, released on November 17, 2014, the SEC had received 10,193 whistleblower reports as of the end of FY2014. Of these, 3,620 tips were received during the 2014 fiscal year, a 10 percent increase from the previous fiscal year. The SEC issued also issued nine awards to whistleblowers, after having issued just five in the previous two years combined. The 2014 fiscal year also saw the whistleblower program’s largest award to date when on September 22, 2014, the Commission paid more than $30 million to a foreign whistleblower.
The awards to date suggest that Commission is willing to set award amounts relatively high within the allowable range, to pay whistleblowers in installment long as the government recovers sanctions and penalties from respondents, to keep protect whistleblowers’ identities from public disclosure wherever possible, even where the whistleblowers have not filed their TCRs anonymously under the rules.
Dodd-Frank also created a new cause of action, set forth in Section 21F(h)(1)(A),  which allows “whistleblowers” to sue in federal court if their employers retaliate against them because they have provided information about their employer to the SEC in accordance with the above-described whistleblower bounty program; because they have initiated, testified, or assisted in any investigation related to the program; or because they have made disclosures “required or protected” under the Sarbanes-Oxley Act, the Securities Exchange Act of 1934, or any other law, rule, or regulation under the jurisdiction of the SEC.
A Dodd-Frank retaliation claim may be filed directly in federal court within three years “after the date when facts material to the right of action are known or reasonably should have been known to the employee” (but subject to a maximum of six years). Section 21F(h)(1)(B)(iii). A whistleblower’s remedies include reinstatement, double back pay with interest, attorneys’ fees, and the reimbursement of other related litigation expenses. Section 21F(h)(1)(C). Punitive damages are not recoverable under the statute. See Rosenblum v. Thomson Reuters (Markets) LLC, No. 13 CIV. 2219 SAS, 2013 WL 5780775, at *5 (S.D.N.Y. Oct. 25, 2013); Pruett v. BlueLinx Holdings Inc., No. 1:13-cv-02607-JOF (N.D. Ga. Nov. 13, 2013). In Pruett, the district court also held that a plaintiff is not entitled to a jury trial under Dodd-Frank.
Even though the statute by its terms provides the new cause of action only to “whistleblowers,” which Section 21F(a)(6) of the Act defines as individuals who provide information to the SEC, a split has developed in the federal courts as to whether the anti-retaliation provision of Dodd-Frank also protects individuals who only have reported internally. The disagreement arises from the anti-retaliation provision’s reference to individuals who make disclosures “required or protected” under SOX, the Securities Exchange Act of 1934, or any other law, rule or regulation subject to the jurisdiction of the SEC. It is well-established that SOX protects individuals who make internal disclosures of issues that implicate the categories of fraud and securities violations enumerated in SOX 806, and that it does not require reporting to the SEC or any other government agency. One June 13, 2011, the SEC issued guidance that interpreted Dodd-Frank to protect individuals who only report internally suspected violations of securities law. The Commission stated: “[T]he statutory anti-retaliation protections [of Dodd-Frank] apply to three different categories of whistleblowers, and the third category includes individuals who report to persons or governmental authorities other than the [SEC].” Securities and Exchange Commission, Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34300-01 (June 13, 2011) (codified at 17 C.F.R. pts. 240-49).
In the earliest anti-retaliation cases decided under Dodd-Frank, several District Courts reached holdings consistent with the SEC’s guidance. See, e.g., Murray v. UBS Secs., LLC, 2013 WL 2190084 at *3-7 (S.D.N.Y. May 21, 2013); Genberg v. Porter, 935 F. Supp. 2d 1094, 1105-07 (D. Colo. 2013); Nollner v. Southern Baptist Convention, Inc., 852 F. Supp. 2d 986, 992-95 (M.D. Tenn 2012); Kramer v. Trans-Lux Corp., No. 3:11-cv-1424, 2012 WL 4444820, at *3-5 (D. Conn. Sept. 25, 2012); Egan v. TradingScreen, Inc. (Egan I), No. 10 Civ. 8202, 2011 WL 1672066, at *5 (S.D.N.Y. May 4, 2011). These courts explained that while the first two categories of protected activity under the anti-retaliation provision, by their own terms, protect only whistleblowers who work with the SEC directly, the third category is silent as to whom the disclosure must be made and that it would be rendered meaningless by a construction requiring contact with the SEC. See Murray, 2013 WL 2190084, at *5; Genberg, 935 F. Supp. 2d 1094 at 1106; Nollner, 852 F. Supp. 2d 986 at 993; Kramer, 2012 WL 4444820, at *3-5; Egan I, 2011 WL 1672066, at *5.
The Egan I court also held that an employee who provides information to someone who then passes it on to the SEC can be considered a “whistleblower” under the statute. Egan I, 2011 WL 1672066, at *8-9. Because the plaintiff did not engage in activity protected within the third category of the anti-retaliation provisions, the court evaluated whether he was protected on this alternative ground. Id. On a motion to dismiss the plaintiff’s amended complaint which asserted the factual basis for this theory, the court held that the plaintiff had failed to provide specific allegations that his reports had been passed on to the SEC by internal investigators at the company, and thus the plaintiff was not a “whistleblower” and had not engaged in protected activity under the statute. See Egan v. TradingScreen Inc. (Egan II), No. 10-cv-08282, 2011 WL 4344067, at *2-4 (S.D.N.Y. Sept. 12, 2011).
The holdings of these cases – and those disussed below that have reached the same conclusion – are potentially far-reaching, as they would allow plaintiffs who have engaged in protected activity under Section 806 of SOX to circumvent the administrative scheme outlined in SOX and take their claims directly to federal court, and to do so with the benefit of a longer statute of limitations (three years for claims filed in court under the Dodd-Frank Act, Section 21F(h)(1)(B)(iii)(bb), versus 180 days under SOX). This interpretation would also afford a plaintiff the remedy of double back pay, which is not available under SOX.
The Court of Appeals for the Fifth Circuit firmly rejected this line of reasoning, holding that “[u]nder Dodd–Frank’s plain language and structure, there is only one category of whistleblowers: individuals who provide information relating to a securities law violation to the SEC.” Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 625 (5th Cir. 2013). In Asadi, the court held that the third category of protected activity does not broaden the definition of “whistleblower” to include those who make internal reports, that it is unambiguous, and that it does not create a conflict or ambiguity in the law. The court stated that any other construction of the provision would render SOX’s anti-retaliation provision, and the accompanying administrative scheme, moot. To date, the Fifth Circuit remains the only federal appellate to address the question of whether Dodd-Frank protects internal whistleblowers, although several Courts of Appeals are set to decide the issue this year.
Asadi, decided in July 2013, did not turn the tide of decisions finding anti-retaliation protection for internal whistleblowers under Dodd-Frank. Three months later, the District Court for the Southern District of New York, consistent with its earlier holdings in Murray and Egan I, supra, rejected the holding in Asadi. In Rosenblum v. Thomson Reuters (Markets) LLC, 984 F. Supp. 2d 141 (S.D.N.Y. 2013), the court noted: “When considering the [Dodd-Frank Act] as a whole, it is plain that a narrow reading of the statute requiring a report to the SEC conflicts with the anti-retaliation provision, which does not have such a requirement. Thus, the governing statute is ambiguous.” Id. at *5. Because of this ambiguity, the Court of Appeals held that it was appropriate to consider the interpretation of the SEC, in which Congress had vested authority to implement the Dodd-Frank Act. Id. Accordingly, the Court held that the Dodd-Frank Act “does not require a report to the SEC in order to obtain whistleblower protection.” Id.
Since Asadi and Rosenblum, federal courts have continued to reach inconsistent conclusions regarding the scope of protections, resulting in a deepening split among District Courts – and occasionally disagreements among courts within the same district. The Southern District of New York affirmed its position that individuals reporting internally are protected in Yang v. Navigators Group, Inc., 18 F. Supp. 3d 519, 534 (S.D.N.Y. 2014). The District Courts for the Districts of Nebraska, New Jersey, Kansas and Massachusetts also adopted the majority view that Dodd-Frank’s protections do not require an employee to report to the SEC. See Bussing v. COR Clearing, LLC, 20 F. Supp. 3d 719, 729-31 (D. Neb. 2014) (report to FINRA protected); Khazin v. TD Ameritrade Holding Corp., No. CIV.A. 13-4149 SDW, 2014 WL 940703, at *1 (D.N.J. Mar. 11, 2014) aff'd on other grounds, No. 14-1689, 2014 WL 6871393 (3d Cir. Dec. 8, 2014); Azim v. Tortoise Capital Advisors, LLC, No. 13-2267-KHV, 2014 WL 707235, at *3 (D. Kan. Feb. 24, 2014) objections overruled, No. 13-2267-DDC-JPO, 2014 WL 4352069 (D. Kan. Sept. 2, 2014); Ellington v. Giacoumakis, 977 F. Supp. 2d 42, 45-46 (D. Mass. 2013). The District Courts for the Eastern District of Wisconsin and the Middle District of Florida, meanwhile, adopted the Asadi court’s minority view, requiring individuals to report to the SEC in order to receive anti-retaliation protections under Dodd-Frank. See Verfuerth v. Orion Energy Sys., Inc., No. 14-C-352, 2014 WL 5682514, at *2 (E.D. Wis. Nov. 4, 2014); Englehart v. Career Educ. Corp., No. 8:14-CV-444-T-33EAJ, 2014 WL 2619501, at *9 (M.D. Fla. May 12, 2014).
Splits have developed even within federal districts regarding the scope of Dodd-Frank’s protections. In Wagner v. Bank of America, the District Court for the District of Colorado disagreed with its own previous decision in Genberg v. Porter, supra, and applied the reasoning of Asadi. See Wagner v. Bank of Am. Corp., No. 12-CV-00381-RBJ, 2013 WL 3786643, at *5 (D. Colo. July 19, 2013) aff’d, 571 F. App’x 698 (10th Cir. 2014). In an October 2014 decision, the Northern District of Caliornia adopted the majority view that employees need not report to the SEC, contradicting its decision from September 2013 regarding the same issue. See Connolly v. Remkes, No. 5:14-CV-01344-LHK, 2014 WL 5473144, at *4-6 (N.D. Cal. Oct. 28, 2014); Banko v. Apple Inc., 20 F. Supp. 3d 749, 755-57 (N.D. Cal. 2013). Most recently, in December 2014, the Southern District of New York rejected several previous decisions that protected internal whistleblowers, instead concluding that the plain language of Dodd-Frank’s anti-retaliation provision was unambiguous in protecting only employees who provide information to the SEC. See Berman v. Neo@Ogilvy LLC, No. 1:14-cv-523-GHW-SN (S.D.N.Y. Dec. 4, 2014).
As the District Courts continue to issue divergent decisions, more federal courts and administrative judges are likely to weigh in on the scope of Dodd-Frank’s anti-retaliation protections. Recently, the SEC filed an amicus brief with the Court of the Appeals for the Third Circuit, which will decide the plaintiff’s appeal from the District of New Jersey in Safarian v. American DG Energy, Inc., No. 14-2734, 2014 WL 1744989 (D.N.J. Apr. 29, 2014). In Safarian, an unpublished decision, the district court held that the anti-retaliation provisions of Dodd-Frank did not apply to internal whistleblowers. The Commission has urged the Third Circuit to give Chevron deference to its interpretation of the scope of the anti-retaliation provisions, as set forth in its implementing rules.
As the Third Circuit and other appellate courts weigh in, and as the DOL continues to issue often contradictory decisions, the deepening split may afford the Supreme Court the opportunity to address the issue in the relatively near future, providing much-needed clarity to a key provision of Dodd-Frank and to the future of the SOX administrative scheme.
Section 806 applies to publicly traded companies or to “any officer, employee, contractor, subcontractor or agent” of such companies. See 18 U.S.C. § 1514A(a). These terms have been subject to differing interpretations. As discussed in Section II.A, supra, subsidiaries of publicly traded companies are now expressly covered, without resort to agency or integrated employer principles.
Section 806 applies to companies with a class of securities registered under Section 12 of the Securities Exchange Act of 1934 (15 U.S.C. § 78l) or that are required to file reports under Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78o(d)). The fact that a company may own or even issue securities, alone, is insufficient to qualify it for Section 806 coverage. Recent cases include:
- Hylton v. The Seminole Tribe of Fla., ARB No. 10-078, ALJ No. 2010-SOX-14 (ARB Oct. 31, 2011) (despite allegations that respondent sovereign Indian tribe purchased a publicly traded company and entered into business relationships with publicly traded companies, respondent is not a company covered under Section 806; moreover, it is subject to sovereign immunity).
- Hudes v. Aetna Life Ins. Co., 2011 WL 3805679 (D.D.C. Aug. 30, 2011) (“the World Bank is not a ‘company’ within the meaning of § 1514A”; although it issues securities, those securities “are explicitly ‘deemed to be exempted securities’ under both the Securities Act and the Exchange Act”).
In 2010, Section 929A of Dodd-Frank amended SOX to expressly cover “any subsidiary or affiliate (of a publicly-traded company) whose financial information is included in the consolidated financial statements of such company.” Pub.L. 111-203, §929A (July 21, 2010).
The ARB has ruled that this §929A standard applies retroactively to pre-Dodd-Frank cases. In Johnson v. Siemens Bldg. Techs., Inc., ARB No. 08-032, ALJ No. 2005-SOX-015 (Mar. 31, 2011), the ARB concluded that Section 929A was a clarification of Section 806 and then interpreted the pre-amendment language consistent with Section 929A, holding that, at a minimum, Section 806 covers a subsidiary whose financial information is included in a publicly traded parent company’s consolidated financial statements. Subsequent ARB decisions have reached similar results. See Merten v. Berkshire Hathaway, Inc., ARB No. 09-025, ALJ No. 2008-SOX-40 (ARB June 16, 2011); Mara v. Sempra Energy Trading, LLC, ARB No. 10-051, ALJ No. 2009-SOX-18 (June 28, 2011).
Most federal courts have agreed with the ARB that the §929A standard applies to pre-Dodd-Frank cases; however, at least one court did not adopt this interpretation. In Leshinsky v. Telvent GIT, S.A., 873 F. Supp. 2d 582, 605 (S.D.N.Y. 2012), the Court concluded that the Dodd–Frank amendment to Section 806 applied retroactively as a clarification of the statute. Thus, the plaintiff, as an employee of the subsidiary of a public company whose financial information was included in the consolidated financial statements of the public company, was a covered employee under Section 806. See also Ashmore v. CGI Group Inc., 2012 WL 2148899 (S.D.N.Y. June 12, 2012); Gladitsch v. Neo@Ogilvy, 2012 WL 1003513 (S.D.N.Y. Mar. 21, 2012); Andaya v. Atlas Air, Inc., 2012 WL 1871511 (S.D.N.Y. Apr. 30, 2012).
By contrast, in Mart v. Gozdecki, Del Giudice, Americus & Farkas LLP, 2012 WL 5830627 (N.D. Ill. Nov. 16, 2012), the court held that Dodd–Frank did not have retroactive effect. Therefore, plaintiff employee of a privately held subsidiary could not assert SOX claims against the publicly traded parent company. The Court found, contrary to Johnson, supra, that Dodd-Frank altered, rather than clarified, Section 806.
SOX civil whistleblower provisions cover not only publicly traded companies and subsidiaries, but also “any officer, employee, contractor, subcontractor or agent” of a covered company. 18 U.S.C. §1514A(a). The terms “officer,” “employee,” “contractor,” “subcontractor,” and “agent” are not defined in the Act and were the subject of frequent litigation. Federal courts generally limited SOX coverage over contractors or agents to cases where the complainant was employed by the publicly-traded company, not by the agent or contractor. The Administrative Review Board of the Department of Labor adopted a broader interpretation, holding that SOX protected individuals employed by private companies that contracted with publicly traded companies. This disagreement among the interpretations of SOX coverage culminated in the Supreme Court’s recent decision in Lawson v. FMR LLC, 134 S. Ct. 1158 (Mar. 4, 2014), which found that the statutory language supported the broader construction of SOX’s coverage.
In Lawson, the Supreme Court held that SOX protects employees of private contractors of publicly traded companies and their subsidiaries, overturning a decision by the Court of Appeals for the First Circuit. The plaintiffs were employees of a company that performed accounting and financial-reporting functions for the Vanguard Group of mutual funds, which itself had no employees. Lawson, 2014 WL 813701, at *6. A divided Supreme Court upheld the plaintiffs’ right to whistleblower protections. Noting that “[c]ontractors are not ordinarily positioned to take adverse actions against employees of the public company with whom they contract,” it found that a restrictive interpretation would render insignificant SOX’s ban on contractor retaliation. Id. at *7. The majority also reasoned that other provisions of the statute were indications of Congressional presumption of “an employer-employee relationship between the retaliator and the whistleblower.” Id. For example, it cited language from § 1514A(a)(1) stating that “a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct.” Id. In addition, Justice Ginsburg wrote that the remedies made available under § 1514A(c)(2), including reinstatement, could not be provided by a private contractor found to have retaliated against a public company employee. Id. at *8.
The majority expressed the view that ruling otherwise would have denied millions of mutual-fund shareholders the protection against a key protection against fraud that SOX was intended to prove, namely reports by whistleblowers. Id. at *11. Justice Ginsburg, writing for the majority, relied heavily on legislative history, specifically those reports noting the context in which SOX was initially drafted – in the wake of the Enron-Arthur Andersen accounting scandal – and reflecting Congress’s concern with the role of Enron’s outside contractors in facilitating the fraud. Id. at **11-12. In his concurrence, Justice Scalia focused solely on the text of SOX, finding it to be clear that the majority’s interpretation was correct. Id. at *17.
The Court in Lawson declined to recognize any limiting principle in SOX’s coverage of contractor employees, for now leaving the lower courts to answer key questions regarding the bounds of SOX’s coverage. For example, the Court did not make clear whether the contractor must be engaged in accounting and reporting functions for the publicly traded company, or whether an employee’s protected activity must have some connection to fraud on the publicly traded company’s shareholders. Not surprisingly, the Lawson decision has attracted a great deal of attention from both sides of the bar and more widely because it portends a new wave of litigation from employees, including lawyers, accountants and other professionals whose firms provide advisory and other services to publicly traded companies. In fact, the dissenting justices in Lawson, and later corporate interests and the defense bar, warned that the Supreme Court opened the door to lawsuits that have nothing to do with the activities of publicly traded companies, including from babysitters, nannies and gardeners who get fired for reporting that their boss, who happened to work for a public company, that the boss’s teenager had engaged in perceived Internet fraud. Id. at *23. While they disagreed about the likelihood of such hypothetical cases, both the majority and the dissent expressed the opinion that Congress might have to amend SOX if it wished to limit the reach of the statute’s coverage as interpreted by the Court. Id. at **13, 27.
One federal district court has recently made clear that the types of cases feared by the dissent in Lawson will not easily make it through the courts. In Gibney v. Evolution Mktg. Research, LLC, No. 14-1913, 2014 WL 2611213 (E.D. Pa. June 11, 2014), a fired employee sued his former employer under SOX after the employer fired him for complaining that it was overbilling a publicly traded company for which it provided marketing services. Pointing to the Supreme Court’s emphasis in Lawson on SOX’s goal of preventing fraud by public companies on shareholders, the district court dismissed the employee’s claim of retaliation for reporting his employer’s billing fraud on the public company as having little, if any, impact on shareholders. Id. at *7.
- Employee Of Publicly-Traded Company Reporting Violation By Company’s “Contractor, Subcontractor Or Agent”
In Sharkey v. J.P. Morgan Chase & Co., 2011 WL 135026 (S.D.N.Y. Jan. 14, 2011), the court found that an employee of a publicly-traded company engaged in protected activity under Section 806 by complaining to the publicly-traded company that its client, not the publicly-traded company, was engaged in covered illegal activities (e.g., mail fraud, bank fraud, money laundering or violations of federal securities laws). The court reasoned that “[t]he statute by its terms does not require that the fraudulent conduct or violation of federal securities law be committed directly by the employer that takes the retaliatory action.”
In Kalkunte v. DVI Financial Services, Inc., ARB Nos. 05-139, 05-140, 2004-SOX-56 (ARB Feb. 27, 2009), a non-publicly traded “turnaround specialist” company, which was hired to manage a publicly traded company through bankruptcy and dissolution, was held liable for the termination of complainant, an employee/attorney of the publicly traded company. The ARB concluded that the turnaround specialist company was acting as a “contractor, subcontractor, or agent” of the publicly traded company because its main principal acted as the publicly traded company’s CEO, had the power to affect the complainant’s employment, and made the decision to fire the complainant. The ARB also expressed that the main principal who acted as CEO was an “officer” under SOX, and could have been held personally liable, but found that the issue of his personal liability was not before it.
Section 806’s prohibition of retaliation by “officers, employees, contractors, subcontractors or agents of covered companies” has been interpreted as establishing individual liability for wrongful retaliation. See 69 Fed. Reg. 52104, 52105 (Aug. 24, 2004) (“[T]he definition of ‘named person’ will implement Sarbanes-Oxley’s unique statutory provisions that identify individuals as well as the employer as potentially liable for discriminatory action.”).
Individual liability under Section 806 has been limited to persons who have the authority to affect the terms and conditions of the complainant’s employment and who have knowledge of the protected activity.
- In Klopfenstein v. PCC Flow Technologies Holdings, Inc., ARB 04-149, 2004- SOX-11 (ARB Aug. 31, 2009), the ARB applied this general rule and concluded that the employer’s vice president, who participated in the investigation of complainant, but not complainant’s termination, was not sufficiently involved in the pertinent employment action to be subject to liability. The ARB concluded that “he was not a decision maker in the termination of [complainant]’s employment.”
- In Bury v. Force Protection, Inc., 2011 WL 2935916 (D.S.C. June 27, 2011), the district court dismissed Section 806 whistleblower claims against individual defendants because the allegations against them were pled “only the most general and conclusory fashion.” For example, the complaint ascribed conduct to unnamed “senior management,” which included the individual defendants and sometimes lumped the individual defendants in with decisions taken by the employer.
- In Leshinsky v. Telvent GIT, S.A., 942 F. Supp. 2d 432, 451-52 (S.D.N.Y. 2013), the district court granted summary judgment to a general manager where the employee could not point to any substantive evidence supporting an inference that the manager knew of the alleged protected activity. The court stated that the plaintiff could not rely solely on circumstantial evidence of the manager’s knowledge as evidence of causation, absent any substantive evidence to support the inference that the manager knew of the protected activity. (citing Murray v. Visiting Nurse Servs. of N.Y., 528 F.Supp.2d 257 (S.D.N.Y.2007)).
District courts continue to hold that plaintiffs must exhaust their administrative remedies against individual defendants in order to proceed against them in federal court. See Smith v. Psychiatric Solutions, Inc., 2009 WL 903624 (N.D. Fla. Mar. 31, 2009); Bridges v. McDonald's Corp., 2009 WL 5126962 (N.D. Ill. Dec. 23, 2009).
In order to exhaust administrative remedies, it is unsettled whether the individual defendant must actually be identified as a respondent in the OSHA complaint. Contrast Jones v. Home Federal Bank, 2010 WL 255856 (D. Idaho Jan. 14, 2010) (although defendant was not named as respondent in plaintiff’s OSHA complaint, he was sufficiently identified within the complaint) with Smith v. Corning, Inc., 2007 U.S. Dist. LEXIS 52958 (W.D.N.Y. July 23, 2007) (dismissing SOX claim against individual defendant not named as respondent in plaintiff's OSHA complaint).
However, the DOL generally is more lenient in allowing complainants to amend their pleadings to add as respondents parties who were not named in the OSHA complaint. See Randall v. Bank of America Corp., 2011-SOX-34 (ALJ June 21, 2011) (“Pleadings may be liberally amended. Had Complainant offered a basis, it might have been possible to do so”).
In Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010), the U.S. Supreme Court held that U.S securities laws do not apply extraterritorially to cover transactions by non-U.S. investors in securities of non-U.S. companies effected on non-U.S. exchanges (so-called “foreign-cubed cases”), even if the losses may arise from fraudulent conduct in the United States. The decision set aside the long-standing “conduct” and “effects” tests previously applied by the courts. In their place, the Court adopted a “transactional” test, under which Section 10(b) only applies to transactions in securities listed on domestic exchanges or domestic transactions in other securities. The Court reasoned that “the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States.”
One month after the Morrison decision, the Dodd-Frank Act was signed into law. Section 929P amended the Exchange Act to provide U.S. district courts with jurisdiction over an action brought or instituted by the SEC alleging a violation of the antifraud provisions of the Exchange Act involving “[c]onduct occurring outside the United States that has a foreseeable substantial effect within the United States.” Section 929Y(a) directed the SEC to prepare a study regarding whether the scope of the antifraud provisions should be extended to private rights of action to the same extent as that provided to the SEC by Section 929P. On April 11, 2012, the SEC released its study, although it did not provide any concrete recommendations but rather simply provided a wide range of options for Congress to consider.
The ARB, applying the Morrison analysis, has limited the extraterritorial application of Section 806. In Villanueva v. Core Laboratories, NV, ARB No. 09-108, ALJ No. 2009-SOX-6 (ARB Dec. 22, 2011), complainant, a foreign citizen working in Colombia for a Colombian company that was an indirect subsidiary of a Dutch company whose securities were publicly traded on the NYSE, alleged that his employer was violating Colombian tax evasion laws. The parent company had an office in Houston, where the complainant alleged that the retaliatory decision occurred. Applying the Morrison “transactional” test, the ARB found, even if executives in Houston directly controlled all aspects of the Colombia company’s business, it would “not change the fact that the disclosures involved violations of extraterritorial laws and not U.S. laws or financial documents filed with the SEC. [The complainant] did not point to a U.S. law or domestic financial statement that was fraudulent. Therefore, under the facts presented in this case, [the complainant’s] reporting of foreign tax law is beyond the reach of Section 806.”
On appeal, the Fifth Circuit did not reach the question of the extraterritorial reach of SOX because it found that the plaintiff had not engaged in protected activity as defined by Section 806. See Villanueva v. U.S. Dep’t of Labor, 743 F.3d 103, 108 (5th Cir. 2014). The court of appeals held that Villanueva had not provided information regarding conduct that violated one of the six provisions of U.S. law enumerated in the statute. Id. Rather, as alleged in multiple OSHA filings, the plaintiff had complained solely about violations of Colombian tax laws. Id.
In another case decided after Morrison, the ALJ dismissed the complaint because the complainant was a foreign national who worked exclusively in Switzerland for a foreign company and did not complain to superiors in the United States. Pik v. Credit Suisse AG, 2011-SOX-6 (ALJ Mar. 3, 2011). The decision did not address the Morrison “transactional” test.
In Asadi v. G.E. Energy (USA), LLC, 2012 WL 2522599 (S.D. Tex. June 28, 2012), the court, applying Morrison, refused to extend extraterritorial application of the anti-retaliation provision of the Dodd-Frank Act to a U.S. citizen working abroad for a U.S. public company, despite the fact that the company had expressly invoked the U.S. at-will employment law when dismissing the employee.
29 C.F.R. §1980.101 defines “employee” as “an individual presently or formerly working for a company or . . . an individual applying to work for a company or . . . whose employment could be affected by the company or company representative.” Courts and ALJs have addressed whether the following categories of persons fall within Section 806’s definition of “employee.”
Section 806’s definition of “employee” includes “an individual applying to work for a company . . . .” 29 C.F.R. §1980.101.
In Levi v. Anheuser Busch Companies, Inc., ARB 08-086, 2008-SOX-28 (ARB Sept. 25, 2009), the ARB held that “in a case dealing with an applicant and prospective employer, the successful complainant must show that he properly applied to an open position for which the company was seeking applicants and that he was qualified.” The ARB found that the complainant failed to offer evidence that he properly applied for a job for which respondent was seeking applicants and that he was qualified.
29 C.F.R. §1980.101 expressly includes “an individual . . . formerly working for a company” within the definition of “employee.” Likewise, in Robinson v. Shell Oil Co., 519 U.S. 337 (1997), the U.S. Supreme Court held that the term “employees” as used in Title VII’s retaliation provisions includes former employees. Former employees have been found to be covered under Section 806, even when the alleged protected activity and retaliation occurs post-employment.
- In Portes v. Wyeth Pharmaceuticals, Inc., 2007 WL 2363356 (S.D.N.Y. Aug. 20, 2007), the district court concluded that alleged post-employment harassment against a former employee for filing an OSHA complaint after his termination fell within the purview of Section 806, although the court ultimately dismissed the claim because the plaintiff failed to amend his OSHA complaint to include the harassment claim.
- In Hunter v. Anheuser-Busch Companies, Inc., 2008-SOX-28 (ALJ Apr. 9, 2008), an ALJ rejected a former employee’s claim that the respondent retaliated against him in violation of SOX by not responding to his written request to rehire him. The ALJ acknowledged that former employees may be covered in cases involving blacklisting or interference with employment, but that the former employee must demonstrate that he applied to be hired into an existing job vacancy that the respondent was actively trying to fill, or was solicited by the company to apply for rehiring, and that he was not hired for the particular position.
In evaluating whether a complainant is an independent contractor and not a covered “employee,” ALJs have applied the common law agency test, which, as set forth in Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318 (1992), focuses on the hiring party’s right to control the manner and means by which the product is accomplished.
However, in light of Section 806’s expansive language incorporating coverage of “an individual whose employment could be affected by a company or company representative,” some ALJs have questioned whether the Darden test is appropriate in the Section 806 context.
- In Deremer v. Gulfmark Offshore Inc., 2006-SOX-2 (ALJ June 29, 2007), an ALJ, applying the Darden principles, found that complainant was an independent contractor. Nonetheless, the ALJ found that the independent contractor was an “employee” as defined in 29 C.F.R. § 1980.101 because he was “an individual whose employment could be affected by a company or company representative.” The ALJ observed that the regulation was purposely broad, and that the term “employment” “includes any service or activity for which an individual was contracted to perform for compensation. Therefore, a contractor or subcontractor may be ‘an individual whose employment could be affected by a company or company representative.’”
In Clackamas Gastroenterology Assoc. v. Wells, 538 U.S. 440 (2003), the U.S. Supreme Court set forth six factors to consider when determining whether shareholder-directors are considered “employees” under the Americans with Disabilities Act. The Court concluded that physician-shareholders who owned a medical clinic probably were not employees where they controlled the operation of the clinic, shared the profits, served on the corporation’s board of directors and were personally liable for malpractice claims.
At least one ALJ has applied Clackamas to Section 806 claims:
- In Cunningham v. LiveDeal, Inc., 2011-SOX-4 (ALJ Apr. 1, 2011), the ALJ, observing that the issue of whether a corporate director is protected under Section 806 “appears to be an issue of first impression,” held that an independent director who served on various board committees was not protected by Section 806. The ALJ, applying Clackamas, noted that complainant was an independent director for purposes of NASDAQ regulations, and that independent directors have a special role under the SOX and NASDAQ regulatory scheme. Specifically, corporate governance rules prohibit any person who, during the past three years, was employed by the Company from being an independent director. Thus, classifying an independent director as an “employee” for the purposes of SOX protection would directly conflict with the definition of the term as it is used in the NASDAQ rules and SOX filings.
Section 1107 of SOX amended the existing criminal obstruction of justice statute by making it a crime to knowingly and intentionally retaliate against any person who provides truthful information to a law enforcement officer relating to the commission or possible commission of any federal offense. See 18 U.S.C. §1513(e). Section 1107 is enforceable solely by the Department of Justice, with supervisory authority assigned to the Criminal Division. U.S. D.O.J., U.S. Attorneys’ Manual, Ch. 9-69.100 (2008). The Labor Department has no jurisdiction to enforce section 1107. See Amicus Brief of the Acting Assistant Secretary of Labor for Occupational Safety and Health, Ede v. Swatch Group & Swatch Group USA, ARB 05-053, 2004-SOX-68 (Apr. 6, 2005); see also Attorney General Memorandum on Implementation of the Sarbanes-Oxley Act of 2002 (Aug. 1, 2002) (stating the DOJ will “play a critical role” in implementing SOX’s criminal provisions, including Section 1107).
For individuals, criminal sanctions include fines up to $250,000 and/or imprisonment up to 10 years and, for organizations, fines up to $500,000. See 18 U.S.C. § 3571. The legislative history of Section 1107 reflects that a primary purpose for establishing criminal sanctions for whistleblower retaliation was to prevent persons who retaliate against corporate whistleblowers from using federal bankruptcy laws to discharge civil judgments against them. See 148 Cong. Rec. H4686 (daily ed. July 16, 2002) (statement of Rep. Sensenbrenner).
- Expansive Scope Of Coverage
Section 1107 applies not only to publicly traded companies, but to any “person,” meaning employers, supervisors and other retaliating employees are potentially liable under the criminal provision. Employers are covered regardless of their corporate status or number of employees. Moreover, Section 1107 coverage is not limited to the employment relationship. Therefore, third parties, regardless of their agency relationship with the employer, may be liable. Finally, unlike the civil whistleblower provision, Section 1107 expressly applies overseas. See 18 U.S.C. 1513(d) (“There is extraterritorial Federal jurisdiction over an offense under this section.”).
- Expansive Definition of Protected Activity
Section 1107 is not limited to employees reporting fraud or securities violations, but covers disclosures to any federal law enforcement officer relating to commission or possible commission of any federal offense. “Law enforcement officer” includes any federal officer or employee “authorized under law to engage in or supervise the prevention, detection, investigation, or prosecution of an offense.” 18 U.S.C. § 1515(a)(4). This provision could reasonably be interpreted as encompassing complaints to the EEOC under federal employment discrimination statutes such as Title VII, ADA or ADEA. Whether such an interpretation is adopted hinges largely on the meaning of the term “federal offense,” which is not defined in SOX. Although most commonly used in reference to criminal violations, this term has been applied in both civil and criminal contexts. See, e.g., Cole v. United States Dept. of Agric., 133 F.3d 803 (11th Cir. 1998) (referring to “criminal and civil offenses”). Yet, at least one court has suggested a narrower interpretation of this provision:
- In United States v. Blitch, 2008 WL 5255558 (M.D. Ga. Dec. 15, 2008), the district court refused to apply Section 1107 to claims that a judge retaliated against a law enforcement officer by calling prospective employers and urging them not to hire the officer. The court reasoned, in part, that such retaliation was not intended to be covered under Section 1107 because “the overriding purpose of the legislation was to protect corporate employees who report wrongdoing within their corporations and to insure that corporate wrongdoing is brought to light.”
- Expansive Definition Of Prohibited Retaliation
The conduct prohibited by Section 1107 is extremely broad, covering any action “harmful” to a person, including “interference with the lawful employment of livelihood” of any person. It is not necessary for the aggrieved person to report an actual violation, rather a disclosure merely must be “truthful” and relate to the “possible commission” of a federal offense. Congress did not define the terms “harmful” or “interference,” but there is nothing in the statute that would limit these concepts to injuries involving economic harm or even to retaliation occurring within the scope of the employment relationship. Accordingly, the scope of prohibited conduct under Section 1107 appears to be at least as broad as, and probably broader than, conduct prohibited under the hostile work environment theory under other employment statutes. Yet, at least one court has suggested a narrower interpretation of this provision:
- In Rowland v. Prudential Financial, Inc., 2007 WL 1893630 (D. Ariz. July 2, 2007), the court dismissed a civil Section 1107 claim alleging that defendants “harassed [her] . . . because of the statutory protected disclosure to the EEOC, NASD, SEC, Federal and State agencies.” The court, without further discussion, concluded that “[s]uch allegations do not state a claim arising under . . . 1107.” The Ninth Circuit affirmed on the basis that Section 1107 does not provide a private right of action. Rowland v. Prudential Financial, Inc., 362 Fed. Appx. 596 (9th Cir. Jan. 11, 2010).
To be protected under Section 1107, whistleblowing activity must be directed to a “law enforcement officer” relating to the commission or possible commission of any federal offense. See 18 U.S.C. §1513(e). Courts have rejected all attempts to establish Section 1107 protected activity where complaints were not made to a law enforcement officer.
- In MacArthur v. San Juan County, 416 F. Supp. 2d 1098 (D. Utah June 13, 2005), plaintiffs contended they suffered retaliation in violation of Section 1107 for having informed their employer/hospital governance board of ethnic remarks made by hospital administration concerning another employee. The court noted that Section 1107 “simply cannot be read to reach the reporting of ethnic remarks to a local hospital’s governance board.”
- In Stark v. Zeta Phi Beta Sorority, Inc., 587 F. Supp. 2d 170 (D.D.C. 2008), the court concluded that statements to the media do not enjoy whistle blower protection under Section 1107.
- In Egan v. TradingScreen Inc., 2011 WL 1672066 (S.D.N.Y. May 4, 2011), the court dismissed a complaint alleging violation of the Dodd-Frank whistleblower provision because the plaintiff did not adequately plead that any disclosures were made to the SEC. The court further found none of the plaintiff’s disclosures protected by Section 1107 because the complaint did not contain sufficient allegations that disclosures were made “to a law enforcement officer.”
All courts that have addressed the issue have held that Section 1107 does not create a private cause of action. See, e.g., Rowland v. Prudential Financial, Inc., 362 Fed. Appx. 596 (9th Cir. Jan. 11, 2010); Hines v. California Public Utilities Comm., 2010 WL 4919234 (N.D. Cal. Nov. 24, 2010); Heard v. U.S. Dept. of State, 2010 WL 3700184 (D.D.C. Sept. 17, 2010).
Retaliation against corporate whistleblowers may give rise to a cause of action under the civil RICO statute, with the availability of treble damages. Section 1107 amends 18 U.S.C. § 1513(e) and, under RICO, “racketeering” includes “any act which is indictable under . . . 18 U.S.C. § 1513.” See 18 U.S.C. § 1961. Therefore, by engaging in retaliation prohibited by Section 1107, a company or person may commit a predicate act of racketeering under RICO.
Prior to the enactment of Section 1107, retaliatory discharge did not fall within the definition of “racketeering” activity and therefore generally could not give rise to a RICO action. See Beck v. Prupis, 529 U.S. 494 (2000). Even where an employee could allege that his or her employer committed a predicate act under RICO, the employee rarely could assert a viable RICO claim because the employee’s injury was almost never proximately caused by the predicate act, but rather by a separate adverse employment action. See Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479 (1985); Miranda v. Ponce Fed. Bank, 948 F.2d 41 (1st Cir. 1991).
Section 1107, by expressly identifying retaliatory conduct as a predicate act, significantly expands the likelihood of establishing the necessary causal link between the predicate act and the injury. However, a plaintiff must also establish the other civil RICO elements, including a “pattern of racketeering.”
- In DeGuelle v. Camilli, 664 F.3d 192 (7th Cir. 2011), the Seventh Circuit reversed dismissal of a complaint alleging RICO claims by an employee who was terminated after reporting an alleged tax fraud scheme to federal law enforcement. The court found that, although “the § 1513(e) retaliatory acts on their own do not demonstrate a pattern of racketeering activity,” the plaintiff adequately alleged a pattern of racketeering activity for RICO purposes under the “continuity plus relationship” test. The reason those two predicate acts were related, the Seventh Circuit explained, was that the retaliation (the second predicate act) was for reporting the tax fraud (the first predicate act). The court broadly observed that “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower.” Moreover, the court noted that the same actors who allegedly participated in the fraudulent activities and offered the plaintiff an increase in salary in exchange for a release and confidentiality were the same actors responsible for his termination, providing a link between the fraud scheme and the retaliation. Additionally, the court found that there was temporal proximity among the predicate acts, suggesting they were interrelated and “not isolated events.”
- In contrast, the court in Simkus v. United Air Lines, Inc., 2012 WL 3133603 (N.D. Ill. July 31, 2012), found two predicate acts of alleged mail and wire fraud and retaliation failed the “relationship” component of the “continuity plus relationship” test. Distinguishing DeGuelle, the court found that the alleged retaliation against plaintiff (the second predicate act) was for complaining about asbestos violations; that retaliation had nothing do to with the company’s alleged mail and wire fraud (the first predicate act).
ADDITIONAL CASES FINDING LACK OF A PATTERN OF RACKETEERING:
- Borich v. BP, P.L.C., 2012 WL 5269525 (N.D. Ill. Oct. 23, 2012) (noting that plaintiff did not allege that the termination of her employment resulted from any of the alleged predicate acts, nor did plaintiff allege retaliatory termination under SOX);
- Compact Disc Minimum Advertised Price Antitrust Litig., 456 F. Supp. 2d 131 (D. Me. 2006) (finding that a single act of termination, combined with alleged instructions by the employer to withhold information during “a single federal investigation,” did not constitute a “pattern of racketeering” sufficient to support a RICO claim).
Section 806 provides protection to employees for two types of employee conduct.
- First, the Act protects employees “who provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes” securities fraud, bank fraud, wire fraud, or violation of “any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.” 18 U.S.C. §1514A(a)(1) (emphasis added). The assistance must be provided to or the investigation must be conducted by: “(A) a Federal regulatory or law enforcement agency; (B) any Member of Congress or any committee of Congress; or (C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct).” 18 U.S.C. §1514A(a)(1)(A)-(C).
- Second, the Act affords protection to employees who “file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation” of the laws mentioned above. 18 U.S.C. §1514A(a)(2).
The Dodd-Frank Act similarly requires that to have anti-retaliation protection, an individual must have a reasonable belief that the information being provided to the SEC relates to a possible securities law violation. See, e.g., Kramer v. Trans-Lux Corp., 2012 WL 4444820 (D. Conn. Sept. 25, 2012). However, the body of case law interpreting Dodd-Frank’s whistleblower protections is still evolving. Additional whistleblower protections provided by Dodd-Frank are addressed in Section II, supra.
Section 806 only protects an employee who “reasonably believes” the information he or she reports constitutes a violation of the enumerated provisions. Although the Act does not define “reasonable belief,” remarks submitted by Senator Leahy explain that the “reasonable belief” standard:
is intended to impose the normal reasonable person standard used and interpreted in a wide variety of legal contexts. Certainly, although not exclusively, any type of corporate or agency action taken based on the information, or the information constituting admissible evidence at any later proceeding would be strong indicia that it could support such a reasonable belief. The threshold is intended to include all good faith and reasonable reporting of fraud, and there should be no presumption that reporting is otherwise, absent specific evidence.
The cases interpreting SOX’s reasonable belief standard have established that, consistent with other anti-retaliation statutes, both subjective and objective components must be satisfied. The subjective component requires that the complainant or whistleblower make the allegations in good faith. The objective component requires that a “reasonable person” would have believed the reported conduct violated the relevant statute.
Cases requiring both a subjective and objectively reasonable good faith belief include: Nielsen v. AECOM Tech. Corp., 2014 WL 3882488 (2d Cir. Aug. 8, 2014); Lockheed Martin Corp. v. Admin. Review Bd., 717 F.3d 1121 (10th Cir. 2013); Nance v. Time Warner Cable, Inc., 433 Fed. App’x 502 (9th Cir. 2011); Fraser v. Fiduciary Trust Co. Int'l., 396 Fed. App’x. 734 (2d Cir. 2010); Pearl v. DST Sys., Inc., 359 Fed. App’x 680 (8th Cir. Jan. 7, 2010); Gale v. DOL, 384 Fed. App’x 926 (11th Cir. June 25, 2010); Van Asdale v. International Game Tech., 577 F.3d 989 (9th Cir. 2009); Harp v. Charter Comm., Inc., 558 F.3d 722 (7th Cir. 2009); Day v. Staples, Inc., 555 F.3d 42 (1st Cir. 2009); Perez v. Progenic’s Pharmaceuticals, Inc., 10-CV-8278 (S.D.N.Y. July 24, 2013); Guitron v. Wells Fargo Bank, N.A., 2012 WL 2708517 (N.D. Cal. July 6, 2012); Feldman v. Law Enforcement Associates Corp., 779 F. Supp. 2d 472, 491 (E.D.N.C. March 10, 2011).
The subjective belief component was addressed by the Eleventh Circuit in Gale v. DOL, 384 Fed. App’x 926 (11th Cir. 2010), in which the court concluded that a subjective belief means that the employee “actually believed the conduct complained of constituted a violation of pertinent law.” The court found that the plaintiff did not have a subjective, good faith belief where he merely felt “really uncomfortable” and “uneasy.” Specifically, the complainant, when pressed at his deposition, admitted that while he was “uncomfortable” with certain accounting practices that he observed, he did not actually believe that his company was participating in illegal or fraudulent activities.
Courts evaluating whether a whistleblower’s belief is in “good faith” sometimes look to the whistleblower’s relevant experience and knowledge. For example, in Gladitsch v. Neo@Ogilvy, 2012 WL 1003513 (S.D.N.Y. Mar. 21, 2012), the court noted that the plaintiff’s allegations were “based on her professional training and experience” as a member of her employer’s Information Technology Planning Team for a major account. Likewise, in Day v. Staples, Inc., 555 F.3d 42 (1st Cir. 2009), the court stated that, “[a]s to the subjective component, the law is not meant to protect those whose complaints are not undertaken in subjective good faith.” The court agreed with the district court that a “plaintiff’s particular educational background and sophistication [is] relevant to the subjective component. Subjective reasonableness requires that the employee ‘actually believed the conduct complained of constituted a violation of pertinent law.’” The court found that there was no evidence that the Complainant did not make his complaints in subjective good faith.
In Gladitsch, the court concluded that the evidence could support a finding that the complainant had a subjective belief that the activity she reported may have been unlawful, even though she conceded that she was not certain. In Miller v. Stifel, Nicholas & Co., 812 F. Supp. 2d 975 (D. Minn. 2011), however, the court found that where the complainant testified that she was unsure whether the ethical lapses complained of constituted violations of any law or regulation covered by SOX, it could not be said that she “actually believed” the conduct complained of constituted such a violation. Similarly, in Gale, the court held that the plaintiff did not engage in SOX-protected activity where the employee testified that he “did not believe that” the company had engaged in any kind of illegal or fraudulent activity at the time he made the reports.
Objective reasonableness is evaluated based on the knowledge available to a reasonable person in the same factual circumstances with the same training and experience as the whistleblower. Recent decisions by the ARB and the Third Circuit have significantly broadened the scope of what constitutes “protected activity” under Section 806(a). Most federal courts, however, have yet to adopt the ARB’s broader vision of “protected activity,” and continue to hold plaintiffs to a higher standard when evaluating the objective reasonableness of their purported whistleblowing activity.
- The ARB Decision in Dampeer v. Jacobs Technology – Engineering and Science Group
In Dampeer v. Jacobs Technology – Engineering & Science Group, ARB No. 12-006, ALJ No. 2011-SOX-33 (ARB May 31, 2013), the ARB affirmed the ALJ’s determination that the complainant did not establish that she engaged in protected activity under SOX. The complainant was a former employee of the defendant engineering and technical services company. In June 2010, the complainant refused to verify a job title or coding change on an employee’s personnel profile because she believed doing so would violate company policy. When the complainant was again asked to verify the employee’s job title or coding change two months later, her supervisor assured her that doing so was not against company policy. Complainant, however, again refused to follow her supervisor’s directive and was later terminated as part of a company reduction in force.
The ALJ dismissed the complainant’s SOX claim after determining that she failed to establish that her refusal to verify the job title was based on an actual subjective or objective reasonable and genuine belief that doing so would constitute a violation of Section 806. Because the complainant’s initial concern was that she was being asked to violate an internal company policy, and only later voiced a concern that the verification would violate SOX, the ALJ was not convinced that the complainant’s concern was reasonable. Concluding that “this is a close case,” the ARB held that substantial evidence supported the ALJ’s holding that the complainant’s concern related only to violations of company policy that are not covered by Section 806.
- The ARB Decision in Sylvester v. Parexel Int’l LLC
In Sylvester v. Parexel Int’l. LLC, ARB 07-123 (ARB May 25, 2011), the ARB reversed the ALJ’s dismissal of a complaint on grounds that complainants failed to allege that they had engaged in conduct protected under SOX. The two complainants were former employees of Parexel, a company that tests drugs for drug manufacturers. Parexel’s contractual relationships with its clients played a significant role in determining its annual revenues, the importance of which the company communicated to its shareholders. Sylvester’s job entailed ensuring that the company’s research data complied with all applicable laws promulgated by the Food and Drug Administration. Neuschafer was a clinical research nurse.
Neuschafer first reported concerns to co-workers and supervisors in March 2006 when she observed that testing time data was missing from charts of drug study participants. In response, a Parexel employee simply inserted the then-current time into each chart. Neuschafer then approached the supervisor of the study, raising concerns that the missing data constituted reporting of false clinical data. After the supervisor dismissed the falsifications as “no big deal,” Sylvester, who had witnessed the co-worker insert the false data, subsequently reported it to other supervisors. Sylvester claimed that the employee’s insertion of false times violated the FDA’s Good Clinical Practice (“GCP”) standards. Sylvester submitted another similar complaint in May 2006.
Subsequent to their complaints, Sylvester and Neushafer claimed they were subjected to various forms of retaliation, such as verbal abuse, threatening letters, vandalism, and unwarranted warning letters issued by Parexel. Sylvester was discharged in June of 2006 because she was “not a team player.” Neushafer was discharged in August of 2006 because her “personality did not fit in.” The complainants filed complaints with OSHA, stating that Parexel terminated their employment in retaliation for complaining to Parexel managers about fraudulent acts. Parexel argued that complainants’ allegations were not specifically related to a violation of any of the provisions of SOX, did not involve shareholder fraud or conduct otherwise adverse to shareholder interests, and did not constitute reasonable concerns about SOX violations. The ALJ agreed and dismissed their complaints.
The ARB reversed, holding that under the plain language of SOX, where the activity involves providing information to one’s employer, “the complainant need only show that he or she ‘reasonably believes’ that the conduct complained of constitutes a violation of the laws listed in Section 1514.” Further, the Board concluded that a whistleblower need not wait until the illegal conduct occurs to make a complaint, so long as the employee “reasonably believes that the violation is likely to happen.” Finally, the ARB clarified that a complaint does not have to allege shareholder fraud in order to be protected by SOX. The ARB stated that the legislative history of the law indicates that it was enacted not solely to address securities fraud, but “corporate fraud generally.” In issuing this decision, the ARB overruled prior authority that had required a complainant to establish that the activity or conduct for which protection is claimed “definitively and specifically” related to one or more of the laws listed under Section 806(a). The ARB stated this standard was inconsistent with the statutory language of Section 806(a) and had been applied too strictly in prior decisions.
- The ARB Decision in Prioleau v. Sikorsky Aircraft Corp.
In Prioleau v. Sikorsky Aircraft Corp., ARB No. 10-060, ALJ No. 2010-SOX-3 (ARB Nov. 9, 2011), the complainant initially submitted a report to his employer complaining about “an apparent conflict” between a new litigation preservation notice and the employer’s document deletion policy, stating that the litigation preservation notice “may violate the policy.” Although the plaintiff later specified that he should have used the word “fraud” instead of “conflict” and explained why his employer was potentially engaging in fraudulent activities, the ALJ found that he had not engaged in protected activity because his initial report had failed to “definitively and specifically” articulate a SOX violation and thus was not protected.
The ARB, relying on Sylvester, reversed, holding that “whether activity is protected concerns whether a complainant has a reasonable belief that there is a violation [of one of the laws enumerated in SOX] when he makes the communication, not whether he communicates that belief to the respondent or whether he puts the respondent on notice of protected activity.” Moreover, the Board stated that protected activity does not have to relate to shareholder fraud, if complainant “reasonably believes” the conduct complained of constitutes a violation of one of the laws listed in Section 806(a). The ALJ dismissed the plaintiff’s complaint in September 2012 for failure to respond to the ALJ orders. The ARB affirmed the dismissal on April 30, 2013. See Prioleau v. Sikorsky Aircraft Corp., ARB No. 13-002, ALJ No. 2010-SOX-003 (ARB Apr. 30, 2013).
As these ARB decisions reflect, the DOL under the current administration has taken the position that, contrary to earlier precedent, “protected activity” under Section 806(a) is to be interpreted broadly.
- Certain Federal Courts Have Adopted the ARB’s Definition of Protected Activity
In Nielsen v. AECOM Tech. Corp., 2014 WL 3882488 (2d Cir. Aug. 8, 2014), the Second Circuit affirmed the dismissal of a SOX whistleblower retaliation claim brought by a former AECOM Technology Corp. employee who alleged that the company terminated his employment after he reported a subordinate for approving fire-safety designs without actually reviewing the design, holding that he did not engage in protected activity because he lacked a “reasonable belief” that the alleged conduct of which he complained violated one of the enumerated federal provisions in Section 806 of SOX. The Second Circuit held that the ARB’s revised interpretation of Section 806, which focuses on the “reasonable belief” of the whistleblower, more closely aligns with the text of the statute and is persuasive. In so holding, the court abrogated an earlier, non-precedential order in Vodopia v. Koninklijke Philips Elecs., N.V., 398 Fed. App’x 659 (2d Cir. 2010), in which the court had adopted the “definitively and specifically” standard. The Second Circuit’s explicit rejection of the “definitively and specifically” standard is at odds with the First, Fifth, Sixth, and Ninth Circuits.
In Wiest v. Lynch, 710 F.3d 121 (3d Cir. Mar. 19, 2013), the Third Circuit reversed in a 2-1 decision the district court’s holding, giving Chevron deference to the ARB’s decision interpretation of “protected activity” in Sylvester v. Parexel Int’l LLC. The court concluded that the plaintiff’s internal complaint to his former employer concerning the treatment of certain corporate expenses was protected activity under Section 806(a) because his internal complaints reflected a reasonable belief that the defendant’s conduct violated Section 806.
Likewise, in Leshinsky v. Telvent GIT, S.A., 942 F. Supp. 2d 432 (S.D.N.Y. May 1, 2013), the SDNY applied the standard set forth in Sylvester and rejected the defendant’s motion for summary judgment. The defendant argued that because the plaintiff told only a single supervisor that a proposed bid overhead rate was “unethical, certainly immoral and may even be illegal,” his complaint failed to “definitely and specifically” relate to one of the enumerated elements under fraud set forth under Section 806. The court, however, noted that the ARB had liberalized this standard to require only that a complainant show that he “had both a subjective belief and an objectively reasonable belief that the conduct he complained of constituted a violation of relevant law.” Adopting the ARB’s standard, the court concluded that the plaintiff’s concern about the potential illegality of the overhead rate was sufficient for a jury reasonably to conclude that the company’s conduct would violate relevant anti-fraud provisions. See also Taylor v. Fannie Mae, 2014 WL 4219553, at *3 (D.D.C. Aug. 25, 2014) (holding that Sylvester is entitled to Chevron deference); Stewart v. Doral Fin. Corp., 997 F. Supp. 2d. 129, 136 (D.P.R. Feb. 21, 2014) (same).
OTHER JUDICIAL DECISIONS:
- Feldman v. Law Enforcement Assocs. Corp., 955 F. Supp. 2d 528 (E.D.N.C. 2013) (no objectively reasonable belief where plaintiff had very little information on which to base report of suspected insider trading).
- Harp v. Charter Comm., Inc., 558 F.3d 722 (7th Cir. 2009) (no objectively reasonable belief where statements made by the supervisor were ambiguous and failed to support an objectively reasonable belief that a fraudulent payment had been ordered).
- Harkness v. C-Bass Diamond, LLC, 2010 WL 997101 (D. Md. Mar. 16, 2010) (defendant’s general counsel’s belief that SEC regulations had been violated was not reasonable “[i]n light of [plaintiff’s] professional experience and the legal resources available to her”).
To constitute protected activity, the subject matter of a SOX complaint must implicate a violation of “section 1341, 1343, 1344, or 1348, any rule or regulation of the SEC, or any provision of Federal law relating to fraud against shareholders.” 18 U.S.C. §1514A(a).
- The ARB Decision in Johnson v. Wellpoint Cos.
In Johnson v. Wellpoint Cos., ARB No. 11-035, ALJ No. 2010-SOX-38 (ARB Feb. 25, 2013), the ALJ granted the respondent’s motion to dismiss for failure to state a claim. Before ruling on the motion, the ALJ allowed the complainant to correct certain deficiencies in her complaint to show that her communications to her supervisor expressed “definitive and special concern,” based on her reasonable belief that her former employer was violating Section 806 of SOX. After reviewing the complainant’s amended complaint, however, the ALJ concluded that the complainant failed to set forth sufficient facts to show that she engaged in protected activity because she did not claim that the respondent was potentially committing mail fraud until after she had been terminated.
- The ARB Decision in Zinn v. American Commercial Airlines, Inc.
In Zinn v. American Commercial Lines, Inc., ARB No. 10-029, ALJ No. 2012-SOX-025 (ARB March 28, 2012), the ARB reversed the ALJ’s determination that “an allegation of ‘shareholder fraud’ is an essential element of a cause of action under SOX.” The complainant, Angelina Zinn, was a former corporate attorney for American Commercial Lines, Inc. (“ACL”). She filed a complaint alleging that the defendant violated SOX when it discharged her after she contacted two supervisors to express her concerns that ACL had not properly vetted or audited a vendor. Because ACL’s annual 10-K form reported that ACL was safety compliant, Zinn believed that the company misrepresented information to shareholders in light of her belief that ACL was using unlicensed personnel.
Zinn alleged in her SOX complaint that her communications with her supervisor related to the following protected issues: (1) ACL’s alleged failure to properly vet its vendors and a vendor’s use of unlicensed personnel; (2) the failure of ACL to report on its 10-K Form the use by its vendor of unlicensed personnel; and (3) the failure of ACL to file a Form 8-K announcing the company’s appointment of a new general counsel and senior vice president. In evaluating whether Zinn engaged in protected activity, the ALJ determined that Zinn failed to show that she had a reasonable belief that her employer engaged in violations that related to shareholder fraud, securities fraud, or an actual violation of a specific law. Thus, the ALJ concluded that Zinn’s communications were not protected because she lacked an objectively reasonable belief that the company’s actions violated the laws covered by SOX.
The ARB disagreed, holding that ALJ’s conclusion that “all the basic elements of securities fraud must be satisfied to support Complainant’s objective reasonableness that [the defendant] was committing fraud upon its shareholders” was erroneous because it “improperly merge[d] the elements required to prove a violation of a fraud statute with the requirements that a whistleblower must allege or prove to engage in protected activity.” Instead, citing Sylvester, the ARB concluded that “a complainant can . . . engage in protected activity under Section 806, even if the complainant fails to allege, prove, or approximate specific elements of fraud.”
After the ARB remanded the case, the ALJ determined that the defendant did not violate Section 806 of SOX because it demonstrated by clear and convincing evidence that the plaintiff was terminated for insubordination. The ARB affirmed the ALJ’s decision on December 17, 2013. Zinn v. American Commercial Lines Inc., ARB Case No. 13-021 (ARB Dec. 17, 2013).
- The ARB Decision in Inman v. Fannie Mae
The ARB went one step further in Inman v. Fannie Mae, ARB No. 08-060, ALJ No. 2007-SOX-47 (ARB June 28, 2011), holding that “an allegation of fraud is not a necessary component of protected activity under Section 806.” The complainant was a Senior Manager responsible for establishing and maintaining “appropriate internal controls with Controllers.” He alleged that Fannie Mae fired him because he “discovered several irregularities in financial records that he attempted to correct or report to his superiors.” Specifically, he reported that certain amortization figures were based on flawed and manipulated data, resulting in a $52.4 million expense overstatement and a $2.6 billion anomalous income result.
The ALJ held that the complainant did not engage in SOX protected activity because he did not “definitely and specifically” complain that “the events he was reporting constituted evidence of fraud.” The ARB reversed, finding that the “definitively and specifically” standard had been rejected in Sylvester. Moreover, the Board held that “an allegation of fraud is not a necessary component of protected activity under Section 806,” because 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.
Finally, the ARB rejected Fannie Mae’s argument that the complainant did not engage in protected activity “because Fannie Mae was already aware of the concerns he was raising.” The ARB reasoned that “neither the SOX nor its implementing regulations indicate that an employee does not engage in protected activity when he informs his employer about violations of which the employer is already aware.”
- Federal Courts Are Split On Which Standard Should Apply
Federal courts are increasingly split as to whether a plaintiff must show that alleged misconduct “definitely and specifically” relates to one of the six categories enumerated in Section 806 of SOX. See McEuen v. Riverview Bancorp, Inc., No. 12-CV-5997 (W.D. Wash. Dec. 19, 2013) (noting the circuit split and declining to embrace one standard over the other).
In Nielsen v. AECOM Tech. Corp., 2014 WL 3882488 (2d Cir. Aug. 8, 2014), for example, the Second Circuit affirmed the dismissal of a SOX whistleblower retaliation claim brought by a former AECOM Technology Corp. employee, holding that he did not engage in protected activity because he lacked a “reasonable belief” that the alleged conduct of which he complained violated one of the enumerated federal provisions in Section 806 of SOX. The Second Circuit held that the ARB’s revised interpretation of Section 806, which focuses on the “reasonable belief” of the whistleblower, more closely aligns with the text of the statute and is persuasive.
Similarly, in Lockheed Martin v. ARB, No. 11-9254 (10th Cir. June 4, 2013), the complainant, who worked as a Director of Communications at one of Lockheed’s facilities, reported to Human Resources her concerns that a Vice President was misusing the company’s Pen Pal Program, which was created to facilitate communications between Lockheed employees and U.S. soldiers serving overseas. The complainant alleged the VP had developed sexual relationships with several soldiers participating in the Pen Pal program, purchased a laptop computer for one soldier, sent inappropriate e-mails and items via mail to soldiers in Iraq, and traveled to welcome-home ceremonies to visit soldiers on the pretext of business. The complainant contended that the VP was expending company funds for these activities and passing them on to the customer, presumably the federal government.
The Tenth Circuit affirmed the ARB’s ruling in Brown v. Lockheed Martin Corp., ARB No. 10-050, ALJ No. 2008-SOX-49 (ARB Feb. 28, 2011), that “an employee complaint need not specifically relate to shareholder fraud to be actionable under [SOX].” In so holding, the court endorsed both the ALJ and the ARB’s conclusion that the complainant engaged in activity protected by Section 806 of SOX because she “reasonably believe[d]” that the VP committed wire or mail fraud by mailing inappropriate items and improperly billing the U.S. government, by mail or wire, for her purchases with company funds.
Likewise, in Wiest v. Lynch, 710 F.3d 121 (3d Cir. 2013), the Third Circuit reversed in a 2-1 decision of the district court’s holding and gave Chevron deference to the ARB’s decision interpretation of “protected activity” in Sylvester v. Parexel Int’l LLC. The court concluded that the plaintiff’s internal complaint concerning treatment of certain corporate expenses was protected activity under Section 806(a) because his internal complaints reflected a reasonable belief that the defendant’s conduct violated Section 806.
The Ninth Circuit has reached a different conclusion. In Nance v. Time Warner Cable, Inc., 433 Fed. App’x 502 (9th Cir. 2011), the court held that an “employee’s communications must definitively and specifically relate to [one] of the listed categories of fraud or securities violations [in] 18 U.S.C. § 1514A(a)(1).” In Nance, the plaintiff communicated with his superiors about possible errors or inconsistencies in Comcast’s subscriber count. The Ninth Circuit concluded that these communications did not constitute protected activity because “[n]one of Nance’s statements linked the inconsistency to fraud or to a securities violation . . . . Nance was not required to use the word ‘fraud’ or to cite the code section he believed was violated, but his statements must still be related to fraudulent or otherwise illegal conduct in order to be protected.”
OTHER JUDICIAL DECISIONS:
Riddle v. First Tennessee Bank, Nat. Ass’n., 497 Fed. App’x. 588 (6th Cir. 2012); Day v. Staples, Inc., 555 F.3d 42 (1st Cir. 2009); Welch v. Chao, 536 F.3d 269 (4th Cir. 2008); Allen v. DOL, 514 F.3d 468 (5th Cir. 2008).
Some courts have required specific allegations of fraud against shareholders. See Safarian v. Am. DG Energy Inc., 2014 WL 1744989 (D.N.J. Apr. 29, 2014) (reports of overbilling, improper construction, and failure to obtain proper permits did not sufficiently relate to fraud against shareholders; declining to extend SOX’s protection to “any fraudulent actions that might lead to misstatements in the accounting records or tax submissions”); Gauthier v. Shaw Group, Inc., 2012 WL 6043012 (W.D.N.C. Dec. 4, 2012) (noting split in authority but applying Fourth Circuit precedent requiring that “an employee’s disclosures . . . be related to illegal activity that, at its core, involves shareholder fraud”); Livingston v. Wyeth, Inc., 2006 U.S. Dist. LEXIS 52978 (M.D.N.C. July 28, 2006), aff’d, 520 F.3d 344 (4th Cir. 2008) (noting that the Fourth and Fifth Circuits, and a number of ALJs, have found that “[t]o be protected under Sarbanes-Oxley, an employee’s disclosures must be related to illegal activity that, at its core, involves shareholder fraud”).
Cases not requiring allegation of fraud against shareholders in particular: Gladitsch v. Neo@Ogilvy, 2012 WL 1003513 (S.D.N.Y. Mar. 21, 2012) (noting that “courts in this district have found that violations of the statutes enumerated in Section 1514A are not limited by the phrase ‘relating to fraud against shareholders’”); Reyna v. Conagra Foods, Inc., 506 F. Supp. 2d 1363 (M.D. Ga. June 11, 2007) (“[t]he statute protects an employee against retaliation based upon that employee’s reporting of mail fraud regardless of whether that fraud involves a shareholder of the company”).
Under Section 806(a)(1), an employee must “provide information” (or cause information to be provided) in order to engage in protected activity. Similarly, Dodd-Frank defines “whistleblower” as a person or persons who report a violation of securities laws to the SEC:
The term ‘whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the [Securities and Exchange] Commission, in a manner established, by rule or regulation, by the Commission.
15 U.S.C. § 78u-6(a)(6).
- The ARB Decision in Vannoy v. Celanese Corp.
In Vannoy v. Celanese Corp., ALJ Case No. 2008-SOX-00064 (July 24, 2013), the ARB held that an employee’s theft of confidential, personal, and corporate information from the employer’s computer system in violation of a confidentiality agreement was protected activity. Complainant Vannoy filed an internal complaint that the misuse and abuse of employee credit cards was posing a financial risk to the company. He also filed a complaint with the IRS pursuant to its “Whistleblower Rewards Program.” In support of his complaints, Vannoy took, either by e-mail or on compact discs, business documents related to company operations and containing sensitive personal identifying information of former and current company employees. The ALJ had dismissed Vannoy’s SOX claim because his reporting did not relate to SOX prohibitions or shareholder fraud. In 2011, the ARB reversed, reiterating its position that the complainant’s reported misconduct must specifically relate to shareholder fraud, and remanded for further consideration of whether the company unlawfully retaliated against Vannoy. See Vannoy v. Celanese Corp., ARB No. 09-118, ALJ No. 2008-SOX-64 (ARB Sept. 28, 2011).
- The ARB Decision in Pik v. Credit Suise AG
In Pik v. Credit Suise AG, ARB No. 11-034, ALJ No. 2011-SOX-0006 (ARB May 31, 2012), the ALJ held that the complainant’s original OSHA complaint alleging “violations of Health & Safety rules at Credit Suisse, New York and Zurich” but containing no allegations of fraud failed to establish that the complainant had engaged in SOX-protected activity. The ALJ dismissed the complainant’s conclusory contention that he was retaliated against for “reporting fraud” because he failed to sufficiently indicate what information he may have provided regarding conduct that he reasonably believed constituted a SOX violation or that might have constituted SOX protected activity. Similarly, the fact that the plaintiff was pro se did not excuse his failure to provide no more than a “blanket assertion” that he engaged in SOX protected activity.”
- Federal Courts Have Adopted A Higher Standard
Federal district courts have generally held, contrary to the recent ARB cases, that a complaint must involve specific allegations. See Reamer v. U.S. Dept. of Labor, 2012 WL 5503369 (6th Cir. Nov. 14, 2012) (email complaints to company officials did not constitute protected activity because they neither “stated nor suggested that [the employer] had committed fraud or violated securities laws”); Nance, supra; Day v. Staples, Inc., 555 F.3d 42, 55 (1st Cir. 2009) (“employee must show that his communications to the employer specifically related to one of the laws listed in § 1514A”); Van Asdale v. International Game Tech., 577 F.3d 989 (9th Cir. 2009) (employee’s communications must “definitely and specifically” relate to one of the categories of fraud or securities violations listed under section 1514A(a)(1)); Allen v. DOL, 514 F.3d 468, 476 (5th Cir. 2008) (“employee’s complaint must definitively and specifically relate to one of the six enumerated categories found in § 1514A”); Getman v. DOL, 2008 WL 400232 (5th Cir. Feb. 13, 2008) (no protected activity because plaintiff had never actually conveyed her belief that upgrading rating would violate a securities law).
An important question has arisen over what conduct is protected under the Dodd-Frank anti-retaliation provision. As discussed above, Dodd-Frank defines “whistleblower” as a person or persons who report a violation of securities laws to the SEC. However, the following text in the same section of the Dodd-Frank prohibits an employer from retaliating against a whistleblower “because of any lawful act done by the whistleblower”:
In making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 …, the Securities Exchange Act of 1934 …, including section 10A(m) of such Act …, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.
15 U.S.C. § 78u-6(h)(1)(A)(iii).
In Asadi v. G.E. Energy, LLC, 720 F.3d 620 (5th Cir. 2013), the Fifth Circuit became the first circuit court to address the apparent ambiguity in the definition of “whistleblower.” The court held that “[u]nder Dodd–Frank’s plain language and structure, there is only one category of whistleblowers: individuals who provide information relating to a securities law violation to the SEC.” The court held that the third category of protected activity does not broaden the definition of “whistleblower” to include those who make internal reports, that it is unambiguous, and that it does not create a conflict or ambiguity in the law. The court stated that any other construction of the provision would render SOX’s anti-retaliation provision, and the accompanying administrative scheme, moot.
Several district courts have adopted Asadi’s reasoning. The District Court for the Eastern District of Wisconsin in Verfuerth v. Orion Energy Systems, Inc., 2014 WL 5682514 (E.D. Wis. Nov. 4, 2014) recently ruled that the Dodd-Frank whistleblower protection provision does not protect employees who only report alleged violations of the securities laws internally. In dismissing a former CEO’s whistleblower retaliation claim, the court followed the Fifth Circuit’s decision in Asadi, holding that the text of the statute requires that a “whistleblower” report an alleged violation to the SEC to be covered by Dodd-Frank’s whistleblower protection provision.
Similarly, in Englehart v. Career Education Corp., 2014 WL 2619501 (M.D. Fla. May 12, 2014), the District Court for the Middle District of Florida dismissed with prejudice a former employee’s Dodd-Frank whistleblower claim on the ground that the employee was not a “whistleblower” within the meaning of the Dodd-Frank Reform Act because she did not provide information relating to a violation of the securities law to the SEC. The court aligned itself with the Fifth Circuit, which held that the Dodd-Frank Reform Act whistleblower-protection provision “creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the SEC.” Recognizing that a number of district courts reached a conclusion contrary to the Fifth Circuit’s holding, the Middle District concluded that the Dodd-Frank Reform Act provides unambiguous statutory language as to the definition of a “whistleblower,” and it is not the role of the court “to expand explicit definitions within a statute to reach a desired result.”
The U.S. District Court for the Northern District of California also followed the Fifth Circuit’s lead when deciding Banko v. Apple Inc., 20 F. Supp. 3d 749 (N.D. Cal. 2013). The plaintiff was an Apple engineer who reported to his supervisors that a fellow engineer was embezzling money, an allegation that was later confirmed by an internal investigation. Apple then terminated the plaintiff, who responded by bringing a claim for whistleblower retaliation under Dodd-Frank, as well as several state law employment claims. The district court granted Apple’s motion for summary judgment on the Dodd-Frank claim, citing Asadi and dismissing Banko’s claim on grounds that he never reported his concerns to the SEC. See also Berman v. Neo@Ogilvy LLC, 2014 WL 6860583, at *4 (S.D.N.Y. Dec. 5, 2014) (“the plain meaning of the Dodd–Frank whistleblower-protection provision creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the Commission”).
District courts in other circuits have reached a contrary conclusion – holding that whistleblowers need not complain to the SEC to be protected under Dodd-Frank. For example, in Connolly v. Wolfgang Remkes, 2014 U.S. Dist. LEXIS 153439 (N.D. Cal. Oct. 28, 2014), a case of first impression within the Ninth Circuit, the District Court for the Northern District of California ruled that the whistleblower protection provision in Dodd-Frank protects whistleblowers who report alleged violations both internally and to the SEC. The plaintiff alleged that she received and reviewed a file from another financial advisor that contained “actual checks” and that “appeared to be a violation of various Financial Industry Regulatory Authority (“FINRA”) rules.” The plaintiff was asked to verify this with an internal compliance department and did so. However, upon reporting this confirmation to her supervisor, the plaintiff alleged that she was instructed to assist in a “cover-up.” She refused to comply and resigned. The plaintiff then filed suit in March 2014 under the Dodd-Frank whistleblower protection provision. The defendant moved to dismiss per Rule 12(b)(6), on the grounds that Connolly did not disclose any potential wrongdoing to the SEC. The court, however, disagreed with the defendant, finding that Dodd-Frank was “susceptible to more than one interpretation when read together” and it was unclear whether all whistleblowers had to report violations to the SEC to qualify for protection.
Similarly, in an October 2013 decision, the Southern District of New York disagreed with Asadi, finding that the differing statutory definitions of “whistleblower” created an ambiguity that was best resolved by deferring to the SEC’s implementing regulations. Rosenblum v. Thomson Reuters (Markets) LLC, 984 F. Supp. 2d 141 (S.D.N.Y. 2013). The District Court for the District of New Jersey took a similar approach in Khazin v. TD Ameritrade Holding Corp., 2014 WL 940703 (D.N.J. Mar. 11, 2014). In that case, the employee, an investment oversight officer at a securities firm, was terminated after reporting a compliance violation to his supervisors. The court held found that the statute was ambiguous, and it was therefore appropriate to defer to the SEC’s interpretive guidance. See also Bussing v. COR Clearing, LLC, 20 F. Supp. 3d 719 (D. Neb. 2014) (employee who disclosed information about potential securities law violations to FINRA qualified as a “whistleblower” under Dodd-Frank, even though the employee did not provide any information to the SEC); Yang v. Navigators Group, Inc., 18 F. Supp. 3d 519 (S.D.N.Y. 2014) (holding that the plaintiff qualified as a Dodd-Frank whistleblower even though she did not lodge a complaint with the SEC); Ellington v. Giacoumakis, 977 F. Supp. 2d 42 (D. Mass. 2013); Azim v. Tortoise Capital Advisors, LLC, 2014 WL 707235 (D. Kan. Feb. 24, 2014).
The Second Circuit recently declined to address whether one qualifies as a whistleblower under Dodd-Frank if he or she has disclosed the alleged misconduct only within the corporation, and not to the SEC. See Liu Meng-Lin v. Siemens AG, 2014 WL 3953672 (2d Cir. Aug. 14, 2014).
In Zulfer v. Playboy Enterprises, No. 12-CV-08263 (C.D. Cal. Apr. 24, 2013), the United States District Court for the Central District of California ruled that the fact that the illegal conduct the plaintiff reported was contemplated but never carried out did not prohibit the plaintiff from pursuing a SOX whistleblower claim. The court, which credited the plaintiff’s allegation that she reasonably believed her disclosures regarding certain executives’ alleged attempts to circumvent internal procedures concerning discretionary bonuses were related to a violation of SEC rules and regulations, rejected the defendant’s argument that the plaintiff could not pursue a retaliation claim for her termination because the bonuses at issue never actually occurred.
In Barrett v. e-Smart Technologies, Inc., ARB Nos. 11-088, 12-013, ALJ No. 2010-SOX-31 (ARB Apr. 25, 2013), the ALJ held that the complainant engaged in protected activity because he reported concerns about misstatements and omissions in a draft SEC Form 10-K that he reasonably believed would mislead investors. The respondent claimed on appeal to the ARB that the complaints about the 10-K were not protected because they raised concerns about future SOX violations. The ARB rejected this argument, holding that “reporting an actual violation is not required. A complainant can engage in protected activity when he reports a belief of a violation that is about to occur or is in the stages of occurring.” See also Wiest v. Lynch, 710 F.3d 121 (3d Cir. 2013) (an employee’s communications about a potential violation will constitute protected activity as long as the employee reasonably believes the violation is likely to happen).
There is authority under other whistleblower statutes for the proposition that a report of information that has already been made public or is already known to the company does not constitute protected activity. Francisco v. Office of Pers. Mgmt., 295 F.3d 1310 (Fed. Cir. 2002) (WPA); Meuwissen v. Department of the Interior, 234 F.3d 9 (Fed. Cir. 2000) (WPA).
In Allen v. DOL, 514 F.3d 468 (5th Cir. 2008), an ALJ rejected a respondent’s argument that, to constitute protected activity, a complaint must provide information that was not already known by the company. However, the ALJ concluded that the complainant could not have a reasonable belief that respondent was engaged in fraud, in part because respondent already knew about the problem before complainant reported it and was making it a priority to remedy it. The Fifth Circuit affirmed the ARB’s decision upholding the ALJ.
Where an employee’s job consists of investigating and reporting wrongdoing, courts have held that the performance of such job duties does not constitute protected activity under similar whistleblower statutes. Garcetti v. Ceballos, 547 U.S. 410 (2006); Sasse v. DOL, 409 F.3d 773 (6th Cir. 2005) (U.S. attorney who alleged DOJ retaliated against him while investigating environmental crimes failed to show agency violated whistleblower provisions of environmental laws because performance of his job duties was not protected whistleblowing activity); Langer v. Department of the Treasury, 265 F.3d 1259, 1267 (Fed. Cir. 2001) (IRS employee, whose duty it was to review actions taken by the IRS’s Criminal Division, did not engage in activity protected by the WPA by informing DOJ officials that their grand jury investigations disproportionately targeted African-Americans). But see Barker v. UBS AG, 888 F. Supp. 2d 291 (D. Conn. 2012) (concluding that SOX “does not indicate that an employee’s report or complaint about a protected violation must involve actions outside the complainant’s assigned duties”). The ARB, however, has disagreed that SOX imposes a similar requirement upon claimants. See Deremer v. Gulf Coast, A.L.J. No. 2006-SOX-2 (ALJ June 29, 2007) (restricting protected activity to exclude employee’s job duties would be contrary to Congressional intent); Leznick v. Nektar Therapeutics, ALJ No. 2006-SOX-00093 (ALJ Nov. 16, 2007) (citing to Deremer and Ninth Circuit precedent for the principle that an employee whose own job duties encompass reporting illegal conduct may obtain whistleblower relief under SOX); cf. Robinson v. Morgan Stanley/Discover Fin. Servs., ALJ No. 2005-SOX-44 (ALJ Mar. 26, 2007) (internal auditor did not engage in protected activity where normal job duties included report made to audit management).
- The ARB Decision in Funke v. Federal Express Corp.
In Funke v. Federal Express Corp., ARB No. 09-004, ALJ No. 2007-SOX-43 (ARB July 8, 2011), the ARB held that complaints concerning third party conduct are protected by SOX. Specifically, the ARB concluded that an employee engaged in protected activity when she reported suspicions that a third-party customer of her employer was using FedEx as a conduit for mail fraud, although there were no allegations that FedEx was complicit in the fraud. The ARB reasoned that Section 1514A protects an employee who provides information “regarding any conduct which the employee reasonably believes constitutes a violation” of one of six enumerated laws or regulations contained therein. In addition, the ARB held that the employee was protected by SOX when she made her report to local law enforcement.
- Federal Courts Have Adopted a Similar Standard
At least two courts have similarly expanded the definition of “providing information” to reports of illegal conduct of a third party. In Sharkey v. J.P. Morgan Chase & Co., 2011 WL 135026 (S.D.N.Y. Jan. 14, 2011), the plaintiff reported to her employer her belief that one of her clients had engaged in illegal activities including mail fraud, bank fraud, and money laundering. Although the court ultimately concluded that the plaintiff’s belief was unreasonable, it held that the plaintiff had properly pled that she engaged in protected activity under the SOX whistleblower provision by alleging that she reported her concerns about the client’s illegal activity. The court reached a similar conclusion again in Gladitsch v. Neo@Ogilvy, 2012 WL 1003513 (S.D.N.Y. Mar. 21, 2012), citing Sharkey for the proposition that “SOX protects a plaintiff’s complaint about misconduct committed by a third-party as well as that by the plaintiff’s employer.”
In Feldman v. Law Enforcement Associates Corp., 779 F. Supp. 2d 472, 491 (E.D.N.C. March 10, 2011), the court agreed with Sharkey’s conclusion that “[SOX] by its terms does not require that the fraudulent conduct or violation of federal securities law be committed directly by the employer that takes the retaliatory action.”
SOX provides protection to employees “who provide information [to], cause information to be provided [to], or otherwise assist in an investigation [by] . . . a person with supervisory authority over the employee, or such other person working for the employer who has the authority to investigate, discover or terminate misconduct.” 18 U.S.C. § 1514A(a)(1)(C).
The term “supervisory authority” has been broadly construed. In Gonzalez v. Colonial Bank, 2004-SOX-39 (ALJ Aug. 20, 2004), the complainant, former chairman of the local bank advisory board, allegedly informed two local executive officers of the respondent bank that a lending company they had formed possibly violated banking laws. The respondent moved for summary decision, arguing that the complainant testified he had “actual authority” over the executives and therefore the complainant did not “provide information” to “a person with supervisory authority over the employees.” Despite this testimony, the ALJ found a genuine issue of material fact existed as to whether the CEO had authority over the complainant, or vice versa.
The phrase “such other person working for the employer who has authority to investigate, discover, or terminate misconduct” also has been broadly construed. In Smith v. Hewlett-Packard, ARB No. 06-064 (ARB Apr. 29, 2008), the ARB concluded that a complaint to an outside agency was protected if the complaint addressed violations of any of the fraud provisions enumerated in Section 806. See also Jayaraj v. Pro-Pharmaceuticals, Inc., 2003-SOX-32 (ALJ Feb. 11, 2005) (comments to the company’s COO, complainant’s peer, were protected because the COO had the “authority to investigate, discover and terminate misconduct related to securities law”); Deremer v. Gulfmark Offshore, Inc., 2006-SOX-2 (ALJ June 29, 2007) (disclosures to external audit firm and investigating law firm were protected since holding otherwise “would produce a result inconsistent with the purpose of the Act”).
In contrast, in Tides v. Boeing Co., 644 F. 3d 809 (9th Cir. 2011), cert. denied, 132 S. Ct. 518 (2011), the Ninth Circuit recently held that leaking confidential documents to the outside media is not protected activity. The plaintiffs, members of the company’s SOX Audit group, claimed to have found deficiencies in the company’s auditing practices. After management allegedly did not respond to their concerns, the plaintiffs reported them to the Seattle Post-Intelligencer, which then published an article on the topic. Plaintiffs argued that going to the media “is a way of communicating a message” and thus constitutes protected activity under the statute. The Ninth Circuit rejected this argument, finding that it would lead to a “boundless interpretation of the statute.”
In addition to protecting employees who report possible fraud or assist in investigations, SOX contains a “participation clause” that explicitly protects employees who “file, cause to be filed, testify, participate in, or otherwise assist in” proceedings alleging violations of securities laws, SEC rules or regulations, or other federal laws relating to fraud against shareholders. The decisional law under this provision is still developing. Also, although the precise language of the Act is not found in other DOL-enforced whistleblower provisions, some other DOL-enforced whistleblower provisions include comparable language referring to employees who file or participate in “proceedings.” See, e.g., 42 U.S.C. § 9610(a) (CERCLA); 42 U.S.C.
§ 5851(a)(1)(F) (ERA).
In Romaneck v. Deutsche Asset Mgmt., 2006 WL 2385237 (N.D. Ca. Aug. 17, 2006), plaintiff claimed to be engaged in protected activity by anticipating testifying before the SEC in an investigation related to market-timing. The defendant claimed the plaintiff’s general statements that “he would tell the whole truth and let the chips fall where they may” lacked specificity because they did not reference a specific SOX violation. The Court tied the specificity requirement to the “provide information” language that appears only in one prong of the Act – 18 U.S.C. § 1514A(a)(1). The absence of “provide information” in the prong that relates to employee testimony – 18 U.S.C. § 1514A(a)(2) – enabled the Court to relax the specificity requirement in this circumstance.
Additionally, in Grove v. EMC Corp., 2006-SOX-99 (ALJ July 2, 2007), complainant called an SEC attorney to obtain information about the legality of certain agreements to which the respondent was a party. The SEC, however, did not file or pursue any proceeding against the respondent as a result of the complainant’s inquiries. Even though a strict reading of the Act only protects contacts relating to proceedings, the ALJ noted that such an application of law “would require a narrow and overly technical reading of the Act that would run counter to the legislative history which reflects that the law was intentionally written to sweep broadly, protecting any employee of a publicly traded company who took such reasonable action to try to protect investors and the market.” Consequently, the ALJ ruled that “when an employee contacts the SEC in connection with a reasonable belief of a securities law violation within the scope of Sarbanes-Oxley . . . that action is protected even if no formal SEC proceeding is ever initiated.”
In Miles v. Wal-Mart Stores, Inc., 2008 U.S. Dist. LEXIS 5781 (W.D. Ark. Jan. 25, 2008), the district court ruled that an administrative employee engaged in protected activity by contacting an executive being investigated for mail and wire fraud regarding the shredding of potentially relevant documents. The defendant argued that the investigation had not yet matured into a proceeding at the time of plaintiff’s contact. The court rejected that argument because the plaintiff had clearly identified the grand jury proceeding at issue and only eight months lapsed between her act and the executive’s conviction.
However, in Brookman v. Levi Strauss & Co., 2006-SOX-36 (ARB July 23, 2008), the ARB, affirming an ALJ ruling, rejected the employee’s argument that his cooperation with the SEC regarding potential violations was protected activity under the participation clause because the employee’s allegations were “too vague to constitute a protected activity since it did not identify [the employer’s] alleged misconduct.”
Section 806(a) prohibits an entity covered by the statute from retaliating against employees who report violations enumerated in the statute. Section 806(a) provides that no publicly traded company or individual may “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee” to blow the whistle on a violation, including mail fraud, bank fraud or securities fraud or any provision of federal law relating to fraud against shareholders. 18 U.S.C. § 1514A(a). To make a prima facie case under Section 806(a), the employee-complainant must prove that (1) s/he engaged in protected activity, (2) the employer knew that s/he engaged in the protected activity, (3) s/he suffered an adverse action, and (4) the protected activity was a contributing factor to the adverse action. Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254, 259 (5th Cir. 2014); see also Wiest v. Lynch, 710 F.3d 121, 129 (3d Cir. 2013). This chapter discusses prongs 3 and 4—what constitutes “adverse action” and “contributing factor” to the adverse action.
The DOL and courts initially looked for guidance on how to analyze cases under Section 806(a) by looking at how retaliation was defined under Title VII. In 2006, the Supreme Court analyzed the meaning of “retaliation” under Title VII in Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. 53, 126 S. Ct. 2405 (2006). In Burlington Northern, the Supreme Court held that a plaintiff may pursue a retaliation claim under Title VII if the “employer’s challenged action would have been material to a reasonable employee,” and likely would have “dissuaded a reasonable worker from making or supporting a charge of discrimination.” In its analysis, the Supreme Court specifically rejected more restrictive standards of proof that had been used by several U.S. Courts of Appeals.
Plaintiff was hired as a track maintenance laborer by Burlington Northern & Santa Fe Railroad (BNSF) in June of 1997. She was the only woman in the department, and the only person who was qualified to operate a forklift. For the first three months of her employment, White was assigned to operate a forklift, which is less physically demanding and cleaner than other track maintenance work. On September 16, 1997, White filed an internal complaint alleging that her foreman sexually harassed her and discriminated against her. Ten days later, the foreman was given a ten-day suspension, and White was removed from her forklift duties and assigned to more physically demanding and dirtier track maintenance work.
White filed charges of sex discrimination and retaliation with the U.S. Equal Employment Opportunity Commission (EEOC) on October 10, 1997, and again on December 4, 1997. On December 11, 1997, White was involved in a dispute with a supervisor and was suspended without pay for insubordination. White made a timely request for an investigation within the fifteen day period for appealing disciplinary actions provided under the applicable collective bargaining agreement. Upon the conclusion of the investigation, BNSF reversed the suspension. On January 16, 1998, BNSF reinstated White with full back pay and expunged the suspension from her personnel record.
After exhausting her administrative remedies, White filed a Title VII lawsuit alleging sex discrimination and retaliation. White alleged that the retaliation consisted of (i) her reassignment from forklift duties to more demanding responsibilities, and (ii) her suspension because she had filed EEOC charges. The jury returned a verdict in favor of BNSF as to White’s sex discrimination claim. However, the jury found in favor of White as to her retaliation claim, and awarded her $43,250 in compensatory damages based on White’s testimony that being without income over the Christmas holidays caused her to seek medical treatment for serious distress about providing for herself and her children.
The Court of Appeals for the Sixth Circuit reversed the ruling on the retaliation claim, holding that the two alleged acts of retaliation were not sufficient to state a claim for retaliation under Title VII. The Sixth Circuit reasoned that it could not see how White suffered an adverse employment action by being directed to do a job for which she was hired, and that the suspension pending the investigation, followed by reinstatement, was an interim decision that was not actionable. Upon rehearing of the case en banc, the Sixth Circuit affirmed the jury’s verdict on the basis that Title VII prohibits adverse actions that materially change the terms of employment, including the two acts against White. The en banc Court determined that taking away an employee’s paycheck for over a month is not trivial, and that White’s reassignment was done with retaliatory intent and constituted a demotion to a more arduous, dirtier, and less prestigious job.
Prior to the Supreme Court’s decision, several Circuits had used different standards to determine whether employer conduct rises to the level of retaliation under Title VII. In the Sixth Circuit’s decision in this case, it stated that a plaintiff alleging a Title VII retaliation claim must prove the existence of (i) an “adverse employment action” or (ii) severe or pervasive retaliatory or other discrimination-based harassment by a supervisor. White v. Burlington Northern & Santa Fe Railway Co., 364 F.3d 789 (6th Cir. 2004). The Sixth Circuit defined “adverse employment action” as action causing “a materially adverse change” in the terms of employment. The Sixth Circuit explained that this standard prevents lawsuits from being filed based on trivial workplace dissatisfactions, and that mere inconvenience or alteration of job responsibilities do not satisfy the “materially adverse” standard.
Affirming the verdict in White’s favor, the Supreme Court specifically adopted the standard which required the plaintiff to prove that the “employer’s challenged action would have been material to a reasonable employee,” and likely would have “dissuaded a reasonable worker from making or supporting a charge of discrimination.” Burlington Northern at 2415 (citing Washington v. Illinois Dep’t of Revenue, 420 F.3d 658, 662 (7th Cir. 2005) and Rochon v. Gonzales, 438 F.3d 1211, 1217-18 (D.C. Cir. 2006)). The opinion contrasted the language of Title VII’s anti-discrimination provision, which prohibits discrimination as to “terms and conditions of employment,” with Title VII’s anti-retaliation provision which prohibits “discrimination” but is not limited by the additional phrase “terms and conditions of employment.” The opinion reasoned that this difference in language showed Congress’ intent to forbid a broader range of retaliatory acts than are prohibited under the anti-discrimination provision. The opinion stated that the requirement of “material adversity . . . is important to separate significant from trivial harms,” and that the “reasonable employee” standard “avoids the uncertainties and unfair discrepancies that can plague a judicial effort to determine a plaintiff’s unusual subjective feelings.” The opinion also stated that the standard was phrased “in general terms because the significance of any given act of retaliation will often depend on the particular circumstances. Context matters.”
In a potentially far-reaching statement, the opinion held that Title VII’s anti- retaliation provision “does not confine the actions and harms it forbids to those that are related to employment or occur at the workplace.” Id. at 2414. The opinion reasoned that “[a]n employer can effectively retaliate against an employee by taking actions not directly related to his employment or by causing him harm outside the workplace.” The court cited as an example a decision in which the Tenth Circuit held that actionable retaliation could take the form of an employer’s filing false criminal charges against a former employee. Id. (citing Berry v. Stevinson Chevrolet, 74 F.3d 980 (10th Cir. 1996)).
Initially, courts and the Department of Labor utilized the Burlington Northern standard to varying degrees when determining whether an employer had caused a complainant to experience an adverse employment action in violation of Section 806(a) of Sarbanes-Oxley. See Rzepiennik v. Archstone Smith, Inc., 2004-SOX-26 (ALJ Feb. 23, 2007) (“Given the reliance upon Title VII by administrative authorities interpreting the Sarbanes-Oxley Act, it is unclear what, if any, effect the Court’s decision [in Burlington Northern] will have on retaliation claims under SOX.”). Section 806(a) states that covered employers may not “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment.” However, as the body of law under Section 806(a) has evolved, DOL and court decisions have strayed from the Burlington Northern standard, adopting a distinct standard – with an even wider reach than the retaliation provisions of Title VII.
In Allen v. Stewart Enters., Inc., ARB 06-081 (ARB July 27, 2006), the ARB applied two tests to determine whether the complainants had experienced adverse employment actions. The ARB explained that the ALJ had applied both the “tangible job consequences” test (a tangible job consequence is one that constitutes a significant change in employment status) and the “detrimental effect” test (an action is adverse if it is reasonably likely to deter employees from making protected disclosures). The ARB then reached its decision regarding whether a workspace relocation and the alleged improper attribution of error reports to the complainants’ department constituted adverse employment actions. The ARB determined that neither action significantly changed the complainants’ employment status or would have deterred others from protected activity. The ARB only mentioned Burlington Northern in the context of determining whether the complainants had suffered from a hostile work environment due to stonewalling, friction, and exclusion from notification of policy changes. The ARB cited Burlington Northern when it explained that some of the complained about conditions are similar to the “‘petty slights, minor annoyances, and simple lack of good manners’ that often take place at work and that all employees experience.”
Similarly, in a federal district court case decided shortly after Allen, the district court did not connect Burlington Northern with the interpretation of a Sarbanes-Oxley claim. In Bozeman v. Per-Se Techs., Inc., 456 F. Supp. 2d 1282 (N.D. Ga. 2006), the plaintiff alleged violations of Title VII and Sarbanes-Oxley. The court first addressed the Title VII claims. Although the plaintiff had asserted a constructive discharge claim as an adverse action in support of a retaliation claim under Title VII, the court addressed the constructive discharge claim separately. The court then acknowledged and applied the Burlington Northern standard to the retaliation claim. However, the court did not address Burlington Northern during its analysis of the constructive discharge claim. Further, when the court analyzed whether there was an adverse action to support the Sarbanes-Oxley claim, it referred to its prior analysis of the Title VII constructive discharge claim without addressing Burlington Northern.
Subsequently, in an ALJ decision decided after both Allen and Bozeman, the ALJ addressed Burlington Northern more squarely. In McClendon v. Hewlett Packard, Inc., 2006-SOX-29 (ALJ Oct. 5, 2006), the ALJ explained that “[a]dministrative decisions have used different interpretations of what constitutes an adverse action under whistleblower law, but they generally agree that while Title VII case law influences whistleblower decisions, differences in statutory language signify that adverse action should be interpreted more broadly under whistleblower claims than under Title VII claims.” Based on this rationale, the ALJ stated that the Burlington Northern decision serves as a starting point for analysis of potentially adverse actions in Sarbanes-Oxley cases. However, the ALJ cited Burlington Northern when the ALJ stated that “the test is whether a reasonable employee would be dissuaded from whistleblowing based on the alleged adverse action.” The ALJ then found that a reasonable employee would have been dissuaded from engaging in protected activity as a result of the complainant’s transfer to a different department after receiving one day to decide whether to accept the transfer or face a lay-off. Also, the transfer significantly decreased his workload, and the scope of the new position varied unfavorably from the scope when past employees had filled the same position.
In Deremer v. Gulfmark Offshore, Inc., 200-SOX-2 (ALJ June 29, 2007), the ALJ explained that Burlington Northern had relaxed the standard for an adverse employment action in retaliation cases, and that the complainant need not prove termination or suspension from the job, or a reduction in salary or responsibilities. However, the ALJ stated that Burlington Northern had not relaxed the standard that must be applied in whistleblower cases to hostile work environment claims. Instead, Burlington Northern had lowered the overall standard for conduct that constitutes retaliation under this standard. Despite the relaxing and lowering of these two standards, the ALJ did not find that a reduction in the complainant independent contractor’s hours, a lack of additional assignments, or relocation of work-space into a supply room due to a need for space had caused the complainant to experience an adverse employment action, or that a hostile work environment had been created when certain employees, including the subject of the complainant’s allegations, ceased speaking to the complainant.
In Allen, et al. v. Administrative Review Bd., 514 F.3d 468 (5th Cir. 2008), the Fifth Circuit Court of Appeals affirmed the Administrative Review Board’s decision in Allen v. Stewart Enters., Inc., supra. Although the court did not go into detail discussing the standard for “adverse employment action” under Section 806(a), it noted that the Administrative Review Board has previously relied on the definition set forth in Burlington Northern & Santa Fe Railway v. White when deciding whistleblower cases under the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR 21”). Allen, at 476, n. 2 (citing Hirst v. Southeast Airlines, Inc., ARB 04-116 (ARB Jan. 31, 2007)). The court found that due to the similarity of the whistleblower protections afforded by both AIR 21 and SOX, the Burlington Northern & Santa Fe Railway v. White definition of “adverse employment action” applied to SOX whistleblower claims. Id.
The Tenth Circuit has taken an incredibly expansive view of what constitutes “adverse employment action” under Section 806(a). Lockheed Martin Corp. v. Admin. Review Bd., U.S. Dep’t of Labor, 717 F.3d 1121 (10th Cir. 2013). In Lockheed, Andrea Brown reported that her supervisor was having an inappropriate relationship with soldiers through a Company-run pen pal program. Id. at 1126. Brown thought that her supervisor’s actions were potentially fraudulent and illegal because she might have been using Company and government funds. Id. at 1132. Brown worried that her supervisor’s misuse of Company funds could lead to government audits, which could affect the Company’s contracts and stock price. Id.
Brown reported her supervisor’s conduct to the Vice President of Human Resources. Id. at 1126. After Brown reported these issues, her supervisor gave her lower performance ratings and began leveling threats that her job was being eliminated. Id. at 1127. Brown’s new supervisor moved her office into a storage room/visitor’s office. Id. The new supervisor also wanted to move her to a cubicle and informed her that she was losing her leadership position, which would have entitled her to an office. Id. at 1127-28. Brown subsequently had a“breakdown” and went on medical leave. Id. at 1128. Later, she resigned and claimed constructive discharge. Id.
Brown filed a complaint with OSHA alleging violations of Section 806(a). Id. After OSHA denied her complaint, Brown sought review from the ALJ. Id. The ALJ found that “Brown had engaged in protected activity; she suffered materially adverse employment actions, including constructive discharge; and her engagement in protected activity was a contributing factor in the constructive discharge” and awarded reinstatement, back pay, medical expenses, and non-economic compensatory damages in the amount of $75,000. Id. Lockheed appealed to the Administrative Review Board, which affirmed the ALJ’s decision. Id.
On appeal, the Tenth Circuit found that Brown had engaged in protected conduct because Section 806(a) does not require that the whistleblower report “violations [that] relate to fraud against shareholders to be protected from retaliation under the Act.” Id. at 1131, 1132.
Regarding the adverse action prong, the Court stated that Brown’s allegation of constructive discharge satisfied this prong. Specifically, Brown was “kept in a constant state of uncertainty as to whether she had a job,” and a reasonable person would determine that the working conditions were intolerable and forced Brown to resign. Id. at 1134-35. As to the contributing factor prong, the Court stated that this is a “broad and forgiving” standard, noting that the ARB defined “contributing factor” as “any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.” Id. at 1136 (citing Klopfenstein v. PCC Flow Techs. Holdings, Inc., ARB No. 04-149 (ARB May 31, 2006)). It noted that “[t]emporal proximity between the protected activity and adverse employment action may alone be sufficient to satisfy the contributing factor test.” Id. In this case, Brown’s poor treatment by her supervisors began shortly after her report of the ethics violations. Id. Despite the fact that Brown’s constructive discharge occurred over one year after the ethics report and investigation, this passage of time was irrelevant because “the relevant time frame is not when the constructive discharge occurred, but when the conduct leading up to the discharge began.” Id. at 1137.
Lockheed greatly expands two elements of the retaliation prima facie case. First, Lockheed agrees with other recent decisions that protected conduct does not require a claim of shareholder fraud. Second, it states that a claim for constructive discharge can be successfully alleged as a materially adverse action on the grounds that there was job uncertainty. District courts are following Lockheed’s holding that constructive discharge can be a materially adverse action under SOX. Jordan v. Sprint Nextel Corp., No. 12-2573, 3 F. Supp.3d 917, 929-30 (D. Kan. Mar. 11, 2014) (holding that plaintiff sufficiently alleged adverse action in a SOX retaliation claim by making claims of constructive discharge); Wood v. Dow Chem. Co., No. 14-CV-13049, 2014 WL 7157100, at *13 (E.D. Mich. Dec. 15, 2014) (applying Lockheed and finding alleged conduct is sufficient to state a claim of constructive discharge within the context of SOX retaliation claims).
The Fifth Circuit continues to expand of the definition of “adverse action” by upholding the ARB’s decision that an employee suffered an adverse action when the company disclosed his identity as a whistleblower to his colleagues. Halliburton, Inc. v. Admin. Review Bd, 771 F.3d 254, 259 (5th Cir. 2014)
Menendez had been employed by Halliburton as Director of Technical Accounting Research and Training. Id. at 256. Shortly after beginning his employment, Menendez raised concerns about Halliburton’s accounting concerning revenue recognition practices. Id. . Menendez was concerned that the defects in the recognition practices could have a major impact on Halliburton’s financial statements. Id. Menendez took his concerns to his supervisor, the Chief Accounting Officer (“CAO”). Id. In addition, Menendez circulated a memorandum detailing his position on the revenue recognition practices. Id. The CAO subsequently met with Menendez and told him that the memorandum was good, but that he was not being a “team player.” Id.
Menendez then contacted the Securities and Exchange Commission (“SEC”) and made a confidential complaint stating that Halliburton was engaging in “questionable” accounting practices with respect to revenue recognition. Id.
After learning that the SEC had contacted Halliburton in connection with his complaint, Menendez sent an e-mail to the Audit Committee addressing the same concerns he had brought to the SEC’s attention. Id. Menendez was under the impression that his identity would be kept confidential in accordance with corporate policy. Id. Despite corporate policy ensuring confidentiality, Menendez’ e-mail was forwarded to the Audit Committee members and various other employees, including the CAO, Menendez’s direct supervisor, who was implicated by Menendez’s complaint. Id. Several days later, in an e-mail pertaining to document retention, required as a result of the SEC complaint, the General Counsel identified Menendez as the source of the SEC complaint to several of the same individuals, as well as other executives. Id.
“Menendez was horrified when he saw the email disclosing his identity as the SEC complainant, and he described that day as one of the worst in his life. Colleagues began to treat him differently, generally avoiding him.” Id. at 257. Menendez missed work frequently, requested and was granted a paid leave of absence. He then found found other employment. Id. Menendez subsequently filed a complaint under Section 806(a) with the Department of Labor, alleging that Halliburton had retaliated against him by disclosing his identity. “The Administrative Judge concluded, among other things, that, although Menendez's reports to the SEC and the company were protected conduct, the disclosure of his identity was not an ‘adverse action’ (a required element of an antiretaliation claim under SOX) because none of the workplace harm Menendez suffered as a result of being identified as the whistleblower rose to the level of being ‘materially adverse.’” Id. Menendez appealed to the ARB.
The Board reversed the ALJ’s decision, holding that the procedures required by SOX for the confidential submission of employee complaints are a “term and condition of employment” for employees covered by SOX, and therefore protected under Section 806(a). Menendez v. Halliburton, Inc. ARB 09-002, 09-003 at *57 (ARB Sept. 13, 2011). The Board stated that the language of Section 806(a) is broader than Title VII, and therefore requires a broader interpretation of “adverse action” than the standard set forth by the Supreme Court in Burlington Northern. Id. at *36. The Board adopted the standard for “adverse action” that it had recently set forth in Williams v. American Airlines, Inc., ARB 09-018, (ARB December 29, 2010) for whistleblower cases brought under AIR 21, based on the similarity between the two statutes. Id. at *37. Under the Williams standard, the term adverse action applies to any “unfavorable employment actions that are more than trivial, either as a single event or in combination with other deliberate employer actions alleged.” Id. at *37-38. The Board noted that Burlington Northern remains a helpful guide for the analysis of adverse actions under SOX, but SOX’s statutory language controls. Id. at *38.
The 2011 Menendez decision significantly broadened the standard for determining what constitutes an “adverse employment action” for purposes of establishing a prima facie claim under Section 806(a). District courts followed this broader interpretation by the Board. See Guitron v. Wells Fargo Bank, N.A., No. C 10-3461 CW, 2012 WL 2708517, at *15 2 (N.D. Cal. July 6, 2012) (applying Menendez adverse employment action standard).
After the ARB remanded to the ALJ and revisited the issues in 2013, finally, in 2014, the Menendez decision reached the Fifth Circuit. The Fifth Circuit concluded that the ARB’s conclusion that Halliburton’s disclosure of Menendez’s identity as the whistleblower amounts to a “materially adverse” action was not reversible legal error. Halliburton, Inc., 771 F.3d at 262. In explaining its decision and relying on Burlington Northern, the Fifth Circuit stated:
in a workplace environment such as Menendez’s where collaboration is an important part of the job, the employer’s targeted disclosure to the whistleblower’s colleagues that the whistleblower had reported them to the authorities for alleged wrongdoing and has caused them to become the subject of an official investigation, thus creating an environment of ostracism, well might dissuade a reasonable employee from whistleblowing[.]
Id. Thus, under Fifth Circuit precedent, an employer reporting a whistleblower’s identity to his/her colleagues is a materially adverse employment action that satisfies prong 3 of the SOX retaliation prima facie case.
OTHER NOTABLE DECISIONS
- Bechtel v. Competitive Technologies, Inc., 2005-SOX-33 (ALJ Oct. 5, 2005) (removal of complainant’s status as company officer and failure to conduct performance review did not constitute adverse employment actions)
- Willis v. Vie Financial Group, Inc., No. 04-435, 2004 U.S. Dist. LEXIS 15753 (E.D. Pa. Aug. 6, 2004) (loss of job responsibilities is a change in employment conditions sufficient to constitute an adverse action under the Act).
Under Fifth Circuit precedent, “a ‘contributing factor’ is ‘any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.’” Halliburton, Inc., 771 F.3d at 263 (emphasis is original) (quoting Allen v. Admin. Review Bd., 514 F.3d 468, 476 n.3 (5th Cir. 2008)). “Contributing factor” is “broad and forgiving.” Lockheed, 717 F.3d at 1136. Courts and the DOL have considered the following factors in determining whether the complainant’s protected activity was a contributing factor for the adverse employment action:
In Henrich v. Ecolab, Inc., 2004-SOX-51 (ALJ Nov. 23, 2004), aff’d ARB 05-030 (ARB June 29, 2006), the complainant argued that his immediate supervisor’s knowledge about the instances of protected conduct should be imputed to the higher executives who decided to terminate his employment. The ALJ ruled that the immediate supervisor’s knowledge could be imputed to the higher executives as to the first instance of protected conduct, but not as to the second.
However, in Grant v. Dominion East Ohio Gas, 2004-SOX-63 (ALJ Mar. 10, 2005), the ALJ rejected the complainant’s “speculation and supposition” that the executive who decided to terminate the complainant’s employment “must have known” about the complainant’s protected activity. The ALJ found no evidence the employer had attempted to insulate the decisionmaker from knowledge of protected conduct. The ALJ also found it was unreasonable to conclude the complainant’s supervisors would have relayed his questions about accounting to higher executives because it was part of the complainant’s job to raise questions about proper accounting practices.
In Jayaraj v. Pro-Pharmaceuticals, Inc., 2003-SOX-32 (ALJ Feb. 11, 2005) the employer was a “small start-up biotechnology company” whose primary executives were a chief executive officer (CEO) and a chief operating officer (COO). The CEO testified he decided to terminate the complainant’s employment, and he was unaware that she had engaged in protected activities. The ALJ found it was likely the COO had told the CEO about the complainant’s protected activity in light of evidence that the CEO and COO had worked closely together since the founding of the company.
Ghirardelli v. McAvey Sales & Serv., Inc., 287 F. Supp. 2d 379 (S.D.N.Y. 2003), aff’d, 98 Fed. Appx. 909 (2d Cir. 2004) (general corporate knowledge established when senior company official knew plaintiff engaged in protected activity and, based on management size, it was reasonable to infer that information was shared with official who decided to terminate plaintiff); Donlon v. Group Health Inc., No. 00-civ-2190, 2001 U.S. Dist. LEXIS 1001 (S.D.N.Y. Feb. 8, 2001) (general corporate knowledge established when supervisor who approved discharge decision knew employee had engaged in protected activity).
OSHA’s 2011 Whistleblower Investigations Manual provides guidance on the knowledge component as well. The Manual states that the employee need not establish that the employer had actual knowledge of the specific protected activity. The employee can satisfy the elements of a prima facie case by showing that “a person involved in the decision . . . suspected that the complainant engaged in protected activity.” See U.S. Department of Labor, OSHA Whistleblower Investigations Manual, at 3-10 (Sept. 20, 2011), available at http://www.whistleblowers.gov/ (“For example, one of the respondent’s managers need not have specific knowledge that the complainant contacted a regulatory agency if his or her previous internal complaints would cause the respondent to suspect a regulatory action was initiated by the complainant”).
“Temporal proximity between the protected activity and the adverse action is a significant factor in considering a circumstantial showing of causation[.]” Tice v. Bristol–Myers Squibb Co., 2006–SOX–20, 2006 WL 3246825, at *20 (Dep’t of Labor Apr. 26, 2006) (internal citations omitted). The mere fact that the adverse action follows protected activity is not necessarily sufficient to prove causation, however. In Trodden v. Overnite Transportation Co., 2004-SOX-64 (ALJ Mar. 29, 2005), the ALJ held that the complainant had failed to show that his termination four months after he engaged in protected activity was causally related to his protected conduct. In Taylor v. Wells Fargo, Texas, 2004-SOX-43 (ALJ Feb. 14, 2005), aff’d ARB 05-062 (ARB June 28, 2007) the complainant’s employment was terminated nine days after she engaged in protected conduct. However, her employment was terminated four days after the last in a series of insubordinate acts. After observing that close temporal proximity between protected activity and termination may be sufficient to establish retaliatory intent, the ALJ ruled as follows:
This close temporal proximity, however, does not require such a finding. While Complainant was terminated from her employment just nine days after contacting Homeyer and Bevis about the backdated letters of credit, her discharge was also after a series of confrontations in the office and poor performance. The timing of the termination is not suspicious when that timing is credibly explained by a non-retaliatory motive.
Taylor, 2004-SOX-43, at 12.
The Fifth Circuit affirmed the Taylor decision in an unreported case, Taylor v. Administrative Review Board, 288 Fed.Appx. 929 (5th Cir. 2008). The Fifth Circuit noted that there was evidence that the employee refused to speak to her supervisor after a negative review. Additionally, the employee screamed at her supervisor and was belligerent during meetings. The court found that there was evidence that the employee would have been discharged even without the complaint. Taylor, 288 Fed.Appx. at *1.
Termination one day after raising concerns about inventory accounting problems was held not to be sufficient proof of causation in Richard v. Lexmark Int’l Inc., 2004-SOX-49 (ALJ June 20, 2006). In that case, the employer proved that it had decided to terminate the employee several weeks before the employee expressed concerns about accounting issues.
In Pardy v. Gray, a six-month gap between the alleged protected activity and the employee’s termination was not sufficient to establish retaliation. Pardy v. Gray, No. 07-civ-6324, 2008 U.S. Dist. LEXIS 53997 (S.D.N.Y. July 15, 2008). The court noted that besides the temporal proximity, there was no evidence that the employee’s complaint was a contributing factor in her termination.
See also Leznik v. Nektar Therapeutics, Inc., 2006-SOX-93 (ALJ Nov. 16, 2007) (discharge two weeks after raising a perceived violation of the corporate code of ethics could support an inference of causation); Bechtel v. Competitive Technologies, Inc., 2005-SOX-33 (ALJ Oct. 5, 2005) (no nexus between perceived threat in December 2002 and termination in June 2003); Heaney v. GBS Properties LLC d/b/a Prudential Gardner Realtors, 2004-SOX-72 (ALJ Dec. 2, 2004) (complaint dismissed because, inter alia, no temporal proximity between complainant’s concerns and his termination).
But see Lockheed Martin Corp. v. Admin. Review Bd., U.S. Dep’t of Labor, 717 F.3d 1121, 1136 (10th Cir. 2013) (citing Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1003 (9th Cir. 2009) (temporal proximity may establish that the complaint was a “contributing factor” in the adverse action); Kalkunte v. DVI Financial Servs., Inc. and AP Servs., LLC, 2004-SOX-56 (ALJ July 18, 2005) (time span of less than one month was sufficient circumstantial evidence); Jayaraj v. Pro-Pharmaceuticals, Inc., 2003-SOX-32 (ALJ Feb. 11, 2005) (sending complainant home the same day as protected activity and terminating her ten days later was sufficient temporal proximity).
The Fourth Circuit recently held that a plaintiff failed to establish a prima facie case because he failed to show that his protected activity was a contributing factor in the employer’s decision to terminate his employment. Feldman v. Law Enforcement Assocs. Corp., 752 F.3d 339 (4th Cir. 2014). In Feldman, 20 months prior to the plaintiff’s termination, he reported to the Department of Commerce information about potentially illegal exports. The lack of temporal proximity between the report and his firing weighed strongly against a finding that the plaintiff’s alleged protected activities were a contributing factor in the company’s decision to discharge him. Id. at 348.
The Fourth Circuit, however, placed particular importance on “a legitimate intervening event [that] further undermin[ed] a finding that his long-past protected activities played any role in the termination[.]” Id. at 349. Specifically, plaintiff criticized outside board members in meetings with a major shareholder. Feldman admitted that the outside board members viewed his actions as “throw[ing] them under the bus.” Id. The Court construed this action as a legitimate intervening event. “[T]this legitimate intervening event, coupled with the passage of a significant amount of time after Feldman’s alleged protected activities, severs the causal connection. Id. See also Halloum v. Intel Corp., ALJ No. 2003–SOX–7, 2004 WL 5032613, at *4–5, 2004 DOLSOX LEXIS 73, at *13 (Dep’t of Labor Mar. 4, 2004) (“The causal connection may be severed by the passage of a significant amount of time, or by some legitimate intervening event.”). The Court concluded that, while the contributing factor standard in SOX cases is meant to be “broad and forgiving,” the standard would be “toothless” if the court concluded that “these long-past activities affected Feldman’s termination given the lengthy history of antagonism and the intervening events which caused the Outside Directors to view Feldman as insubordinate.” Id.
In Zinn v. American Commercial Lines Inc., ARB Case No. 13-021 (ARB Dec. 17, 2013), the ARB affirmed an ALJ’s decision that the Company did not violate the whistleblower protection provision in Section 806 of SOX where the Company demonstrated by clear and convincing evidence that its decision to discharge the complainant, who was an in-house attorney, was based on her insubordination. See also Pardy v. Gray, 2008 U.S. Dist. LEXIS 53997 (S.D.N.Y. July 15, 2008) (employee who had been placed on probation twice before her complaint was terminated for legitimate reasons unrelated to her complaint); Giurovici v. Equinox, Inc., ARB No. 07-027 (ARB September 30, 2008) (employee had deteriorating work performance, repeated incidents of insubordination, and refused to work with other employees); Grove v. EMC Corp., 2006-SOX-99 (ALJ July 2, 2007) (employer changed its decision to discharge complainant for failing to attend a mandatory training once the employer learned about the complainant’s protected activity, but later discharged the complainant for insubordination because the complainant had stopped working and failed to cooperate with the employer’s lawful investigation of the complainant’s allegation); Robinson v. Morgan Stanley, 2005-SOX-44 (ALJ Mar. 26, 2007) (well-documented pre-existing performance issues regarding work product and accepting adverse performance feedback); Hendrix v. American Airlines, Inc., 2004-AIR-10, 2004-SOX-23 (ALJ Dec. 9, 2004) (complainant’s history of conflict and difficulty with interpersonal relations due to “military style”); Taylor v. Wells Fargo, Texas, 2004-SOX-43 (ALJ Feb. 14, 2005), aff’d ARB 05-062 (ARB June 28, 2007) (complainant engaged in series of unprofessional and contentious actions that resulted in final written warning for breach of ethics, and ultimately termination); Grant v. Dominion East Ohio Gas, 2004-SOX-63 (ALJ Mar. 10, 2005) (complainant’s violation of e-mail policy by sending vulgar message to company executive); Stojicevic v. Arizona-American Water Co., 2004-SOX-73 (ALJ Mar. 24, 2005), aff’d ARB 05-081 (ARB Oct. 30, 2007) (complainant’s inappropriate comments, hostile attitude, and insubordination, resulting in suspension, and, ultimately, discharge for coming into work while suspended and refusing to leave the work premises); Trodden v. Overnite Transp. Co., 2004-SOX-64 (ALJ Mar. 29, 2005) (complainant violated company policy by providing information about a subordinate to a third party outside the company); Gallagher v. Granada Entertainment USA, 2004-SOX-74 (ALJ Apr. 1, 2005) (complainant’s repeated refusal to work for assigned supervisor constituted insubordination justifying non-renewal of contract).
Termination one day after raising concerns about inventory accounting problems was held not to be sufficient proof of causation in Richards v. Lexmark Int’l Inc., 2004-SOX-49 (ALJ June 20, 2006). In that case, the employer proved that it had decided to terminate the employee several weeks before the employee expressed concerns about accounting issues.
Several ALJs have ruled that post-termination conduct by employers is not actionable. In Vodicka v. Dobi Medical, 2005-SOX-111 (ALJ Dec. 23, 2005), the employer filed a lawsuit against a former member of its Board of Directors seeking an injunction preventing the former board member from breaching his confidentiality agreement. The ALJ found the filing of the lawsuit was not actionable because, in contrast with “blacklisting,” the complainant failed to show “how this lawsuit could affect his ability to obtain future employment or the terms and conditions of such employment.” Id. at 12. See also Pittman v. Siemens AG, 2007-SOX-15 (ALJ July 26, 2007) (respondent’s slanderous statements about complainant and anti-SLAPP claim against complainant relating to defamation suit, both occurring more than one and one-half years after the termination of complainant’s employment, but shortly after complainant filed his third OSHA claim against respondents, were not adverse employment actions because the acts did not constitute blacklisting or interference with employment and complainant was not employed by respondents at the time that the slanderous statements were made or the anti-SLAPP claim was filed); Rzepiennik v. Archstone Smith, Inc., 2004-SOX-26 (ALJ Feb. 23, 2007) (letter sent by employer to complainant one year after the termination of employment offering the complainant a bonus in exchange for agreeing not to pursue further legal action or report information, and the expiration of the consideration period of the offer letter, did not constitute an adverse action even under an expansive view of the adverse action provision); Halpern v. XL Capital, Ltd., ARB 04-120 (ARB Apr. 4, 2006) (employer’s testimony at unemployment compensation hearing not actionable); Pittman v. Diagnostic Products Corp., 2006-SOX-53 (Mar. 1, 2006) (post-termination acts not adverse employment actions). The above decisions are questionable in light of the Supreme Court’s dicta in Burlington Northern & Santa Fe Ry. v. White, that post-employment acts may constitute retaliation.
A hostile work environment may constitute adverse action, but ALJs have typically required proof that (1) the harassing conduct was sufficiently severe or pervasive to alter the conditions of employment, and (2) the harassment would have detrimentally affected a reasonable person and did so affect the complainant. Hendrix v. American Airlines, Inc., 2004-AIR-10, 2004-SOX-23, at 17 (ALJ Dec. 9, 2004). In contrast, “[d]iscourtesy or rudeness should not be confused with harassment.” Id. See also Allen v. Stewart Enters., Inc., 2004-SOX-60, 61 and 62 (ALJ Feb. 15, 2005), aff’d ARB 06-081 (ARB July 27, 2006) (allegedly hostile acts not “severe and pervasive” enough to rise to level of hostile environment); Grove v. EMC Corp., 2006-SOX-99 (ALJ July 2, 2007) (evidence did not establish that complainant had been subjected to harassment sufficiently severe or pervasive enough to have created a hostile work environment).
In Hughart v. Raymond James & Associates, Inc., 2004-SOX-9, at 51 (ALJ Dec. 17, 2004), the ALJ adopted the following standard for determining whether a resignation may be treated as a constructive discharge:
Establishing a constructive discharge claim requires the showing of an even more offensive and severe work environment than is needed to prove a hostile work environment. Berkman (ARB Feb. 29, 2000); Brown v. Kinney Shoe Corp., 237 F.3d 556, 566 (5th Cir. 2001). To demonstrate that he was constructively discharged, a complainant must show that his employer created “working conditions so intolerable that a reasonable employee would feel compelled to resign.” Williams, 376 F.3d at 480 (quoting Hasan v. U.S. Dep’t of Labor, 298 F.3d 914, 916 (10th Cir. 2002)); see also Talbert v. Washington Public Power Supply System, 1993-ERA-35 (ARB Sept. 27, 1996). In other words, the working conditions were rendered so difficult, unpleasant, and unattractive that a reasonable person would have felt compelled to resign, such that the resignation is effectively involuntary. Johnson v. Old Dominion Security, 1985 CAA 3 to 5 (Sec’y May 29, 1991). Such an environment may be established by evidence of pattern of abuse, threats of imminent discharge, and marked lack of response by supervisors to the complainant’s concerns (emphasis added). Taylor v. Hamilton Recreation and Hamilton Manpower Services, 1987 STA 13 (Sec’y Dec. 7, 1998).
In Hughart, the complainant submitted his resignation on a Friday afternoon after his supervisor criticized his sending an e-mail entitled “fraud alert” as an example of the complainant’s previously demonstrated tendency to overstate and miscommunicate. The supervisor told the complainant that she needed to consider his employment status over the weekend and threatened to terminate him if he continued to miscommunicate, but also that she did not want to end his employment because he was a valued employee. At the close of the business day that Friday, the complainant submitted his resignation and his supervisor warned him to think about what he was doing. When the complainant learned two days later that his supervisor had accepted his resignation, he told the supervisor that “it was not her fault.” Under all of the circumstances, the ALJ concluded that the complainant had proved that he “felt abandoned by his supervisor, misunderstood, and on the verge of being fired,” but had not satisfied the standard for proving a constructive discharge. Id. at 53. The outcomes of these cases may be called into question by Burlington Northern and Menendez. See Deremer v. Gulfmark Offshore, Inc., 200- SOX-2 (ALJ June 29, 2007) (stating that Burlington Northern had lowered the overall standard of conduct that constitutes retaliation to be weighed under the standard that must be applied in whistleblower cases involving hostile work environment claims).
In Allen v. Stewart Enterprises, Inc., 2004-SOX-60, 61 and 62, at 94–95 (ALJ Feb. 15, 2005), aff’d ARB 06-081 (ARB July 2006) the ALJ rejected the complainants’ argument that they suffered tangible job consequences when they were moved to a new workspace with less overhead storage, smaller desk areas, no personal storage area, and unsatisfactory lighting.
On November 3, 2011, OSHA amended the regulations governing the processing of SOX claims. The amended rules implement the statutory changes to SOX in the Dodd-Frank Act and also make the procedures for handling SOX claims more consistent with OSHA’s handling of similar whistleblower protection statutes. The revised rules are published at 76 Fed. Reg. 68084-68097.
On December 4, 2012, the DOL issued proposed changes to the OALJ rules of procedure, which are published at 29 CFR Part 18. See 77 Fed. Reg. 72142 (Dec. 4, 2012). The purpose of the revisions is to “make the rules more accessible and useful to parties, and to harmonize administrative hearing procedures with the current FRCP.” The revised rules reflect the increased complexity of the whistleblower retaliation cases that are adjudicated before the OALJ, which “require more structured management and oversight by the presiding administrative law judge and more sophisticated motions and discovery procedures than the current regulations.”
Section 806 provides that a SOX action will be governed by “the rules and procedures set forth in AIR21. 18 U.S.C. § 1514A(b)(2)(A). AIR21, in turn, has been analyzed in accordance with the ERA, so that both statutes may be looked to for guidance in interpreting SOX.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), Pub. L. 111-203 (July 21, 2010) made several significant procedural changes to Section 806 of SOX:
- The statute of limitations period was doubled (from 90 days to 180 days) and begins to run on the date on which the employee became aware of the violation.
- Where a SOX claim is removed to federal court, there is an express right to try the case before a jury.
- SOX retaliation claims are not subject to arbitration agreements.
OSHA’s interim final regulations implementing SOX, issued on November 3, 2011, clarify the procedures to be applied in SOX whistleblower retaliation actions. OSHA’s Whistleblower Investigations Manual (“OSHA Manual”), issued September 22, 2011, provides further guidance as to how such retaliation actions will be handled by the agency.
The SEC also has been given authority to promulgate rules and regulations interpreting SOX, including its whistleblower provisions. Section 3 states that “[t]he Commission shall promulgate rules and regulations, as may be necessary or appropriate in the public interest or for the protection of investors, and in furtherance of this Act.” To date, the SEC has not promulgated any such rules and/or regulations.
Under the 2010 amendments to Section 806, employers cannot condition employment on the employee’s waiver of his or her Section 806 rights, including the right to a jury trial.
- With Whom the Complaint Must Be Filed
Whistleblower complaints must first be filed “with the Secretary of Labor.” 18 U.S.C. § 1514A(b)(1)(A). In turn, the Secretary has delegated to the Assistant Secretary for OSHA responsibility for receiving and investigating complaints. 29 CFR § 1980 n.1 (citing Secretary’s Order 5-2002, 67 FR 65008 (Oct. 22, 2002)). The pertinent DOL regulation instructs that the complaint should be filed with the OSHA Area Director responsible for the area where either the complainant resides or the alleged wrongful acts occurred, but may be filed with any OSHA officer or employee. 29 CFR § 1980.103(c).
One federal court has held that where a common law wrongful discharge claim is premised on the public policy articulated in Section 806 of SOX, the plaintiff need not comply with the statutory enforcement scheme. Romaneck v. Deutsche Asset Mgmt., 2006 WL 2385237 (N.D. Cal. Aug. 17, 2006).
- 180-Day Statute of Limitations
In 2010, the Dodd-Frank Act changed the statute of limitations for SOX from “no later than 90 days after the date the violation occurred” to “no later than 180 days after the date on which the violation occurs, or after the date on which the employee became aware of the violation.” 18 U.S.C. §1514A(b)(2)(D). “Filed” has been interpreted as meaning when the complaint is received by the Labor Department. Murray v. TXU Corp., 279 F. Supp. 2d 799, 802 (N.D. Tex. 2003). However, the regulations state that, for complaints sent by mail, the date of the postmark will be the date of filing. 29 CFR § 1980.103(d). See also Reddy v. Medquist, Inc., 2004-SOX-35, ARB 04-123 (ARB Sept. 30, 2005) (SOX complaints may be filed by e-mail).
Complaints need not be in writing and OSHA will reduce oral complaints to writing. 29 CFR § 1980.103(b). OSHA will accept a SOX complaint in any language. Id. The 180-day limitation period commences on either the date the alleged violation occurs or the date the employee becomes aware of the violation. 29 CFR § 1980.103(d). The regulations define the phrase “date the alleged violation occurs” as “when the discriminatory decision has been both made and communicated to the complainant.” 29 CFR § 1980.103(d). A complaint is filed on the date that it is mailed, rather than the date on which it is received by OSHA. Barrett v. e-Smart Technologies, Inc., ARB Nos. 11-088, 12-013, ALJ No. 2010-SOX-31 (ARB Apr. 25, 2013).
In Corbett v. Energy East Corp., ARB 07-044, 2006-SOX-65 (ARB Dec. 31, 2008), the ARB clarified that the statute of limitations under § 1514A(b)(2)(D) starts to run from the date an employee receives “final, definitive, and unequivocal notice” of a discharge or other discriminatory act. “‘Final’ and ‘definitive’ notice is a communication that is decisive or conclusive, i.e., leaving no further chance for action, discussion, or change.” Coppinger-Martin v. Nordstrom, Inc., ARB 07-067, 2007-SOX-019 (ARB Sept. 25, 2009). “‘Unequivocal’ notice means communication that is not ambiguous, i.e., free of misleading possibilities.” Id. at 4.
If the notice of termination is ambiguous, the statute of limitations may start to run upon the actual date of termination as opposed to notice of termination. In Snyder v. Wyeth Pharmaceuticals, ARB 09-008, 2008-SOX-055 (ARB April 30, 2009), an employee was informed that he was being terminated but was also given an opportunity to present information countering the basis for the termination of his employment. During an ensuing three-month investigation, he was suspended without pay. Finding that the initial notice of termination was ambiguous, the ARB held that the statute of limitations began to run from the effective date of his termination.
In Murray v. TXU Corp., 279 F. Supp. 2d 799 (N.D. Tex. 2003), the court held that a federal district court lacks jurisdiction over a SOX retaliation complaint if the plaintiff failed to file the original complaint with DOL within the statute of limitations.
- Equitable Tolling
OSHA opines that the 180-day filing period may be equitably tolled for “certain extenuating circumstances.” OSHA Manual, at 2-6. For example, valid extenuating circumstances could include:
- Concealment by the employer of the existence of the adverse action or the discriminatory grounds for the adverse action;
- Inability of the employee to file within the statutory time period due to debilitating illness or injury;
- Inability to timely file due to natural disaster; or
- The employee mistakenly filed a timely discrimination complaint with another agency.
OSHA also specifies certain conditions which will not justify extension of the filing period, including:
- Ignorance of the statutory filing period;
- Filing of unemployment compensation claims;
- Filing a workers’ compensation claim;
- Filing a private negligence or damage suit;
- Filing a grievance or arbitration action; or
- Filing a discrimination complaint with a state or another agency that has the authority to grant the requested relief.
OSHA Manual, at 2-7, 8.
Several ALJ decisions also have addressed whether the 180-day filing period may be equitably tolled. In Taylor v. Express One Int’l., Inc., 2001-AIR-2 (ALJ Feb. 15, 2002), an ALJ held that filing the complaint with the wrong agency (the FAA) was a sufficient basis for tolling the time limit for filing a complaint under AIR21. The ALJ noted that the improperly filed complaint raised the statutory claim at issue and the complainant had filed his complaint without the assistance of legal counsel.
In Barrett v. Shuttle America, ARB No. 12-075, ALJ No. 2012-AIR-10 (ARB Feb. 28, 2014), the ARB held that filing a collective bargaining grievance did not toll the 90-day AIR21 statute of limitations. The ARB stated: "The grievance procedure by its very nature is a remedy for a prior decision, not an opportunity to influence that decision." Barrett, ARB No. 12-075 at 5-6.
In Hyman v. KD Resources, ARB No. 09-076, ALJ No. 2009-SOX-20 (ARB Mar. 31, 2010), the ARB applied the equitable tolling doctrine where the employer “lulled” the employee into reasonably believing that he would be returned to his former employment or alternatively given a one-year consulting contract, he would be financially compensated for having been wrongfully terminated, and that his employer would resolve the SOX compliance issues he had disclosed. The ARB, however, has continued to hold that an employer is not required to inform the complainant of the existence of, or deadlines for, potential causes of action under SOX. Daryanani v. Royal & Sun Alliance, ARB No. 08-106, ALJ No. 2007-SOX-79 (ARB May 27, 2010).
In Ubinger v. CAE Int’l., ARB 07-083, 2007-SOX-036 (Aug. 27, 2008), the ARB affirmed the ALJ’s decision that there was no basis for equitably tolling the filing time limit where the complainant’s primary basis for such waiver was that his complaints were legitimate and that he had no knowledge of Section 806. The ARB held that the severity of an alleged violation does not warrant tolling of the limitations period and that ignorance of the law will not generally support a finding of equitable modification.
The 2010 amendment to Section 806 clarifying that the statute of limitations begins to run when the employee “becomes aware of the violation” likely overturns the ARB’s 2009 decision, Coppinger-Martin v. Nordstrom, Inc., ARB 07-067, 2007-SOX-19 (ARB Sept. 25, 2009), in which the ARB previously held that “[c]oncealing the reason for an adverse employment action does not toll the statute of limitations . . . nor does it estop the employer from asserting timeliness as a defense” Id.
- Continuing Violation Theory
In Ford v. Northwest Airlines, Inc., 2002-AIR-21 (ALJ Oct. 18, 2002), the ALJ held that discrete retaliatory acts are not actionable if they occurred outside the statute of limitations, even if they were related to acts that fall within the prescriptive period. Citing National R.R. Passenger Corp. v. Morgan, 536 U.S. 101 (2002), the ALJ reasoned that a discrete retaliatory act “occurs” on the day it happens and the complaint must be filed within the statutory time frame based on the happening of that event. See also Dolan v. EMC Corp., 2004-SOX-1 (ALJ Mar. 24, 2004) (applying Morgan to SOX claims and holding that retaliatory acts outside the statute of limitation period are actionable only in hostile work environment claims).
In Walker v. Aramark Corp., 2003-SOX-22 (ALJ Aug. 26, 2003), the ALJ held that OSHA’s dismissal of the complaint as untimely was proper because the complainant’s first contact with OSHA regarding his termination was beyond the statute of limitations. Following OSHA’s determination, the complainant attempted to argue another retaliatory act, to wit, the respondent’s contesting of his application for unemployment benefits. The ALJ held that, even if this new alleged act of retaliation was timely filed, it would not make the complaint regarding termination timely because, under Morgan, these retaliatory actions constitute “discrete acts” and therefore the continuing violation doctrine would not apply.
By contrast, in Brune v. Horizon Air Industries, Inc., 2002-AIR-8, at 10 (ALJ Dec. 16, 2003), the ALJ held that, consistent with Morgan, claims of retaliatory conduct earlier than occurring outside the statute of limitations and prior to the complaint’s filing may be timely where such conduct takes the form of an ongoing hostile work environment. The ALJ found the unlawful “practice” was management’s ongoing attempt to constrain the employee’s discretion by threats and by singling him out, and requiring justification for his actions. Although some of the acts occurred outside the statute of limitations, the ALJ found the actions collectively created a hostile work environment and “should be viewed as one unlawful employment practice.”
The regulations require OSHA to dismiss the complaint prior to its investigation if the complainant fails to make a prima facie showing that the protected activity was a “contributing factor” in the adverse employment action. 49 U.S.C. § 42121(b)(2)(B)(i); 29 CFR § 1980.104. SOX regulations set forth what elements must be satisfied to make this prima facie showing. 29 CFR § 1980.104(e)(1). Generally, the complaint must allege the existence of facts and evidence to give rise to an inference that the respondent knew or suspected that the employee engaged in protected activity and that the protected activity was a “contributing factor” in the adverse employment action. 29 C.F.R. § 1980.104(e)(2). Normally, this burden will be satisfied if the adverse action occurred “shortly after” the protected activity. 29 C.F.R. § 1980.104(e)(3). Thus, a significant gap in time between the complainant’s protected conduct and the adverse action may result in dismissal. See Heaney v. GBS Properties LLC, 2004-SOX-72 (ALJ Dec. 2, 2004) (dismissing complaint for failure to make a prima facie case where the complainant engaged in protected conduct several years prior to his termination).
To establish a prima facie SOX case, the employee must demonstrate: (1) the employee engaged in protected activity; (2) the employer knew of the protected activity; (3) the employee suffered an unfavorable personnel action; and (4) circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action. Livingston v. Wyeth, Inc., 520 F.3d 344, 351 (4th Cir. 2008) (granting summary judgment because the complainant failed to demonstrate that he made a complaint to employer about conduct that he reasonably believed constituted a violation of an SEC rule or regulation); Van Asdale v. International Game Technology, 498 F. Supp. 2d 1321, 1329 (D. Nev. 2007).
In Sylvester v. Parexel Int’l. LLC, ARB No. 07-123, ALJ Nos. 2007-SOX-39 & 42 (ARB May 25, 2011), the ARB held that the heightened pleading requirements established in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. ----, 129 S .Ct. 1937 (2009) do not apply to SOX claims. Noting that SOX claims are rarely suited for Rule 12 dismissals because they involve inherently factual issues such as “reasonable belief” and issues of “motive,” the ARB concluded that OSHA’s duty to interview the complainant and attempt to supplement the complaint is fundamentally incompatible with requiring SOX complainants to meet a plausibility pleading standard.
In Johnson v. The Wellpoint Companies, Inc., ARB No. 11-035, ALJ No. 2010-SOX-38 (ARB Feb. 25, 2013), the ARB reversed the ALJ’s decision granting the Respondent’s motion to dismiss and held that the appropriate standard for deciding whether a complaint survives a motion to dismiss in an administrative proceeding is whether the complaint provides “fair notice” of the claim. In particular, fair notice requires a showing that the complaint contains: "(1) some facts about the protected activity and alleging that the facts relate to the laws and regulations of one of the statues in the [DOL's] jurisdiction; (2) some facts about the adverse action; (3) an assertion of causation, and (4) a description of the relief that is sought." Id. at 6 (citing Evans v. EPA, ARB No. 08-059, ALJ No. 2008-CAA-003, slip op. at 6 (ARB July 31, 2012)).
In Pik v. Credit Suisse AG, ARB No. 11-034, ALJ No. 2011-SOX-6 (ARB May 31, 2012), the ARB affirmed the ALJ’s dismissal of a complaint that lacked factual allegations showing that the complainant engaged in SOX protected activity. The ARB noted that a pro se complaint is entitled to some leeway, “a complainant must at least point to facts that fairly identify the activity protected by the SOX statute, particularly where the issue of extraterritoriality must be resolved.”
In Klopfenstein v. PCC Flow Technologies Holdings, Inc., ARB 04-149, 2004- SOX-11 (ARB May 31, 2006), the ARB held that a SOX complainant need not show that protected activity was a primary motivating factor in order to establish causation, only that protected activity was a contributing factor. The ARB held that a “contributing factor” is “any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.” The ARB noted this test is specifically intended to overrule the existing case law, which required a whistleblower to prove his protected activity was a “significant,” “motivating,” “substantial,” or “predominant” factor in an employment action.
“Upon receipt of . . . a complaint, the Secretary of Labor shall notify, in writing [the person named in the complaint and the employer] of the filing of the complaint, of the allegations contained in the complaint, of the substance of evidence supporting the complaint, . . .” and provide them the opportunity to respond and meet with the Secretary. 49 U.S.C. §42121(b)(2).
When a case is opened for investigation, the Supervisor will prepare a letter notifying the respondent that a complaint alleging discrimination has been filed by the complainant and requesting that the respondent submit a written position statement. OSHA Manual, at 2-5. This suggests that the employer will not be notified until after the investigator already has made his or her decision regarding whether the complainant established a prima facie case.
The burden of giving notice to the employer and persons named in the complaint does not fall entirely upon the agency. For example, in Steffenhagen v. Securitas Sverige, AR, 2003-SOX-24 (ALJ Aug. 5, 2003), the complainant did not serve his complaint upon the multiple respondents and did not respond to OSHA’s numerous requests for contact information regarding the respondents. The ALJ held that pursuant to the Rules of Practice and Procedure before the Office of ALJs, as well as Federal Rules of Civil Procedure 4(m) and 41(b), dismissal of the complaint was warranted, based on complainant’s failure to serve the complaint.
At its request, copies of all pleadings must be sent to the SEC. 29 CFR § 1980.108(b). Furthermore, the SEC may participate as amicus curiae at any time in the proceedings. 29 CFR § 1980.108(b).
The respondent must be given the opportunity to submit a written statement, with affidavits or documents substantiating its position. 29 CFR § 1980.104(b). The respondent also may have the opportunity to meet with representatives of OSHA and present evidence in support of its position. Id.
At this stage, if the respondent demonstrates in its submission by “clear and convincing evidence” that it would have taken the same adverse action in the absence of the complainant’s protected activity, an investigation of the complaint will not be conducted. 49 U.S.C. § 42121(b)(2)(B)(ii); 29 CFR § 1980.104(e)(4). In one of the earliest SOX decisions on the merits, “clear and convincing” evidence was defined as an evidentiary standard that “requires a burden higher than ‘preponderance of the evidence’ but lower than ‘beyond a reasonable doubt.’” Getman v. Southwest Securities, Inc., 2003-SOX-8, at 10 (ALJ Feb. 2, 2004) (citing Yule v. Burns Int’l. Security Service, 1993-ERA-12 (Sec’y May 24, 1995)); see also Taylor v. Express One International, Inc., 2001-AIR-2 (ALJ Feb. 15, 2002). The ARB has relied on the Black’s Law Dictionary definition: “Clear and convincing evidence is ‘[e]vidence indicating that the thing to be proved is highly probable or reasonably certain.’” Peck v. Safe Air Int’l., Inc. d/b/a Island Express, ARB 02-028, 2001-AIR-3 (Jan. 30, 2004).
Throughout the investigation, OSHA must provide to the complainant a copy of all of respondent's submissions to the agency that are responsive to the complainant's whistleblower complaint. Before providing such materials to the complainant, the agency will redact, if necessary, in accordance with the Privacy Act of 1974, 5 U.S.C. 552a, and other applicable confidentiality laws. OSHA must also provide the complainant with an opportunity to respond to such submissions. 29 CFR § 1980.104(c).
If, during the preliminary complaint-and-response phase, the respondent does not demonstrate by clear and convincing evidence that it would have taken action against the employee in the absence of protected activity, OSHA must investigate the complaint within 60 days of receiving it to determine whether there is reasonable cause to believe that the respondent discriminated against the complainant in violation of the statute. 29 CFR § 1980.105(a). OSHA has delegated the overall responsibility for all whistleblower investigation activities to the Regional Administrators, who are authorized to issue determinations and approve settlement of whistleblower complaints. This authority may be re-delegated, but no lower than the Assistant Regional Administrator or Area Director level. OSHA Manual, at 1-12.
The findings are required to be sent to all parties of record by certified mail, return receipt requested. 29 C.F.R. § 1980.105(b). Requests to be notified through regular mail or email have no legal effect. Crosier v. Boeing Co., 2009-SOX-00056 (ALJ Dec. 2, 2009).
Statements made to DOL in the course of a SOX whistleblower investigation have been found to be protected by an absolute privilege from a state law defamation claim because they were statements to an administrative agency acting in a quasi-judicial capacity. Morlan v. Qwest Dex, Inc., 332 F. Supp. 2d 1356 (D. Or. 2004), aff’d, 156 F. App’x 949 (9th Cir. 2005) (plaintiff’s suit for defamation based, in part, on statements made by employer’s attorney during DOL investigation of SOX whistleblower complaint; attorney wrote in letter to DOL that employer had terminated plaintiff for “enhancement of data” and “falsification of documents”).
If, after the investigation, OSHA determines there is “reasonable cause” to believe the complaint has merit, with limited exceptions “it shall issue” a preliminary order restoring the complainant to his or her employment status and requiring the employer to take affirmative action to abate the violation. 49 U.S.C. § 42121(b)(3)(B); 29 CFR § 1980.105(a)(1). Reinstatement orders are immediately effective and are not stayed pending the resolution of any objections or appeal. See 49 U.S.C. § 4212 (b)(2)(A). If preliminary, immediate reinstatement is to be ordered under SOX, the investigator first must contact the named party and provide, in writing, the “substance of the relevant evidence” supporting the finding. 29 CFR § 1980.104(f). The named party must be given an opportunity to provide a written response and to present rebuttal witness statements within 20 days. Id.; OSHA Manual, at 2-13.
For discussion of preliminary orders of reinstatement, refer to Section VII.F, infra.
Within 30 days of receipt of findings, either party may file objections and request a hearing on the record before an ALJ. If no objection is filed within 30 days, the preliminary order is deemed a final order that is not subject to judicial review. 49 U.S.C. § 42121(b)(2)(A); 29 CFR § 1980.106(b). The 30-day objection period starts to run when the notice is sent, rather than when it is received. Croxier v. Boeing Co., 2009-SOX-00056 (ALJ Dec. 2, 2009).
Objections must be filed with the Labor Department’s Chief ALJ and mailed to the OSHA official who issued the findings and the Associate Solicitor, Division of Fair Labor Standards. 29 CFR § 1980.106(a). In Steffanhagen v. Securities Sverige, AB, 2004-ERA-3 (ALJ Dec. 15, 2003), the ALJ held that the party seeking ALJ review also must serve its notice of hearing upon the non-moving parties and that failure to do so is grounds for dismissal.
The 30-day objection period is subject to equitable tolling. See, e.g. Lotspeich v. Starke Memorial Hospital, ARB 05-072, 2005-SOX-14 (ARB July 31, 2006) (applying equitable tolling principles and holding that complainant’s untimely filing of her appeal due to her attorney’s failure to timely provide her a copy of OSHA’s findings did not warrant equitable tolling of the 30-day limitations period).
In Lerbs v. Buca DiBeppo, Inc., 2004-SOX-8 (ALJ Dec. 30, 2003), the ALJ held that the 30-day objection period is not a jurisdictional requirement and, therefore, is subject to equitable tolling. The ALJ in Lerbs decided that the complainant’s failure to serve a copy of his objections on the respondent within 30 days of receipt of OSHA’s determination was not grounds for dismissal. See also Richards v. Lexmark Int’l, Inc., 2004-SOX-49 (ALJ Oct. 1, 2004) (denying motion to dismiss where respondent was not prejudiced by complainant’s failure to timely serve respondent with his request for a hearing).
Parties alleging that the complaint was frivolous or brought in bad faith must file requests for attorneys’ fees within 30 days. 29 CFR § 1980.106(a).
Upon receipt of an objection and request for hearing, the Chief ALJ assigns the case to an ALJ. 29 CFR § 1980.107(b). The Rules of Practice and Procedure for administrative hearings before the Office of Administrative Law Judges apply to ALJ proceedings. See 29 CFR § 1980.107(a). When those Rules are inconsistent with a statute or regulation, the latter controls. 29 CFR § 18.1(a). Further, an ALJ may take any appropriate action authorized by the Federal Rules of Civil Procedure. 29 CFR § 18.29(a)(8). Moreover, in In re Slavin, 2002-SWD-1, ARB 02-109 (ARB June 30, 2003), the ARB found that the standards enunciated in the rules of professional conduct applicable within the state of the proceedings apply to proceedings before the ALJ. The hearing before the ALJ is de novo, and the respondent may raise defenses before the ALJ that were not raised during the OSHA investigation. Rowland v. Prudential Equity Group, LLC, ARB No. 08-108, ALJ No. 2008-SOX-4 (ARB Jan. 13, 2010).
The Secretary of Labor may participate as amicus curiae before the ALJ or ARB. 29 CFR § 1980.108(a)(1). The SEC also may participate as amicus curiae in SOX cases. 29 CFR § 1980.108(b).
At any time after the commencement of a proceeding, the parties jointly may move to defer the hearing to permit settlement negotiations. 29 CFR § 18.9. The parties have the option of using the OALJ settlement judge program for such negotiations. 29 CFR § 18.9(e).
- Stay of Preliminary Reinstatement Order
If, after the investigation, OSHA determines there is reasonable cause to believe the complaint has merit, “it shall issue” a preliminary order reinstating the complainant. 49 U.S.C. § 42121(b)(3)(B). Reinstatement orders are immediately effective and under DOL’s interim SOX rule could not have been stayed pending appeal. However, the DOL’s Final Rule provides a procedure for a respondent to file a motion with the OALJ for a stay of a preliminary order requiring immediate reinstatement, which requires a showing of “exceptional circumstances.” See 29 CFR § 1980.106(b) (ALJ); 29 CFR § 1980.110(b) (ARB).
When evaluating a respondent’s motion to stay a preliminary order of reinstatement, the ARB considers four factors: “(1) the likelihood that the party seeking the stay will prevail on the merits of the appeal; (2) the likelihood that the moving party will be irreparably harmed absent a stay; (3) the prospect that others will be harmed if the Board grants a stay; and (4) the public interest in granting a stay.” Welch v. Cardinal Bankshares Corp., ARB 06-062, 2003-SOX-15 (June 9, 2006).
In general, standard discovery methods are available during ALJ proceedings; including depositions, written interrogatories, production of documents, and requests for admissions. 29 CFR § 18.13. See also Davis v. United Airlines, Inc., 2001-AIR-5 (ALJ Apr. 24, 2002) (citing 29 CFR §§ 18.22) (deposition discovery permitted). However, the ALJ has broad discretion to limit discovery in order to expedite the proceeding. 29 CFR § 1980.107(b).
The scope of discovery in SOX whistleblower cases is broadly construed. Leznik v. Nektar Therapuetics, Inc., 2006-SOX-93 (ALJ Feb. 9, 2007). As the ALJ in that case noted, “[u]nless it is clear that the information sought can have no possible bearing on a party’s claims or defenses, requests for discovery should be permitted.” To allow the complainant to establish discrimination through inferences and circumstantial evidence, the complainant must have access to the employer’s records.
Protective orders are not routinely granted. Instead, the movant must demonstrate good cause with specificity. 29 CFR § 18.15. In Thomas v. Pulte Homes, Inc., 2005-SOX-9 (ALJ Aug. 9, 2005), the complainant moved to seal the record, and the respondent consented to the motion. The ALJ denied this request on the ground that the complainant failed to identify a specific need for confidentiality, such as “a privacy interest or potential harm or embarrassment that could result from disclosure of the record . . . .” The ALJ noted that “[a]s the whistleblower provision in the Sarbanes-Oxley Act is involved, there is a public interest in the protection of investors, employees, and members of the public by improving the accuracy and reliability of financial disclosures by publicly traded corporations.” Id. at 3 (citing S. Rep. No. 107-146, 2002 WL 863249 (May 6, 2002)). In Koeck v. Gen. Elec. Consumer & Indus., ARB 08-068, 2007-SOX-073 (ARB Aug. 28, 2008), the respondent moved to seal the record of the proceedings before the ALJ. The ARB denied the motion to seal, holding that “there is no authority permitting the sealing of a record in a whistleblower case because the case file is a government record subject to disclosure pursuant to the Freedom of Information Act.” Id. at 3. In Cantwell v. Northrop Grumman Corp., 2004-SOX-75 (ALJ Feb. 9, 2005), the ALJ granted a protective order covering the salary amounts and performance reviews of employees, but denied a requested protective order for compensation policies and procedures.
Sanctions, including dismissal of the complaint, are available for failure to participate in discovery. See Butler v. Anadarko Petroleum Corp., ARB No. 12-041, ALJ No. 2009-SOX-1 (ARB June 15, 2012) (dismissing complaint due to complainant’s failure to comply with discovery orders and refusal to appear for a deposition); Powers v. Pinnacle Airlines, Inc., 2003-AIR-12 (ALJ Apr. 23, 2003) (ordering complainant to show cause why her complaint should not be dismissed for her failure to cooperate in discovery); Powers v. Pinnacle Airlines, Inc., 2003-AIR-12 (ALJ May 21, 2003) (disqualifying counsel based on conduct before the ALJ); Reid v. Niagara Mohawk Power Corp., 2002-ERA-3 (ALJ Dec. 26, 2002) (failure to appear at depositions without good cause warranted dismissal). In Matthews v. LaBarge, Inc., ARB 06-121, 2007-SOX-056 (ARB Nov. 26, 2008), the ALJ dismissed the complaint due to the complainant’s failure to comply with discovery and pre-hearing orders, including complainant’s failure to index and organize thousands of documents contained on a CD that he produced in discovery. The ARB affirmed the ALJ’s decision, concluding that the ALJ had given the complainant adequate opportunity to comply with the discovery orders.
In Leznik v. Nektar Therapuetics, Inc., 2006-SOX-93 (ALJ Nov. 16, 2007), the ALJ imposed an adverse inference instruction concerning the results of any investigation conducted by the employer regarding the complainant’s allegations. After the ALJ granted complainant’s motion to compel a response to an interrogatory concerning the employer’s investigation, the employer failed to respond to the interrogatory and did not explain with specificity why the information requested was protected by the work product doctrine.
Although SOX is silent regarding an ALJ’s authority to issue subpoenas and despite the fact that the Administrative Procedures Act, 5 U.S.C. § 555(d) (agency subpoenas “authorized by law shall be issued to a party on request”), and the OALJ Rules of Practice, 29 CFR § 18.24, both allow agencies to issue subpoenas only where authorized by statute or law, the ARB has found that ALJs have the authority to issue subpoenas, even in the absence of an express statutory authorization. See Peck v. Island Express, 2001-AIR-3 (ALJ Aug. 20, 2001) (ALJs have inherent power to issue subpoenas when a statute requires a formal trial-like proceeding). However, in Bobreski v. EPA, 284 F. Supp. 2d 67, 76-77 (D.D.C. 2003), the court held that there is no subpoena power under the whistleblower provisions of six environmental statutes where the relevant statutes (like SOX) did not explicitly provide for subpoena power.
Both SOX and the OALJ Rules of Practice are silent as to the geographic scope of an ALJ’s subpoena power, if any; however it generally has been considered nationwide. See, e.g., Taylor v. Express One Int’l., Inc., 2001-AIR-2 (ALJ Dec. 6, 2001). Nonetheless, the scope of a subpoena is limited by the following principles: (1) it must be issued for a lawful purpose within the statutory authority of the issuing agency; (2) the documents requested must be relevant to that purpose; and (3) the subpoena demand must be reasonable and not unduly burdensome. See generally Peck v. Island Express, 2001-AIR-3 (ALJ Aug. 20, 2001); Taylor v. Express One International, Inc., 2001-AIR-2 (ALJ Dec. 6, 2001).
The rules do not address whether applications for subpoenas may be made ex parte. However, the Manual For Administrative Law Judges (available at www.oalj.dol.gov) states that “to prevent evasion of service, the subpoena usually is granted ex parte and its signing is not disclosed until either service has been accomplished or the party who obtained the subpoena chooses to disclose it.” OSHA Manual, at 43.
- Addition of Claims or Parties
One difficult issue that has arisen is whether a complainant is permitted to amend a complaint to add claims or additional respondents in federal court, or before the ALJ, after OSHA has issued its initial determination. In light of the differences in evidentiary restrictions and pleading requirements between federal district court and agency adjudications, a complainant’s choice of forum could affect his or her ability to add claims or additional respondents and, therefore, could ultimately have substantive impact on a case.
In Wong v. CKX, Inc., No. 11 Civ. 6291, 2012 WL 3893609 (S.D.N.Y. Sept. 11, 2012) (case below ALJ No. 2010-SOX-36), the district court held that exhaustion of administrative remedies requires that “each separate and distinct claim [be] pled before [OSHA].” Wong at *4 (citing Sharkey v. J.P. Morgan Chase & Co., 805 F.Supp.2d 45, 53 (S.D.N.Y.2011)). The court clarified that while it is permissible for the plaintiff to include more specific allegations in a subsequent district court complaint, plaintiff must show that the specific claims, “including specific adverse employment actions, protected activity, and the general nature of the facts that formed [p]laintiff's belief in violations of the enumerated statutes giving rise to the protected activity, were timely presented in her OSHA Complaint.” Id.
- Additional Claims
The scope of a SOX complaint filed in federal court after the expiration of 180 days without a final decision is generally limited to the claims identified in the initial OSHA complaint.
In Newman v. Metro. Life Ins. Co., No. 12-10078-DJC, 2013 WL 951779 (D. Mass Mar. 8, 2013), the court granted the plaintiff leave to amend the SOX complaint that he had initially filed with OSHA. The court noted that a SOX claimant may seek de novo review in federal district court if the DOL has not issued a final decision on a complaint within 180 days of its filing, and that “amendment of pleadings is generally permitted unless the opposing party makes a showing of undue delay, bad faith, undue prejudice, or futility.”
In Willis v. Vie Financial Group, Inc., 2004 WL 1774575 (E.D. Pa. Aug. 6, 2004), the district court held that the administrative exhaustion requirement of the SOX whistleblower provision precluded recovery for a discrete act of retaliation which was never presented to OSHA for investigation. The court reasoned that the SOX administrative scheme, unlike Title VII’s, “is judicial in nature and is designed to resolve the controversy on its merits . . . .” See also McClendon v. Hewlett-Packard Co., 2005 WL 2847224 (D. Idaho Oct. 27, 2005) (declining to adjudicate claims that had not been filed with OSHA).
The addition of claims in an ALJ proceeding after OSHA has issued its initial determination has been both rejected and allowed by ALJs.
CASES ALLOWING ADDITION: Ford v. Northwest Airlines, Inc., 2002-AIR-21 (ALJ Oct. 18, 2002) (although “the substance of the [new claims was] based on the same core of operative facts that form[ed] the basis of [the original OSHA complaint],” OSHA was not given the opportunity to investigate the allegations “under the two-tiered scheme Congress provided for handling whistleblower claims”); Kingoff v. Maxim Group LLC, 2004-SOX-57 (ALJ July 21, 2004) (constructive discharge claims were of a drastically different type from those contained in the initial complaint and were deemed untimely); Roulett v. American Capital Access, 2004-SOX-78 (ALJ Dec. 22, 2004) (refusing to permit amendment to complaint after the expiration of the statute of limitations period to include an unfavorable compensation claim where the claim was not reasonably related to complainant’s termination claim in original complaint); Morefield v. Exelon Servs. Inc., 2004-SOX-2 (ALJ Jan. 28, 2004) (“the scope of an OSHA investigation does not establish boundaries of the factual inquiry permitted in the subsequent adjudication,” finding no transgression of the “two tiered” administrative scheme for handling whistleblower claims where an ALJ considers evidence not raised at the OSHA investigation phase).
CASES REJECTING ADDITION: Hooker v. Westinghouse Savannah River Co., ARB 03-036, 2001- ERA-16 (ARB Aug. 26, 2004) (allowing amendment where pro se complainant failed to allege refusal-to-rehire claim in initial ERA discrimination complaint and respondent did not contest the motion).
- Additional Parties
In Tamosaitis v. URS Inc., 771 F.3d 539 (9th Cir. 2014), an ERA whistleblower case, the court held that the failure to name a party in the original complaint filed with OSHA precludes the plaintiff from naming such party when filing the complaint in district court. The Ninth Circuit relied on three reasons to require a complainant to restart the ERA’s one-year exhaustion clock before naming an additional respondent: 1) “the administrative exhaustion period is linked to a particular respondent, not to the substance of the claim alone”; 2) “DOL–OSHA regulations assume that every ERA whistleblower administrative complaint will name a particular respondent or respondents, and that the named individuals will have an opportunity to participate”; and 3) the opt-out provision “provision contemplates a basic level of similarity between an agency action and the corresponding federal suit.” Tamosaitis, 771 F.3d at 547-549.
In Hanna v. WCI Communities, Inc., 2004 U.S. Dist. LEXIS 25652 (S.D. Fla. 2004), the court held that the plaintiff could not add new defendants to a federal district court complaint which were not named in the initial OSHA complaint. The court reasoned that the plaintiff “failed to afford OSHA the opportunity to resolve [plaintiff’s] allegations [against the newly-named defendants] through the administrative process. . . [and] never afforded the DOL the opportunity to issue a final decision within 180 days of filing his administrative complaint.” See also Bozeman v. Per-Se Tech., Inc., 456 F. Supp. 2d 1282 (N.D. Ga. 2006); Bridges v. McDonald’s Corp., 2009 U.S. Dist. LEXIS 118597 (N.D. Ill. Dec. 21, 2009).
In Genberg v. Porter, No. 11-CV-02434, 2013 WL 1222056, *10 (D. Colo. Mar. 25, 2013), the court denied the plaintiff’s motion to add respondents that were not named in the original complaint filed with OSHA on the ground that he failed to exhaust administrative remedies. The court noted: “OSHA is not charged with the task of deducing from a complaint every possible respondent. To a large extent, the OSHA complainant frames the OSHA investigation by naming certain respondents.”
In contrast, complainants’ attempts to add new respondents before the ALJ, subsequent to an initial determination by OSHA, have met with mixed results. In Powers v. Pinnacle Airlines, Inc., 2003-AIR-12 (ALJ Mar. 5, 2003), the complainant attempted to add the parent company of the originally named respondent, Pinnacle, to the ALJ complaint after OSHA dismissed her complaint on the basis that Pinnacle was not a publicly traded company. The ALJ ruled the complainant could not add the parent as a respondent because, inter alia, the complaint against the parent was untimely as it had been filed outside the statute of limitations. But see Gonzalez v. Colonial Bank, 2004-SOX-39 (ALJ Aug. 17, 2004) (permitting complainant to amend initial OSHA complaint to include as a respondent the publicly held parent company of employer); Gallagher v. Granada Entertainment USA, 2004-SOX-74 (ALJ Oct. 19, 2004) (stating that “[i]ndividuals and entities may be added as parties when they were not joined below through error”).
A complainant may not add a party following the conclusion of an evidentiary hearing. Kalkunte v. DVI Financial Services, Inc., 2004-SOX-56 (ALJ July 18, 2005) (denying complainant’s motion to amend the complaint to name an individual as a respondent).
29 CFR § 18.6 of the OALJ Rules of Practice authorizes the filing of motions with the ALJ. Answers to motions must be filed within ten (10) days of service of the motion, or 15 days if the motion is served by mail. 29 CFR § 18.6(b); 29 CFR § 18.4(c)(3); Rockefeller v. U.S. Dept. of Energy, Carlsbad Area Office, ARB 03-048, 2002-CAA-5 (ARB Aug. 31, 2004).
At least 20 days before the hearing date, parties may file motions for summary decision. 29 CFR § 18.41. Once a party that has moved for summary decision “has demonstrated an absence of evidence supporting the non-moving party’s position, the burden shifts to the non-moving party to establish the existence of an issue of fact that could affect the outcome of the litigation. The non-moving party may not rest upon mere allegations, speculation, or denials of his pleadings, but must set forth specific facts on each issue upon which he would bear the ultimate burden of proof.” See Rockefeller v. U.S. Dept. of Energy, Carlsbad Area Office, ARB 03-048, 2002-CAA-5 (ARB Aug. 31, 2004) (granting summary decision where complainant responded with “little more than conclusory statements”).
The ARB has held that ALJs must give pro se complainants “fair notice” of the requirements of the summary decision rule and the right to file affidavits or “other responsive materials” when opposing a motion for summary decision. Galinsky v. Bank of America, Corp., ARB No. 08-014, ALJ No. 2007-SOX-76 (ARB Jan. 13, 2010).
- Bench Trial Before ALJ
If a timely objection to OSHA’s determination is made, a full hearing before an ALJ must be held “expeditiously.” 29 CFR § 1980.107. The term “expeditiously” is not defined. Objections are heard de novo before the ALJ. 29 CFR § 1980.107(b); OSHA Manual, at 4-8.
29 CFR § 18.27(c) provides that “[u]nless otherwise required by statute or regulation, due regard shall be given to the convenience of the parties and the witnesses in selecting a place for the hearing.” ALJs are required to issue findings on all contested issues. Klopfenstein v. PCC Flow Technologies Holdings, Inc., ARB 04-149, 2004-SOX-11 (ARB May 31, 2006).
Formal rules of evidence do not apply, but ALJs will apply rules or principles designed to assure production of the most probative evidence. 29 CFR § 1980.107(d). The OALJ has adopted rules of evidence that are substantially similar to the Federal Rules of Evidence. See 29 CFR § 18.101 et seq.
In Dolan v. EMC Corp., 2004-SOX-1 (ALJ Mar. 24, 2004), the complainant sought to introduce into evidence a letter from the employer’s counsel in which the employer refused to remove a negative performance evaluation in order to show that a retaliatory act had occurred within the SOX limitations period. The letter was written in response to complainant’s counsel’s letter arguing that the evaluation was false and defamatory and suggesting the employer should settle. The employer contended that complainant’s counsel’s letter was inadmissible as part of settlement negotiations under FRE 408. The ALJ disagreed, finding that the policy favoring exclusion of settlement documents was to prevent chilling of non-litigious solutions to disputes, and that exclusion is not required where the evidence is offered for a purpose other than to prove liability or damages. The ALJ ruled the letter was proffered to establish the final retaliatory act against the complainant and was, therefore, admissible. In any event, the ALJ found the letter was not, in fact, an offer of settlement or compromise.
In Leznik v. Nektar Therapeutics, Inc., 2006-SOX-93 (ALJ Feb. 9, 2007) (Order Granting Motion to Compel), the ALJ noted that “[u]nlike matters that may ultimately proceed to a jury trial, evidence is broadly admissible at Sarbanes-Oxley hearings under the Secretary’s aegis, where formal rules of evidence play no role. The presiding administrative law judge may exclude only what is ‘immaterial, irrelevant, or unduly repetitious,’ taking care to see that ‘the most probative evidence’ is produced.” Id. at 5 (citing 29 C.F.R. § 1980.107(d))
In Zinn v. American Commercial Lines Inc., ARB No. 10-029, ALJ No. 2009-SOX-25 (ARB Mar. 28, 2012), the ARB held that the ALJ abused his discretion in excluding a Congressional staff report proffered by the Complainant that was relevant to the question of whether the Complainant had a reasonable belief that the Respondent's Form 10-K may have misrepresented the safety of its operations by failing to disclose a subcontractor’s use of unlicensed personnel to pilot tugboats. Respondent was in the business of transporting various industrial products by barges on waterways using its own or hired tugboats. While the Congressional report concerned an oil spill that occurred 15 days after the termination of complainant’s employment, it is relevant because it corroborates her testimony that the tugboat subcontractor used unlicensed pilots to transport industrial products on behalf of Respondent.
The SOX regulations suggest that ALJs have the authority to reconsider within ten days following issuance of the initial decision and order, and that a timely filed motion to reconsider tolls the time for appeal. 29 CFR § 1980.110(c). See also Allen v. EG & G Defense Materials, Inc., 1997-SDW-8 & 10 (ALJ Aug. 21, 2001); Macktal v. Brown & Root, Inc., ARB 98-112, 86-ERA-23 (ARB Nov. 20, 1998). However, in Negron v. Vieques Air Link, Inc., ARB 04-021, 2003-AIR-10 (ARB Jan. 8, 2004), the ARB found that once a party files a petition for review with the ARB, the ALJ lacks jurisdiction to reconsider or amend his or her order. In Steffenhagen v. Securitas Sverige, AR, 2003-SOX-24 (ALJ Aug. 13, 2004), the ALJ found she lacked jurisdiction to rule on a motion to reconsider when the complainant also filed an appeal to the ARB on the same day.
The ARB employs the same principles that federal courts employ in deciding requests for reconsideration, including “(i) material differences in fact or law from that presented to a court of which the moving party could not have known through reasonable diligence, (ii) new material facts that occurred after the court’s decision, (iii) a change in the law after the court’s decision, and (iv) failure to consider material facts presented to the court before its decision.” McCloskey v. Ameriquest Mortgage Co., ARB 06-033, 2005-SOX-093 (ARB Mar. 26, 2008) (denying reconsideration where complainant failed to meet provisions of the Board’s four-part test for reconsideration, but instead rehashed arguments that the Board already considered); Halpern v. XL Capital, Ltd., ARB 04-120, 2004-SOX-54 (ARB Apr. 4, 2006) (citations omitted). See also Getman v. Southwest Securities, Inc., ARB 04-059, 2003-SOX-8 (ARB Mar. 7, 2006) (applying same factors and denying reconsideration because complainant’s motion for reconsideration did not raise new factual or legal arguments).
In Henrich v. Ecolab, Inc., ARB No. 05-030, ALJ No. 2004-SOX-51 (ARB May 30, 2007), the ARB held that a motion for reconsideration must be filed within a “reasonable time,” and that 60 days is not a reasonable time. While the ARB did not set a specific deadline for filing a motion for reconsideration, it suggested that 14 to 30 days might be sufficiently short a time.
Within 10 business days following the ALJ’s decision, either party may file a petition for review with the ARB. 29 CFR § 1980.110(a). See Gooding v. ABB, Ltd., ARB No. 11-059, ALJ No. 2011-SOX-18 (ARB Dec. 12, 2011) (petition for review must be filed within 10 business days of the date of the decision of the ALJ, not within 10 days of the date upon which the decision was served upon a party). Review is discretionary.
A petition must specifically identify the findings, conclusions, or orders to which exception is taken. 29 C.F.R. § 1980.110(a). A “blanket objection to all of the ALJ’s findings and conclusions clearly fails to satisfy the specificity requirement for a petition to the Board for review.” Brookman v. Levi Strauss & Co., 2006-SOX-036, ARB 07-074 (ARB July 23, 2008) (pro se complainant made blanket objection though ARB granted review, likely due to pro se status). If no petition is filed, the ALJ’s decision becomes final within 10 days. If a petition for review is filed, but the ARB does not issue an order accepting the case for review within 30 business days of the ALJ’s decision, the ALJ decision becomes final. 29 CFR § 1980.110(b). See also Walker v. Aramark Corp., 2003-SOX-22, ARB 04-006 (ARB Nov. 13, 2003). The ARB has been delegated the authority to act for the Secretary and issue final decisions under SOX and acts with all the powers the Secretary would possess in rendering a decision. 29 CFR § 1980.110(a). If the ARB accepts a case for review, the ALJ’s decision becomes “inoperative,” except that a preliminary order of reinstatement remains effective while review is conducted. 29 CFR § 1980.110(b). Unlike the Federal Rules of Appellate Procedure, the procedural regulations governing SOX claims do not provide for the filing of a cross-petition. Accordingly, a party that prevails before the ALJ but may later wish to appeal a portion of the decision must file a protective appeal within 10 days of the issuance of the ALJ’s decision. Henrich v. Ecolab, Inc., ARB 05-036, 2004-SOX-51 (ARB Mar. 31, 2005).
The ARB acts in an appellate capacity and its decision is based only on evidence considered by the ALJ in the initial hearing. Carter v. Champion Bus, Inc., ARB 05-076, 2005- SOX-23 (ARB Sept. 29, 2006) (the ARB will not consider legal arguments or evidence raised for the first time on appeal). No discovery is available. See Reid v. Constellation Energy Group, Inc., ARB 04-107, 2004-ERA-8 (ARB Oct. 13, 2004); Halpern v. XL Capital, Ltd., ARB 04-120, 2004-SOX-54 (ARB Oct. 13, 2004); Cummings v. USA Truck, Inc., ARB 04-043, 2003-STA-47 (ARB Sept. 15, 2004).
While a party’s failure to present an argument on an issue or contest an element of a claim will generally result in a waiver of the issue, the ARB will not enforce that rule where it would result in a manifest injustice. In Avlon v. American Express Co., ARB No. 09-089, ALJ No. 2008-SOX-51 (ARB Sept. 14, 2011), the ARB held that it has the authority to review an ALJ ruling on the timeliness of complaint even though the complainant failed to file an exception on this issue. The ARB stated: “Indeed, not reviewing that claim would render a manifest injustice as it would possibly cause her entire case to be dismissed as it is the central issue on which the ALJ's decision rests. Moreover, because no additional fact-finding is required and the parties fully litigated this issue before the ALJ . . . , we are well within the bounds of our discretion to address that issue on Avlon's petition for review.” USDOL/OALJ Reporter at 5-6 (footnote omitted). The ARB has also held that it is not bound by the legal theories of the parties. Funke v. Federal Express Corp., ARB No. 09-004, ALJ No. 2007-SOX-43 (ARB July 8, 2011) (As long as an issue is adequately litigated below and part of the record, the ARB is not necessarily bound by the legal theory of any party in determining whether a violation has occurred.).
The ARB holds its proceedings in Washington, D.C., unless for good cause the ARB orders that proceedings in a particular matter be held in another location. See Secretary’s Order 1-2002, 67 Fed. Reg. 64272 (Oct. 17, 2002). The ARB reviews the ALJ’s findings of fact under a substantial evidence standard (29 CFR § 1980.110(b)) and conclusions of law de novo. Barron v. ING North America Insurance Corp., ARB 06-071, 2005-SOX-051 (ARB Aug. 29, 2008); Negron v. Vieques Air Link, Inc., ARB 04-021, 2003-AIR-10 (ARB Jan. 8, 2004); Hasan v. J.A. Jones, Inc., ARB 02-123, 2002-ERA-5 (ARB June 25, 2003). An ALJ’s recommended grant of summary decision, however, is reviewed de novo. Reddy v. Medquist, Inc., ARB 04-123, 2004-SOX-35 (ARB Sept. 30, 2005) (citing Honardoost v. Peco Energy Co., ARB 01-030, 00-ERA-36, (ARB Mar. 25, 2003)). Dismissals for failure to prosecute or to comply with the federal rules or any order of the court are reviewed under an abuse of discretion standard. Howick v. Campbell-Ewald Co., ARB 03-156 & 04-065, 2003-STA-6 & 7 (ARB Nov. 30, 2004).
In a STAA retaliation case, the ARB recently defined substantial evidence review:
[I]n conducting our review, we must uphold an ALJ’s findings of fact to the extent they are supported by substantial evidence, even if there is also substantial evidence for the other party, and even if we justifiably disagree with the finding. Bobreski v. J. Givoo Consultants, ARB No. 09-057, ALJ No. 2008-ERA-003, slip op. at 8 (ARB June 24, 2011). Substantial evidence is evidence that a reasonable person might accept to support a conclusion. Id. "[T]he determination of whether substantial evidence supports [an] ALJ’s decision is not simply a quantitative exercise, for evidence is not substantial if it is overwhelmed by other evidence or if it really constitutes mere conclusion." Id. (internal quotations and citations omitted). "A determination whether evidence is substantial on the record considered as a whole must ‘take into account whatever in the record fairly detracts from its weight.’" Id. (quoting Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951)). "‘A single piece of evidence will not satisfy the substantiality test if the [adjudicator] ignores, or fails to resolve, a conflict created by countervailing evidence.’" Id. (quoting Dorf v. Bowen, 794 F.2d 896, 901 (3d Cir. 1986)).
Clark v. Hamilton Hauling, LLC, ARB No. 13-023, ALJ No. 2011-STA-7, at 4-5 (ARB May 29, 2014). And in an ERA retaliation case, the ARB established the following three part-analysis for substantial evidence review:
Given these principles, the substantial evidence test requires us to apply a three-part analysis for each finding of fact relevant to the issues on appeal: (1) whether the ALJ and/or the parties have identified record evidence for each of the material fact findings; (2) whether the supporting evidence logically supports the fact finding; and, if so, (3) whether the record as a whole overwhelms the fact finding or contains factual disputes that expose the fact finding as still unresolved. We must be convinced that each fact finding has evidence allowing for a logical inference that arguably fits with the remaining record. We listed these three analytical steps in a self-evident progressive order, but we recognize that any one of these steps alone can expose the lack of substantial evidence and that no particular order is required.
Bobreski v. J. Givoo Consultants, Inc., ARB No. 13-001, ALJ No. 2008-ERA-3, at 13-14 (ARB Aug. 29, 2014).
Within 120 days of conclusion of the hearing (generally 130 days from ALJ decision), the ARB must issue a final decision. 29 CFR § 1980.110(c); 49 U.S.C. § 42121(b)(3)(A). The ARB has opined this 120-day period is directory and not jurisdictional. Welch v. Cardinal Bankshares Corp., ARB 04-054, 2003-SOX-15 (ARB May 13, 2004). A complainant can remove a SOX action to district court while an appeal of the ALJ’s decision is pending before the ARB (as long 180 days have passed since the filing of the complaint). Heaney v. GBS Properties LLC, ARB 05-039, 2004-SOX-72 (ARB May 19, 2005); Allen v. Stewart Enterprises, Inc., ARB 05-059, 2004-SOX-60 (ARB Aug. 17, 2005).
However, there is district court precedent for returning fully-tried administrative cases to the ARB with an order of mandamus directing the ARB to issue a prompt decision. See “Removal to Federal Court on or after 180 days,” infra.
- Timeliness of Appeal
In Svendsen v. Air Methods, Inc., ARB 03-074, 2002-AIR-16 (ARB Aug. 26, 2004), the ARB decided that it is the date that the decision “was issued,” not the date the ALJ signed his Recommended Decision and Order, that triggers the period for appealing the ALJ’s decision.
The limitations period for filing a petition for review with the ARB is considered an internal procedural rule that is subject to equitable tolling. See Stoneking v. Avbase Aviation, ARB 03-101, 2002-AIR-7, at 2 (ARB July 29, 2003); Herchak v. America West Airlines, Inc., ARB 03-057, 2002-AIR-12, at 5 (ARB May 14, 2003).
In Patino v. Birken Manufacturing Co., ARB 09-054, 2005-AIR-023, at 3 (ARB Nov. 24, 2009), the ARB held that “[I]t is within the ARB’s discretion, under the proper circumstances, to accept an untimely-filed petition for review.” Regarding reasons for tolling, “the ARB has consistently held that attorney error does not support equitable tolling because ‘[u]ltimately, clients are accountable for the acts and omissions of their attorneys.’”) Id. at 4 (alternation in original) (citation omitted). Further, “‘[absence of prejudice] is not an independent basis for invoking the doctrine and sanctioning deviations from established procedures.’” Id. at 4 (citing Baldwin County Welcome Ctr. v. Brown, 446 U.S. 147, 152 (1984)) (alteration in original).
In Romero v. The Coca Cola Co., ARB No. 10-095, ALJ No. 2010-SOX-21 (ARB Sept. 30, 2010), the ARB declined to apply equitable tolling where the complainant’s attorney received the ALJ’s decision two days before a petition for review was due and failed to request an enlargement of time to file the petition.
- Interlocutory Appeals
The ARB has “discretionary authority to review interlocutory rulings in exceptional circumstances, provided such review is not prohibited by statute.” Secretary’s Order 1-2002, 67 Fed. Reg. 64272 (Oct 17, 2002). However, the ARB, citing “a strong policy against piecemeal appeals,” generally does not accept interlocutory appeals of non-final ALJ orders. See, e.g., Jordan v. Sprint Nextel Corp., ARB 06-105, 2006-SOX-41 (ARB June 19, 2008); Welch v. Cardinal Bankshares Corp., ARB 04-054, 2003-SOX-15 (ARB May 13, 2004) (denying interlocutory appeal of ALJ order finding that respondent retaliated against claimant where the ALJ had bifurcated consideration of liability and damages and had not yet ruled on damages); Hibler v. Exelon Generation Co., LLC, ARB 03-106, 2003-ERA-9 (ARB Feb. 26, 2004) (denying interlocutory appeal of order denying respondent’s motion to dismiss on basis that claimant failed to timely serve respondent with his hearing request); Walton v. Nova Information, ARB 06-100, 2005-SOX-107 (ARB Sept. 29, 2006) (denying interlocutory appeal of ALJ’s order denying motion to dismiss).
To obtain review of an ALJ’s interlocutory order, a party seeking review is generally required first to obtain certification of the interlocutory questions from the ALJ. Somerson v. Mail Contractors of America, ARB 02-118, 02-STA-44 (ARB Feb. 13, 2003); Puckett v. Tennessee Valley Auth., ARB 02-070, 2002-ERA-15 (ARB Sept. 26, 2002). The ARB has held that it will apply the procedure for interlocutory review set forth at 28 U.S.C. § 1292(b). Jordan v. Sprint Nextel Corp., ARB 06-105, 2006-SOX-041 (ARB June 19, 2009). Under 28 U.S.C. § 1292(b), a district judge may certify an interlocutory order for appeal when: (1) the order “involves a controlling question of law as to which there is substantial ground for difference of opinion”; and (2) “an immediate appeal from the order may materially advance the ultimate termination of the litigation.”
In Hibler v. Exelon Generation Co., LLC, ARB 03-106, 2003-ERA-9 (ARB Feb. 26, 2004), and Welch v. Cardinal Bankshares Corp., ARB 04-054, 2003-SOX-15 (ARB May 13, 2004), the ARB held that even if the ALJ certifies an issue for appeal under 28 U.S.C. § 1292, the ARB will evaluate whether interlocutory appeal is appropriate under the collateral order exception. In Welch, the ARB declined to decide whether the failure to obtain certification is fatal to a request for interlocutory review.
In Gloss v. Marvell Semiconductor, Inc., ARB No. 10-033, ALJ No. 2009-SOX-11 (ARB Jan. 13, 2010), the ARB denied interlocutory review of an ALJ’s decision that the respondent waived attorney-client privilege and work product doctrine objections base on the Supreme Court’s holding in Mohawk Indus., Inc. v. Carpenter, 130 S. Ct. 599, 606 (2009). See also Fernandez v. Navistar Int’l Corp., ARB No. 10-035, ALJ No. 2009-SOX-43 (ARB Mar. 4, 2010) (declining to review an ALJ’s order finding that respondent waived any privilege that may have attached to a report summarizing an internal investigation and finding that “exercising jurisdiction over the issue . . . would not . . . expedite the litigation and resolution of this case”).
In Johnson v. U.S. Bancorp, ARB No. 11-018, ALJ No. 2010-SOX-37 (ARB Mar. 14, 2011), the ALJ denied a motion requesting that the ALJ certify to the ARB for interlocutory review the issue of whether the respondent waived the attorney-client privilege when it relied on an internal investigation as an affirmative defense. The respondent then filed a petition for interlocutory review with the ARB, and the ARB denied the petition, citing Mohawk Indus. Inc. v. Carpenter, supra, and noting the availability of protective, in camera, and other orders to preserve potentially privileged material.
Failure to adhere to ARB orders, such as briefing schedules, may be grounds for dismissal. See Cunningham v. Washington Gas Light Co., ARB 04-078, 2004-SOX-14 (ARB Apr. 21, 2005) (dismissing appeal for failure to file a brief and failure to file a response to the ARB’s show cause order); Reid v. Niagara Mohawk Power Corp., ARB 04-181, 2000-ERA-23 (ARB Dec. 8, 2004) (dismissing appeal for failure to file a petition for review of ALJ’s recommended decision within 10 business days of the date on which the ALJ issued the recommended decision and failing to respond to show cause order); Reid v. Constellation Energy Group, Inc., ARB 04-107, 2004-ERA-8 (ARB Dec. 17, 2004) (dismissing appeal for failure to comply with briefing schedule); Powers v. Pinnacle Airlines, Inc., ARB 04-035, 2003-AIR-012 (ARB Sept. 28, 2004) (Board dismissed Powers’ appeal for failure to file a conforming brief), cert. denied, 579 U.S. 917 (2006); Melendez v. Exxon Chemical Americas, ARB 03-153, 1993-ERA-6 (ARB Mar. 30, 2004); Gass v. Lockheed Martin Energy Systems, Inc., ARB 03-093, 2000-CAA-22 (ARB Jan. 29, 2004); Steffenhagen v. Securitas Sverige, AR, ARB 03-139, 2003-SOX-24 (ARB Jan. 13, 2004). In Rowland v. NASD, ARB 07-098, 2007-SOX-006, at 8 (ARB Sept. 25, 2009), the ARB held that while 29 C.F.R. § 18.6(b) allows for the discretionary filing of an answer in support or in opposition of a motion, it “does not negate the discretion given the ALJ . . . [to] call for the submission of briefs [in a briefing schedule] or to rule that a decision be rendered against a party who does not comply with an order.” A party claiming extraordinary hardship as a reason for delayed filing or failure to comply with a briefing schedule should be prepared to show evidence of the hardship and should request an extension prior to the deadline. Id. at 7 (complainant blamed computer hacking for delay in submitting response to motions to dismiss).
- Enforcement of a Final Order
Proceedings to compel compliance with the Secretary’s final order may be brought by a party in federal district court. 49 U.S.C. § 42121(b)(6)(A); 29 CFR § 1980.113. The court has jurisdiction without regard to the amount in controversy or citizenship of the parties. Additionally, the Secretary may file a civil action in federal district court to enforce a final order. 49 U.S.C. § 42121(b)(5).
Within 60 days of issuance of the DOL’s final decision, an aggrieved party may file a petition for review to the United States Court of Appeals in the circuit in which the alleged violation occurred, or the circuit in which the complainant resided on the date of the alleged violation. 49 U.S.C. § 42121(b)(4)(A); 29 CFR § 1980.112(a).
SOX does not set forth the standard of review for appeals to the Court of Appeals. Accordingly, the default standards provided in the Administrative Procedures Act (“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”) should apply. See Alaska Dep’t. of Environmental Conservation v. Environmental Protection Agency, 540 U.S. 461 (2004). Under the APA, the court is bound by the ARB’s factual findings if they are supported by substantial evidence. 5 U.S.C. § 706(2). See UPS v. Administrative Review Bd., No. 97-3544, 1998 U.S. App. LEXIS 24978 (6th Cir. 1998). In Roadway Express, Inc. v. Admin. Review Bd., 2004 U.S. App. LEXIS 25578 (6th Cir. Nov. 22, 2004), the Sixth Circuit stated the legal conclusions of the ARB are to be reviewed “de novo, with the proper deference due an agency interpreting the statute it is charged with administering.”
If the DOL has not issued a final decision within 180 days and the delay is not a result of the complainant’s bad faith, the complainant may withdraw his or her administrative complaint and file an action for de novo review in federal district court. 18 U.S.C. § 1514A(b)(1)(B). See Kelly v. Sonic Auto. Inc., ARB 08-027, 2008-SOX-003 (ARB Dec. 17, 2008) (affirming ALJ’s decision that the DOL was deprived of jurisdiction over the complainant’s SOX complaint once the complainant filed his action in district court seeking de novo review). The district court has jurisdiction without regard to the amount in controversy. Moreover, the same burdens of proof that apply before the ALJ apply in the district court. 18 U.S.C. § 1514A(b)(2)(C).
- Issues Relating To Removal
The right to de novo review after a complaint has been pending before the DOL for over 180 days without a final decision is absolute. Stone v. Instrumentation Lab. Co., 591 F.3d 239 (4th Cir. 2009). In Stone, the Fourth Circuit defined “de novo” and found “the plain language of § 1514A(b)(1)(B) unambiguously establishes a Sarbanes-Oxley whistleblower complainant's right to de novo review in federal district court if the DOL has not issued a “final decision” and the statutory 180-day period has expired.” Id. at 9. The Stone decision makes it clear that if the administrative process at the DOL does not move quickly, a whistleblower has an unwavering right to start afresh in district court. Deferring to an administrative agency is in direct conflict with the language of SOX which provides for de novo review.
Section 806 does not specify a time limitation within which a SOX claim must be filed in district court after the complaint has been removed from DOL. In Jones v. Southpeak Interactive Corp, --- F.3d ----, 2015 WL 309626 (4th Cir. Jan. 26, 2015), the Fourth Circuit held that the four-year “catchall” time limit set forth in 28 U.S.C. § 1658(a) supplies the limitations period for removing a SOX claim to federal court. The court rejected Appellants’ argument that a shorter 2-year limitation period for fraud claims should apply because a SOX whistleblower need not prove securities fraud.
In Jordan v. Sprint Nextel Corp., 3 F. Supp. 3d 917 (D. Kan. Mar. 11, 2014), the court held that neither 28 U.S.C. §1658(a) nor §1658(b) apply to a SOX whistleblower claim and that there is no limitations period within which a SOX complainant must initiate an action in district court after removing the claim from DOL.
In Candler v. URS Corp., ARB No. 13-045, ALJ No. 2012-SOX-5 (ARB July 3, 2013), Candler removed her SOX claim to federal court after an ALJ had dismissed the case and she had filed a petition for review with the ARB. The respondent opposed the ARB’s dismissal of Candler’s SOX complaint on the ground that the complainant waived her right to go to district court in a representation to the ALJ and engaged in bad faith delay. The ARB held that, pursuant to 29 C.F.R. § 1980.114(b), a complainant exercising her right to seek de novo review in federal court need only give notice of her intent to obtain de novo review in district court within seven days after filing a complaint in federal court. As Candler notified the ARB that she filed a complaint in federal court, the ARB dismissed her complaint.
In Trusz v. UBS Realty Investors, LLC, 2010 WL 1287148 (D. Conn. Mar. 30, 2010), the court held that amending a SOX complaint to include additional acts of retaliation does not reset the 180-day period that a complainant must wait before removing the complaint from DOL to federal court.
Within seven days after filing an action in district court, the complainant must file a copy of the file-stamped complaint notice with the ALJ or ARB, and serve such notice upon various divisions in DOL. 29 CFR § 1980.114(b).
Standard pleading requirements apply in district court actions. For instance, in Stone v. Duke Energy Corp., No. 3:03-CV-256, slip op. (W.D.N.C. Feb. 11, 2004), the court dismissed the plaintiff's SOX complaint for failure to contain “a short and plain statement of the claim” and failure to present claims in separate counts for clear presentation of the matters set forth. The court reasoned that it would “not waste its time searching through Plaintiff's disorganized and indefinite Complaint for a prima facie case.”
Complainants must exhaust their administrative remedies before filing a complaint in federal court. 18 U.S.C. § 1514A(b)(1)(A). Being an attorney does not exempt a plaintiff from this requirement. Curtis v. Century Sur. Co., 320 F.App’x 546 (9th Cir. 2009). In McClendon v. Hewlett-Packard Co., No. 05-Civ-087, 2005 WL 2847224 (D. Idaho Oct. 27, 2005), the district court determined that plaintiff’s complaint alleging that defendant took away his job duties was untimely under OSHA’s administrative filing period. Plaintiff opted out of the DOL forum and filed an action in the district court, alleging he was not time-barred from asserting other adverse employment actions. The court stated each discriminatory act starts the clock for filing an OSHA complaint. Since plaintiff’s additional adverse employment actions were not asserted in his OSHA complaint, the court could not review them.
Where a party withdraws an appeal pending before the ARB, the ALJ’s decision becomes the final decision of the Secretary of Labor pursuant to 29 C.F.R. § 1980.109(c). Lowe v. Terminix Int’l. Co., L.P., ARB 07-004, 2006-SOX-89 (ARB Aug. 23, 2007); Hagman v. Washington Mutual Bank, Inc., ARB 07-039, 2005-SOX-73 (ARB May 23, 2007). A withdrawal is not the same as removal to federal court. Stone v. Instrumentation Lab. Co., 591 F.3d 239 (4th Cir. 2009).
- Jury Trial
Prior to the enactment of the Dodd-Frank Act in 2010, it was unclear whether SOX allowed for a jury trial. Its legislative history reflects that at least some of its drafters intended that a jury trial be available for whistleblower actions. See 148 Cong. Rec. § 7418, 7420 (comments by Sen. Leahy). The Dodd-Frank Act expressly clarifies that Section 806 allows plaintiffs the right to try their claims before a jury.
SOX provides that a whistleblower action “shall be governed by the legal burdens of proof set forth in [AIR21].” 18 U.S.C. § 1514A(b). The burden-shifting framework of McDonnell Douglas and other cases decided under federal anti-discrimination statutes applies generally to SOX cases, but the quantum of proof imposed on the parties is changed. Under SOX and AIR21, a complainant may prevail merely by showing that an improper motive was a “contributing factor” in the employment decision. Once this relatively low quantum of proof is established by the complainant, a respondent seeking to avoid liability using a “same deicsion” defense must show by “clear and convincing evidence” (rather than a simple “preponderance of the evidence”) that it would have taken the same employment action even in the absence of complainant’s protected activity.
In Halliburton v. Admin. Review Bd., 13-60323, 2014 WL 5861790 (5th Cir. Nov. 12, 2014) (per curiam), the court held that a SOX whistleblower need not prove a “wrongfully- motivated causal connection.” Instead, “contributing factor” causation merely requires a showing that protected conduct affected in any way the outcome of the decision.
In Feldman v. Law Enforcement Associates Corp., 752 F.3d 339 (4th Cir. 2014), the court held that at the evidentiary stage, a SOX whistleblower is required to prove by a preponderance of the evidence that the protected activity was a contributing factor in the adverse action, and not merely that the circumstances were sufficient to raise an inference. The court affirmed the district court’s order granting summary judgment on causation because 1) there was a gap of twenty months between complainant’s primary protected activity and the termination his employment; and 2) there was a legitimate intervening event, wherein the complainant told shareholders who sought to sue the employer that the employer's outside directors were not loyal to the company and “basically worthless.”
In Fordham v. Fannie Mae, ARB No. 12-061, ALJ No. 2010-SOX-051 (October 9, 2014), the ARB held that “[p]roof by a complainant of the elements of a prima facie case of retaliation by a preponderance of the evidence, including proof of “contributing factor” causation, shifts to the employer the burden of proving by “clear and convincing evidence” not only the existence of a legitimate, non-retaliatory basis for the contested personnel action but that the employer would have taken the contested action on that basis alone had the complainant not engaged in protected activity.” Fordham, slip op. at 34. And significantly, the ARB held that “the determination of whether a complainant has met his or her initial burden of proving that protected activity was a contributing factor in the adverse personnel action at issue is required to be made based on the evidence submitted by the complainant, in disregard of any evidence submitted by the respondent” in support of the same-decision affirmative defense.” Id. On January 14, 2015, the ARB held oral argument in an en banc review of an ALJ decision dismissing an FRSA case, Powers v. Union Pacific RR Co., ARB No. 13-034, ALJ No. 2010-FRS-030, to consider whether to adopt the majority opinion in Fordham about the scope of evidence that an ALJ can rely upon in determining whether a complainant has met the burden of proving “contributing factor” causation. Several amici curiae participated in briefing and argument, and the Solicitor filed a brief strongly opposing the majority opinion in Fordham. Statements made by the ARB at the January 14, 2015 oral argument suggest that the ARB intends to clarify its holding in Fordham.
In Speegle v. Stone & Webster Construction, ARB 13-074, 2005-ERA-006 (ARB Apr. 25, 2014), the ARB defined in detail the standard that an employer must meet to establish the same decision affirmative defense. The standard is high, especially in comparison to the burden-shifting framework employed under most other anti-discrimination laws. The ARB established a three-part test to determine whether an employer can prove the same decision defense: (1) whether the employer’s evidence meets the plain meaning of “clear” and “convincing”; (2) whether the employer’s evidence indicates subjectively that the employer “would have” taken the same adverse action; and (3) whether facts that the employer relies on would change in the “absence of” the protected activity.” Speegle, ARB 13-074 at *7.
Under Speegle, evidence is clear and convincing only if it “‘immediately tilts’ the evidentiary scales in one direction.” Id. at *6. In addition, Speegle requires the employer to prove that it would have taken the same decision in the absence of protected whistleblowing, as opposed to just proving that it could have taken the same decision. Id. at *8.
In Bechtel v. Admin. Review Bd., U.S. Dep't of Labor, 710 F.3d 443 (2nd Cir. 2013), the Second Circuit held that at the evidentiary stage, the fourth element (causation) requires the complainant to prove by a preponderance of the evidence that the "protected activity was a contributing factor in the adverse action," and not merely to show that "[t]he circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the adverse action.”
In Leshinsky v. Telvent GIT S.A., Civ. No. 10-4511, 2013. WL 1811877 (S.D.N.Y. May 1, 2013), the court summarized the framework for reviewing a summary judgment motion in a SOX case and suggested that employers moving for summary judgment bear a heavy burden:
At the summary judgment stage, a plaintiff need only demonstrate that a rational factfinder could determine that Plaintiff has made his prima facie case. Assuming a plaintiff does so, summary judgment is appropriate only when, construing all of the facts in the employee's favor, there is no genuine dispute that the record clearly and convincingly demonstrates that the adverse action would have been taken in the absence of the protected behavior. Thus, the defendant's burden under Section 806 is notably more than under other federal employee protection statutes, thereby making summary judgment against plaintiffs in Sarbanes-Oxley retaliation cases a more difficult proposition.
Leshinksy, supra, slip op. at 10-11 (citation omitted).
In Kalkunte v. DVI Financial Services, Inc., ARB 05-139, 2004-SOX-056 (ARB Feb. 27, 2009), the ARB articulated the burdens of proof that apply to SOX cases. A SOX complainant need not show that her protected conduct was a motivating or determinative factor in the decision to take an adverse action; rather she must only show that it was a contributing factor. Once the complainant has established by a preponderance of the evidence that the protected activity was a contributing factor in the adverse action, the employer can avoid liability only by proving by a clear and convincing evidence that it would have taken the same unfavorable personnel action in the absence of the protect activity. Id. at 8. In Van Asdale v. Int’l. Game Tech., 577 F.3d 989, 1004 (9th Cir. 2009), the court held that “‘causation can be inferred from timing alone where an adverse employment action follows on the heels of protected activity.’” Thus, close temporal proximity is sufficient to avoid Summary judgment.
Temporal proximity between the protected conduct and the adverse action is sufficient to create a genuine issue of material fact on causation. Vannoy v. Celanese Corp., ARB No. 09-118, ALJ No. 2008-SOX-64 (ARB Sept. 28, 2011). In Menendez v. Halliburton, Inc., ARB Nos. 09-002, -003, ALJ No. 2007-SOX-5 (ARB Sept. 13, 2011), the ARB clarified that lack of retaliatory motive does not preclude a finding of causation: “Nothing in Section 806 requires a showing of retaliatory intent. The statute is designed to address (and remedy) the effect of retaliation against whistleblowers, not the motivation of the employer. Proof of ‘retaliatory motive’ is not necessary to a determination of causation. McCollum's breach of confidentiality, however well meaning, nonetheless demonstrates a lack of understanding of its foreseeable consequences and does not absolve Halliburton of responsibility. The ALJ thus erred as a matter of law in deciding that lack of retaliatory motive precluded a finding of causation.” ARB Nos. 09-002, -003, at 31-32.
In proving that protected activity was a contributing factor in the adverse action, a complainant need not necessarily prove that the respondent's articulated reason was a pretext. See Henderson v. Wheeling & Lake Erie Railway, ARB No. 11-013, ALJ No. 2010-FRS-12 (ARB Oct. 26, 2012) (citing Klopfenstein v. PCC Flow Techs. Holdings, Inc., ARB No. 04-149, ALJ No. 2004-SOX-011, slip op. at 18 (ARB May 31, 2006)). A complainant can prevail by showing that the respondent's reason, while true, is only one of the reasons for its adverse conduct and that another reason was the complainant's protected activity. Klopfenstein, ARB No. 04-149 at 19.
In Williams v. Administrative Review Board, 376 F.3d 471 (5th Cir. 2004), the Fifth Circuit held that the Ellerth/Faragher standard applies in an ERA hostile work environment case where the employee suffered no adverse employment action. Therefore, a defendant can avert vicarious liability for a hostile work environment by showing that: (1) the employer exercised reasonable care to prevent and correct promptly any harassing behavior, and (2) the harassed employee unreasonably failed to take advantage of any preventive opportunities provided by the employer. The court reasoned that “[i]f the Ellerth/Faragher standard applies in a race discrimination case, there is no reason not to apply the same standard in a whistle-blower case.” Id. at 478. There appears to be no reason to believe the Williams reasoning would not apply to SOX whistleblower actions.
SOX itself does not address confidentiality. However, the regulations state that “[i]nvestigations will be conducted in a manner that protects the confidentiality of any person who provides information on a confidential basis, other than the complainant, in accordance with part 70 of this title.” 29 CFR § 1980.104(d). Although this general policy may shield some materials from public disclosure, it has very significant limitations, especially as it applies to settlement agreements (discussed infra).
According to the December 5, 2003 DOL OALJ Notice Regarding Public Access to Court Records and Publication of Decisions (“Notice”), to protect personal privacy and other legitimate interests, parties should refrain from including (or should redact) social security numbers and financial account numbers from all pleadings filed with the court, including exhibits. Unredacted documents may be filed under seal.
In Jordan v. Sprint Nextel Corp., ARB 06-105, 2006-SOX-041, at 2 (ARB Sept. 30, 2009), the ARB held that in-house counsel could pursue his SOX claim even though prosecuting the claim would entail using attorney-client privileged information. The ARB concluded that Section 307 of SOX, which requires an attorney to report a material violation, should be read in conjunction with the whistleblower protections provided in Section 806. Similarly, in Van Asdale v. Int’l. Game Tech., 577 F.3d 989, 994 (9th Cir. 2009), the court held that SOX “expressly authorizes any ‘person’ alleging discrimination based on protected conduct to file a complaint with the Secretary” Id. at 996 (permitting in-house counsel to pursue complaint despite potential disclosure of attorney-client privileged information).
In Thomas v. Pulte Homes, Inc., 2005-SOX-9 (ALJ Aug. 9, 2005), the ALJ refused complainant’s request that the entire record be sealed. “A request for the record to be sealed may be made by requesting a protective order pursuant to 29 C.F.R. § § 18.15 and 18.46 or requesting a designation of confidential commercial information pursuant to 29 C.F.R. § 70.26.” Complainant failed to support the need for confidentiality by failing to identify a privacy interest, potential harm or embarrassment that could result from disclosure and failed to identify confidential commercial information. The ALJ, however, noted that confidential information can be subject to disclosure through FOIA requests. Thus, even if the record were sealed, in responding to FOIA requests, the DOL would determine whether or not to withhold the information and, if there were no applicable exemptions, it would be disclosed.
Prior to the enactment of Dodd-Frank Act, the Department of Labor and federal courts consistently held that Section 806 claims are subject to mandatory arbitration. Guyden v. Aetna, Inc., 544 F.3d 376 (2nd Cir. 2008) (granting the employer’s motion to compel mandatory arbitration of a SOX claim). The Dodd-Frank Act amended SOX by making unenforceable any predispute arbitration agreement or other attempt to condition employment on the employee’s waiver of her rights and remedies under SOX.
Courts are divided as to whether the Dodd-Frank Act amendment to Section 806 barring arbitration of such claims should apply to claims in which the parties entered into an arbitration agreement prior to the July 2010 enactment of Dodd-Frank. In Wong v. CKX, Inc., No. 11 Civ. 6291, 2012 WL 3893609 (S.D.N.Y. Sept. 11, 2012), the district court denied defendant’s attempt to enforce an arbitration provision in an employment agreement that the plaintiff entered into prior to the enactment of Dodd-Frank. The court reasoned that because “the right to have a dispute heard in an arbitral forum is a procedural right that affects the forum that will decide the substantive rights of the parties” and does not affect the parties’ substantive rights, applying the Dodd-Frank Act amendment would not have a disfavored retroactive consequence.
In Taylor v. Fannie Mae, 839 F.Supp.2d 259 (D.D.C. Mar. 20, 2012), the district court granted a motion to compel arbitration in a SOX case in which the parties entered into an employment agreement containing an arbitration provision prior to the enactment of the Dodd-Frank Act. Relying on Henderson v. Masco Framing Corp., 2011 WL 3022535 (D.Nev. July 22, 2011) the court found that retroactive application of the Dodd-Frank Act amendment would “fundamentally interfere with the parties' contractual rights and would impair the ‘predictability and stability' of their earlier agreement.”
In Neal v. Asta Funding, Inc., No. 13-cv-2438 (D.N.J. Dec. 4, 2013), the district court stayed court proceedings pending arbitration proceedings and noted that courts have "nearly uniformly" held that the SOX exemption to mandatory arbitration does not apply to SOX whistle blower claims that were arbitrable at the time the law was enacted.
At any time before issuance of a final order, a SOX proceeding may be terminated on the basis of a settlement agreement entered into by the parties and approved by the ALJ. 29 CFR § 1980.111(d)(2). It is OSHA’s policy to seek settlement in all cases determined to be meritorious prior to completing the investigation. OSHA Manual 3-2, 3..
However, the possibility of settlement in any given case is often complicated by factors such as the possibility of subsequent or parallel litigation between the parties. Another consideration impacting settlement is that any settlement agreement between the parties must be approved by DOL. 49 U.S.C. § 42121 (b)(3)(A); 29 CFR § 1980.111(d); DOL Memorandum of Review of Whistleblower Settlements (July 10, 2003) (settlements reached during the investigative stage must be reviewed and approved by OSHA and settlements reached after OSHA issues its findings must be approved by the ALJ or ARB).
Employers have an incentive to settle SOX claims where a general release of other existing and potential claims between the parties can be obtained from the complainant. In furtherance of its policy to seek settlement in all cases, the DOL has generally approved settlement agreements containing a general release of claims. See Moore v. Cooper Cameron, 2004-SOX-37 (ALJ July 21, 2004) (ALJ accepted settlement agreement containing general release as fair and reasonable).
However, in Coker v. Wal-Mart Stores, Inc., 2004-SOX-33 (ALJ June 4, 2004), an ALJ opined that a settlement agreement containing a general release including unstated claims under other laws for which the DOL lacked jurisdiction and potential claims arising in the future should be rejected as not fair, reasonable or in the public interest. The ALJ reasoned that the DOL’s authority over settlement agreements “is limited to such statutes as are within the Secretary’s jurisdiction and is defined by the applicable statute.”
In Michaelson v. OfficeMax, Inc., 2004-SOX-17 (ALJ June 21, 2004), an ALJ rejected a settlement agreement because it contained an overly broad general release and confidentiality provision and proposed modification of those provisions. Regarding the general release, the ALJ found that to the extent the provision could be interpreted to include a waiver of complainant’s rights based upon future actions, the provision was contrary to public policy. Although the ALJ noted that the DOL’s authority over settlement agreements is limited to those statutes which are within the Secretary’s jurisdiction, he did not (unlike the ALJ in Coker) find that the waiver of claims involving multiple other state and federal laws necessarily rendered the agreement unfair or unreasonable, but he did explain that his review of the agreement was limited to a determination whether the terms of the agreement represented a fair, adequate and reasonable settlement of the complainant’s allegations concerning the SOX violations.
Parties sometimes may seek to circumvent the DOL settlement approval requirement. For example, in Wallace v. Routeone, LLC, 2005-SOX-4 (ALJ Jan. 25, 2005), the complainant had filed claims against respondent under both SOX and state law. The parties settled the state law claim and executed a written settlement and release agreement. The complainant, satisfied with the relief obtained, then moved to dismiss as moot his objections to OSHA’s determination. While 29 CFR § 1980.111 requires an ALJ’s approval of settlements if a complainant seeks to withdraw his or her objections because of a settlement, the ALJ held that this provision refers only to a settlement of the SOX case, not the settlement of a contemporaneous state claim. Therefore, the complainant was permitted to dismiss the SOX case as moot.
The ARB recently held that the regulations implementing the STAA whistleblower protection provision do not allow the Secretary, Board, or ALJ to dismiss a whistleblower complaint on the basis of a severance agreement executed before a whistleblower complaint was filed. Gilbert v. Bauer's Worldwide Transportation, ARB No. 11-019, ALJ No. 2010-STA-22 (ARB Nov. 28, 2012). In Gilbert, both the OSHA and the ALJ dismissed the STAA complaint on the ground that the Complainant had signed a severance agreement. The Complainant argued that the severance agreement was invalid because it was signed under duress. The ARB noted the absence of any statute or regulation expressly empowering or requiring the ARB to adjudicate pre-filing severance agreements, and also noted that it had held in an ERA whistleblower case that an employer should not be allowed to rely on a severance agreement as a waiver of the employee’s rights to recover damages, citing Khandelwal v. Southern Calif. Edison, ARB No. 98-159, ALJ No. 1997-ERA-6 (ARB Nov. 30, 2000).
Another issue to consider regarding settlement is confidentiality. In Doherty v. Hayward Tyler, Inc., ARB 04-001, 2001-ERA-43 (ARB May 28, 2004), the ARB found that the parties’ submissions, including a settlement agreement, may become part of the record of the case and may be subject to disclosure under FOIA. Therefore, the ARB denied a joint motion requesting an order that the settlement agreement not be disclosed, except as set forth in the agreement. Likewise, in Michaelson v. OfficeMax, Inc., 2004-SOX-17 (ALJ June 21, 2004), the ALJ found that the agreement’s confidentiality provision could not prevent disclosure to governmental agencies, and that the agreement could be subject to disclosure pursuant to a FOIA request. See also Jacques v. Competitive Technologies, Inc., 2005-SOX-34 (ALJ June 14, 2005); Bahr v. Mercury Marine and Brunswick Corp., 2005-SOX-18 (ALJ June 13, 2005); Hogan v. Checkfree Corp., 2005- SOX-7 (ALJ May 10, 2005).
Parties settling at the appellate stage before the ARB may be able to avoid submitting a settlement agreement to the Labor Department and risking disclosure of settlement terms under FOIA by withdrawing the appeal. As a practical matter, however, it should be noted that the ALJ’s decision then becomes the Labor Department’s final (and enforceable) order. In Concone v. Capital One Financial Corp., ARB 05-038, 05-SOX-6 (ARB May 13, 2005), respondent’s attorney sent the ARB a letter stating the parties had reached a settlement. The parties filed a Joint Stipulation of Dismissal agreeing to dismiss the action with prejudice and the ARB issued an Order Requiring Clarification ordering the parties to either (1) withdraw their objections or (2) submit a copy of the settlement for the Board’s approval. The parties filed a Joint Motion to Withdraw Joint Stipulation of Dismissal and complainant filed a Notice of Withdrawal of Objections which the Board approved and dismissed the appeal.
In Walker v. Pacificare Health Systems, Inc., 2005-SOX-43 (ALJ July 15, 2005), the ALJ approved the settlement agreement and agreed to place it in a separate envelope marked confidential. The court reasoned the agreement contained confidential commercial information which could be exempt from disclosure under FOIA requests.
In Vannoy v. Celanese Corp., ARB No. 09-118, ALJ No. 2008-SOX-64 (ARB Sept. 27, 2013), the ARB denied the parties’ motion to vacate the ALJ's decision as a prerequisite for the settlement. And the ARB rejected the parties’ request to remove the ALJ's decision “from any website or database affiliated with the United State Department of Labor or record of published opinions.” The ARB held that the Settlement Agreement is part of the record of the case and is therefore subject to FOIA.
In any case where the employer fails to comply with the terms of a settlement agreement, OSHA opines that it may treat such failure as a new instance of retaliation and require the opening of a new case. Alternatively, direct enforcement of the agreement may be sought in court. OSHA Manual 6-14, 16.
In Chao v. Alpine, Inc., No. 04-Civ-102, 2004 WL 2095732 (D. Me. Sept. 20, 2004), the DOL had filed a complaint seeking to enforce backpay, interest and attorney fees awarded by the ARB. While pending before the district court, the attorneys for the employee and the defendant entered into a verbal settlement agreement, the defendant sent a check to the employee’s attorney to hold, and the employee’s attorney sent a settlement agreement to the defendant for signature and return for signing by the employee. Upon return, however, the employee refused to sign. The check was not returned to the defendant. The defendant then sought enforcement of the settlement agreement by the district court. The court granted enforcement, reasoning that the employee was bound by the agreement of her counsel to the settlement, the counsel having not expressly conditioned the agreement on the employee’s signature or on the employee’s acceptance of the terms of the agreement.
In Davis v. United Airlines, Inc., ARB 02-105, 2001-AIR-5 (ARB May 30, 2003), the ARB held that whistleblower actions brought pursuant to AIR21 are subject to the automatic stay of the Bankruptcy Code, 11 U.S.C.A. § 362(a)(1), and are not exempt from the stay pursuant to § 362(b)(4), which applies to actions and proceedings by a governmental unit to enforce its police and regulatory authority. In contrast, in Briggs v. United Airlines, 2003-AIR-3 (ALJ Feb. 13, 2003), the ALJ held that a DOL proceeding pursuant to AIR21 was exempt from the automatic stay provision under the regulatory and police powers exception.
In Bettner v. Crete Carrier Corp., 2004-STA-18 (ALJ Oct. 1, 2004), the complainant filed a voluntary petition in bankruptcy. Earlier, he had filed objections to the Secretary’s determination denying him relief under the STAA whistleblower provision. The ALJ held that the automatic stay provision of the Bankruptcy Act does not apply to suits by the debtor in the Seventh Circuit, and therefore the STAA proceeding would proceed.
The Sarbanes-Oxley Act provides for the following remedies to a prevailing whistleblower:
- IN GENERAL. An employee prevailing in any action under subsection (b)(1) shall be entitled to all relief necessary to make the employee whole.
- COMPENSATORY DAMAGES. Relief for any action under paragraph (1) shall include:
- reinstatement with the same seniority status that the employee would have had, but for the discrimination;
- the amount of back pay, with interest; and
- compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.
- RIGHTS RETAINED BY EMPLOYEE. Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any employee under any Federal or State law, or under any collective bargaining agreement.
18 U.S.C. § 1514A(c). This language is comparable to the remedies provisions found in other whistleblower statutes administered by the DOL. See, e.g., the Consumer Product Safety Improvement Act, 15 U.S.C. § 2087(b)(3)(B); the National Transit Systems Security Act, 6 U.S.C. § 1142(d); and the Federal Railroad Safety Act, 49 U.S.C. § 20109(e).
In addition to civil liability, the Act contains criminal penalties for those interfering with the employment of certain whistleblowers. 18 U.S.C. § 1513(e). The criminal provision is discussed in Section III.G, supra.
The general rule regarding back pay awards for SOX violations has been described as follows:
[T]he back pay award should therefore be based on the earnings the employee would have received but for the discrimination. A complainant bears the burden of establishing the amount of back pay that a respondent owes. However, because back pay promotes the remedial statutory purpose of making whole the victims of discrimination, unrealistic exactitude is not required in calculating back pay, and uncertainties in determining what an employee would have earned but for the discrimination should be resolved against the discriminating party.
Platone v. Atlantic Coast Airlines Holdings, Inc., 2003-SOX-27, at 2 (ALJ July 13, 2004) (internal citations omitted), rev’d on other grounds sub nom. Platone v. FLYi, Inc., ARB 04-154 (ARB Sept. 29, 2006), aff’d sub nom. Platone v. Dep’t of Labor, 548 F.3d 322 (4th Cir. 2008) (internal citations omitted), cert. denied, Platone v. U.S. Dept. of Labor, 558 U.S. 1024 (2009).
The ARB has read the word “pay” broadly. “The back pay award should reflect not just lost base earnings; it should reflect losses such as ‘interest, overtime, shift differentials, and fringe benefits such as vacation and sick pay.’ ” Tipton v. Ind. Mich. Power Co., ARB No. 04-147, ALJ No. 02-ERA-30, at *7 (ARB Sept. 29, 2006) (quoting Hobby v. Ga. Power Co., ARB Nos. 98-166, 98-169, ALJ No. 90-ERA-30, at 12 (ARB Feb. 9, 2011), aff’d sub nom. Ga. Power Co. v. U.S. Dep’t of Labor, 52 Fed. Appx., 11th Cir. 2002 (unpublished table decision)). Tipton elaborated that the back pay amount should not be reduced for an employee who is paid by the hour and works overtime because to do so would penalize the innocent employee while benefiting the employer. Id. Many of these specific components of back pay noted in Tipton are discussed in more detail below
An ALJ need only reach a reasonable approximation of back pay owed to the complainant. See Ferguson v. New Prime, Inc., ARB No. 12-053, ALJ No. 2009-STA-47, at 4 (ARB Nov. 30, 2012). In Ferguson, the ARB affirmed the ALJ’s back pay award, finding that the ALJ used a formula supported by the evidence in the record. Id.
In Barrett v. e-Smart Technologies, 2010-SOX-31 (ALJ Sept. 9, 2011), the ALJ held that where the complainant had been removed from his management responsibility for technology, he was thus deprived of the opportunity to meet specified production goals that were linked to the company’s incentive pay program. Accordingly, the ALJ held that “the effect was to excuse Complainant from meeting that condition; [and] it entitled him to the incentive pay.” Id. at 43. This holding increased the complainant’s back pay award by over $130,000. Id. The ARB upheld the award calculated based on the higher compensation level, noting that the complainant had voluntarily taken a cut in his base pay from $377,000 to $245,000, and that the higher amount was a fair basis on which to ground a back pay calculation.
Back pay awards for SOX violations may include all promotions and salary increases the complainant would have received in the absence of retaliation. See, e.g., Welch v. Cardinal Bankshares Corp., 2003-SOX-15, at 17 (ALJ Feb. 15, 2005) (holding that a prevailing complainant “is entitled to all promotions and salary increases that he would have obtained but for the illegal discharge”) rev’d on other grounds, 536 F.3d 269 (4th Cir. 2008). In calculating the amount of a salary increase which the complainant would have received in Welch, the ALJ noted that “the average raise for employees at [the employer] for [the relevant year] is shown to be 2.25%,” and held that “[w]hile [the complainant] could have, in fact, received a greater or lesser raise, it is reasonable to conclude that the average raise awarded to other employees is the best approximation of what [the complainant] would have received.” Id.
Back pay awards for SOX violations can under some circumstances include the value of accrued vacation lost as a result of the employer’s discrimination. The standard for recovering accrued vacation has been stated as follows:
the purpose of the Act is to make the Complainant whole. In determining whether a complainant is entitled to be paid for accrued vacation that she lost as a result of her employer’s discrimination, the Administrative Review Board (ARB) has found that, where it is the practice of the employer to pay an employee for vacation time not taken, it is equitable for the complainant to receive both wages and vacation pay for the same period.
Platone, 2003-SOX-27, at 5-6 (ALJ July 13, 2004); see also Kalkunte v. DVI Fin. Servs. (“Kalkunte I”), 2004-SOX-56 (ALJ July 18, 2005), aff’d but modified, 05-139, 05-140 (ARB Feb. 27, 2009).
In Barrett v. E-Smart Technologies, Inc., 2010-SOX-31 (ALJ Sept. 9, 2011), the ALJ found that, where bonuses were discretionary, complainant’s contention that he should be awarded a performance-based bonus, was too speculative as his employment agreement lacked any mandatory language or quantifiable basis for a bonus award. Id., at 44-45.
Back pay awards include the value of fringe benefits lost as a result of an unfavorable personnel action. Hobby v. Ga. Power Co., ARB Nos. 98-166, 98-169, ALJ No. 1990-ERA-30, at 33 (ARB Feb. 9, 2001), aff’d sub nom. Ga. Power Co. v. Dep’t of Labor, 52 Fed. Appx. 490 (11th Cir. 2002); Kalkunte I, 2004-SOX-56, at 54 (ALJ July 18, 2005). Uncertainties in calculating the amount of back pay are to be resolved in favor of the complainant. Gutierrez v. Regents of the Univ. of Cal., ARB No. 99-116, ALJ No. 1998-ERA-19, at 10 (ARB Nov. 13, 2002).
The valuation of fringe benefits as part of the back pay award to a successful plaintiff can be both controversial and complicated. Courts that have faced the challenge of valuating fringe benefits have placed the burden on the plaintiff to prove that a fringe benefit existed, and to establish the value of the benefit. Generally, this has resulted in the use of experts who employ complex formulas to demonstrate the value of lost benefits.
For an example of a SOX case in which expert witnesses for both parties debated the issue of complainant’s entitlement to fringe benefits, see Hagman v. Washington Mutual Bank, Inc., 2005-SOX-00073, at 26-30 (ALJ Dec. 19, 2006), appeal withdrawn by employer and dismissed, 07-039 (ARB May 23, 2007).
For a recent example of a case in which the complainant was awarded reimbursement for a variety of fringe benefits, see, e.g., Fort v. Tenn. Commerce Bancorp. Inc., 4-1760-08-017 (OSHA Mar. 17, 2010) (ordering that employer reimburse SOX complainant for, among other things, a bonus, seven board meeting fees, stock options, medical expenses, car allowance, insurance, and job hunting expenses).
Prevailing employees are entitled to damages for health care costs incurred as a result of loss of coverage caused by termination. This may include the value of health insurance premiums or out-of-pocket medical expenses. See, e.g., the following cases:
- Brown v. Lockheed Martin Corp., 2008-SOX-49, at 54 (ALJ Jan. 15, 2010) (“Health, pension, and other related benefits are terms, conditions and privileges of employment to which a successful complainant is entitled from the date of a discriminatory layoff until reinstatement or declination, and these compensable damages include medical expenses incurred because of termination of medical benefits, such as insurance premiums”).
- Hobby, ARB Nos. 98-166, 98-169, ALJ No. 1990-ERA-30, at 37 (ARB Feb. 9, 2001) (upholding ALJ’s award of the actual cost of health and life insurance premiums since the date of complainant’s unlawful termination, as well as interest on those amounts, because complainant “would have enjoyed the use of these monies if [he] had not been terminated”).
- Platone, 2003-SOX-27, at 6 (ALJ July 13, 2004) (holding that a successful SOX complainant is entitled to reimbursement “for medical expenses she incurred that would have been covered under the company [health insurance] plan”).
- Kalkunte I, 2004-SOX-56, at 54 (ALJ July 18, 2005) (holding that back pay and benefit considerations may include lost pension and health benefit losses and contributions to those plans for hours that would otherwise have been worked).
In Kalkunte I, 2004-SOX-56, at 54 (ALJ July 18, 2005), the ALJ held that back pay and benefit considerations may include lost overtime, lost vacation and other chargeable pay remedies such as compensatory time and sick time, and may include lost pension and health benefits and contributions to those plans for hours that would otherwise have been worked. However, the complainant failed to request reinstatement of fringe benefits.
In Tipton v. Ind. Mich. Power Co., ARB No. 04-147, ALJ No. 2002-ERA-30, at 10 (ARB Sept. 29, 2006), aff’d sub nom. Ind. Mich. Power Co. v. Dep’t of Labor, 278 Fed. Appx. 597 (6th Cir. May 20, 2008), the ARB ruled that a complainant may recover the value of health insurance fringe benefits paid by his former employer or the cost of purchasing substitute coverage, but not both.
In Jackson v. Butler & Co., ARB No. 03-116, ALJ No. 2003-STA-26, at 9 (ARB Sept. 2, 2004), the complainant was awarded recovery of lost health insurance benefits, valued as the actual and direct expenses resulting from his loss of respondent’s health plan. This included both the costs of premiums for replacement health insurance and out-of-pocket medical expenses.
The value of stock options is recoverable in whistleblower cases before the Department of Labor. See, e.g., Hobby, ARB No. 98-166, 98-196, ALJ No. 1990-ERA-30, at 37 (ARB Feb. 9, 2001). In Jayaraj v. Pro-Pharmaceuticals, Inc., 2003-SOX-32 (ALJ Feb. 11, 2005) the ALJ explicitly stated that the economic loss recoverable by the plaintiff may include the value of lost stock options. However, because the complainant raised her request for recovery of the lost stock options for the first time in a post-hearing submission, rather than during the hearing itself, recovery was denied. Id. at 30-32.
In Barrett v. E-Smart Technologies, Inc., 2010-SOX-00031 (ALJ Sept. 9, 2011), while complainant had the option to buy 10,000,000 shares of stock in the company, neither the stock option agreement nor the company’s option policy was in the record, and thus the ALJ found any award to be entirely speculative. The ALJ did allow complainant to exercise his vested options as if his last date of employment was the date of the ALJ’s decision. Id. at 45-46.
Although the author is not aware of any cases directly on point under SOX, the ARB has suggested that the tax consequences of an award may be considered if there is sufficient evidentiary groundwork. Doyle v. Hydro Nuclear Servs., ARB No. 99-041, ARJ No. 89-ERA-22 (ARB May 17, 2000). The issue of “tax bump up” has been addressed by the courts in employment discrimination cases arising under other statutes. In Blaney v. Int’l. Ass’n of Machinists, 87 P.3d 757 (Wash. 2004), in an action under the state anti-discrimination law, the Supreme Court of Washington allowed for an offset of the tax consequences to the plaintiff flowing from the lump sum payment of damages. However, the court refused to characterize the offset of additional federal income tax consequences as “actual damages” because the tax consequences were too attenuated. Instead, the court characterized the offset as “any other appropriate remedy authorized by [Title VI].” Id. at 762-63.
The federal courts are split as to whether tax bump relief is available under the 1991 Civil Rights Act. Compare Fogg v. Gonzales, 492 F.3d 447, 455-56 (D.C. Cir. 2007) (absent an agreement between the parties, “gross up” relief was not appropriate relief) and Bryant v. Aiken Reg’l Med. Ctrs., Inc., 333 F.3d 536, 548 n.5 (4th Cir. 2003) (district court did not abuse its discretion in refusing to enhance the plaintiff’s back pay award to compensate for the higher income tax burden incurred as a result of receiving the payment in a lump sum) with Sears v. Atchison, Topeka & Kansas City Ry. Co., 749 F.2d 1451, 1456 (10th Cir. 1984) (allowing an increase in award for back pay in order to compensate for the resultant tax burden from receiving a lump sum of more than 17 years in back pay) and Starceski v. Westinghouse Elec. Corp., 54 F.3d 1089, 1101 (3d Cir. 1995) (in order to fulfill the make-whole purpose of remedies in ADEA cases the plaintiff was entitled to prejudgment interest to compensate the plaintiff for the lost time value of money) and O’Neill v. Sears Roebuck & Co., 108 F. Supp. 2d 443, 446 (E.D. Pa. 2000) (plaintiff was entitled to “an award for negative tax consequences, but limit[ed] the award to the increased tax liability on the award of front and backpay, only”).
In a recent case arising out of a labor dispute, a three-member National Labor Relations Board panel unanimously took the position that tax bump relief was necessary in order to make employees whole when they received back pay in a lump sum. In Latino Express, Inc., 359 N.L.R.B. 44 (Dec. 18, 2012), the Board ordered the employer to compensate two bus drivers whom it had fired for union activities for the additional tax burden they would face when receiving more than one year’s back pay in a lump sum. The Board’s reasoning – that the additional relief was needed to “serve the remedial purposes of the National Labor Relations Act by ensuring that discriminatees are truly made whole” – could also apply to Section 806, which by its terms is designed to “make the employee whole.” 18 U.S.C. § 1514A(c)(1).
Under the Act, a victim of employment discrimination is not specifically required to mitigate damages. However, the ARB has found such a requirement to be implicit, following the general common-law rule of “avoidable consequences.” Kalkunte I, 2004-SOX-56, at 55-56 (ALJ July 18, 2005). This standard has been stated as follows:
Although the SOX employee protection provision does not explicitly require victims of employment discrimination to attempt to mitigate damages, the ARB has consistently imposed such a requirement, in keeping with the general common law “avoidable consequences” rule and the parallel body of damages law developed under other anti-discrimination statutes. The respondent bears the burden of proving that the complainant did not properly mitigate . . .
To meet this burden, the respondent must show that: (1) there were substantially equivalent positions available; and (2) the complainant failed to use reasonable diligence in seeking these positions. The benefit of the doubt ordinarily goes to the complainant.
Kalkunte I, 2004-SOX-56, at 55-56 (ALJ July 18, 2005) (internal citations omitted).
If an employee refuses an offer by the employer to return to a past position, this fact alone may support the employer’s failure-to-mitigate claim. In addition, an offer of a position that previously was denied often will toll the back-pay liability of an employer who is charged with employment discrimination. The employee’s rejection of the offer will end the employer’s back pay liability. See id., at 55-57 (ALJ July 18, 2005).
In Barrett v. e-Smart Technologies, 2010-SOX-31 (ALJ Sept. 9, 2011), the ALJ found that, following her termination, the complainant founded a company from which he took no salary but rather was compensated in stock. The ALJ concluded that “by making this choice, he has ceased to function in the economy as an employee and has instead become a business owner. As of the time he exited the labor market, he failed to mitigate his lost wages.” Accordingly, the ALJ ruled that the complainant was not entitled to back pay or front pay for that period of time. Id. at 44.
The amount of any back pay award may be reduced by the total amount of wages received by the complainant during any interim employment the complainant held since his termination from the respondent employer. See, e.g., Brown v. Lockheed Martin Corp., 2008-SOX-49, at 54 (ALJ Jan. 15, 2010); Barrett v. e-Smart Technologies, at 43 (“Were I to disregard this alternate employment, it would afford Complainant a double recovery; it would go beyond the make-whole relief that the statute affords”). However, any reduction in back pay for interim earnings must reflect the complainant’s net interim earnings. For example, in Smith v. Lake City Enterprises, Inc., ARB No. 11-987, ALJ No. 2006-STA-32 (ARB Nov. 20, 2012), the ARB reversed the ALJ’s reduction in back pay award because the complainant offered evidence, including his income tax returns, demonstrating that although he had earned $46,000 working as an owner-operator, he had suffered a net loss over the same period. Id. at 4-7.
In Gilmore v. Parametric Tech., 2003-SOX-1, at 18-21 (ALJ July 18, 2005), the ALJ held that living and travel expenses were included in back pay when the complainant was forced to accept employment nearly 150 miles from him home, live in an apartment during the week, and travel home on weekends to his wife, because the complainant’s “duty to mitigate his damages did not require that he ask his wife to quit her job and move himself and his wife to another location.”
In Young v. Park City Transportation, ARB No. 11-048, ALJ No. 2010-STA-65 (ARB Aug. 29, 2012), the ALJ found for the complainant, a seasonal driver, and awarded damages that included the gratuities the complainant would have received from passengers during the ski season. The complainant appealed the award to the ARB, arguing that she was entitled to wages and gratuities that she would have received for the following season as well. Id. at 4. The ARB stated that a seasonal worker may receive a back pay award that extends beyond the season during which he is terminated but that “credible evidence must exist indicating that the complainant would either have continued in his employment beyond the seasonal work or that he would otherwise have been rehired for the next season.” Id. Young had presented no such evidence and had in fact testified that she was not interested in returning to work for the respondent. Id.
Plaintiffs prevailing under Section 806 are entitled to interest as part of their back pay awards. As in other employment cases wherein the plaintiff is awarded back pay, the interest is determined in accordance with Section 6621 of the Internal Revenue Code, 26 U.S.C. § 6621. Interest is not awarded on compensatory damages. See, e.g., Kalkunte, 2004-SOX-56, at 65 (ALJ July 18, 2005) (citing Smith v. Littenberg, 92-ERA-52 at 5 (Sec’y Sept. 6, 1995)). The ALJ in Welch, 2003-SOX-15 (ALJ Feb. 15, 2005), stated the appropriate standard for awarding interest as follows:
Given the remedial nature of the employee protection provisions of Sarbanes-Oxley, and the “make whole” goal of back pay, prejudgment interest on Complainant’s back pay award is appropriate. See, e.g., Doyle v. Hydro Nuclear Services, ARB Nos. 99-041, 99-042 (ARB May 17, 2000), slip op. at 18, n.18. Such interest should be compounded quarterly. Id. With respect to computing such interest, the ARB, in Doyle, wrote that the interest rate is that charged on the underpayment of Federal income taxes, which consists of the Federal short-term rate determined under 26 U.S.C. §6621(b)(3) plus three percentage points. The Federal short-term interest rate to be used is the so-called “applicable federal rate” (AFR) for a quarterly period of compounding. See, e.g., Rev. Rul. 2000-23, Table 1. Id. at 18-19 (citations omitted). Since the total amount of the back pay award will depend on the date upon which Welch is reinstated, the parties will be required to follow the procedures outlined by the ARB in Doyle for computing prejudgment interest owed on Complainant’s back wages owed in this case.
Id. at 21-22.
The court retains the discretion to determine the applicable prejudgment interest rate. See, e.g., Loesch v. City of Phila., No. 05-cv-0578, 2008 U.S. Dist. LEXIS 48757, 2008 WL 2557429, at *8 (E.D. Pa. June 19, 2008). Interest on back pay and benefits continues to the date of reinstatement or other remedy, and is usually calculated at the rate then in effect under 26 U.S.C. 6621(a)(2), the underpayment rate. See, e.g., Clinchfield Coal Co. v. Federal Mine Safety and Health Comm'n, 895 F.2d 773, 778-780 (D.C. Cir. 1990); 26 CFR 301.6621-1(a)(3) (rate compounded daily). The IRS publishes these rates in its Revenue Rulings, which are in turn published in the Internal Revenue Bulletin.
At least one district court used the rate contained in the federal post-judgment interest rate statute, 28 U.S.C. § 1961(a). Parexel Intern. Corp. v. Feliciano, No. 04-cv-3798, 2008 WL 5194299, at *2 (E.D. Pa. Dec. 4, 2008). That statute provides that “such interest shall be calculated from the date of the entry of the judgment, at a rate equal to weekly 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding.” The court noted that many other courts had used the same method for calculating prejudgment interest in Title VII cases, and reasoned that this method of calculation is also appropriate in SOX cases because it adequately “serves to compensate a plaintiff for the loss of the use of money that the plaintiff otherwise would have earned had he not been unjustly discharged.” Id.
In Barrett v. E-Smart Technologies, Inc., supra, the ALJ awarded over $108,000 in interest using the IRC §1274(d) rate plus three percent. Id. at 44.
One court has suggested that “special damages,” e.g., reputation loss, must be specifically stated in the complaint. Murray v. TXU Corp., No. 303-cv-0888, 2005 WL 1356444, at *2-3 (N.D. Tex. June 7, 2005). However, it is unlikely the Labor Department would require this kind of specificity in its pleading requirements. See OSHA Manual at 6-2 (“Compensatory damages may be awarded under all OSHA whistleblower statutes”).
Complainants may recover for emotional pain and suffering, mental anguish, embarrassment, and humiliation in DOL whistleblower cases. See, e.g., Menendez v. Halliburton, Inc., ARB No. 12-026 ALJ No. 2007-SOX-5 (ARB Mar. 15, 2013); Kalkunte v. DVI Financial Services, Inc., ARB Nos. 05-139, 05-140, ALJ No. 2004-SOX-56 (ARB Feb. 27, 2009), remanded to ARB for settlement approval, No. 09-2221, 09-2233 (3rd Cir. 2009), settlement approved and case dismissed, 05-139, 05-140 (ARB Oct. 15, 2009); Waechter v. J.W. Roach & Sons Logging and Hauling, 04-STA-43, ARB 04-183 (ARB Dec. 29, 2005). Expert medical or psychiatric testimony is not strictly necessary, but such damages must be supported by evidence of the physical or mental consequences caused by the adverse employment actions proven by the employee. Brown v. Lockheed Martin Corp., 2008-SOX-49, at 54-55 (ALJ Jan. 15, 2010) (citing Thomas v. Arizona Public Service Co., 1989-ERA-19 (Sec’y Sept. 17, 1993)).
In Kalkunte, ARB Nos. 05-139, 05-140, ALJ No. 2004-SOX-056, at 15 (ARB Feb. 27, 2009), the ARB affirmed the ALJ’s award of $22,000 in damages for “pain, suffering, mental anguish, the effect on [plaintiff’s] credit [due to losing her job], and the humiliation she suffered.”
In Brown v. Lockheed Martin Corp., 2008-SOX-49, slip op. at 54-55 (ALJ Jan. 15, 2010), the ALJ awarded $75,000 in compensatory damages for “emotional pain and suffering, mental anguish, embarrassment, and humiliation,” despite the fact that plaintiff provided no medical evidence to support such a claim. The ALJ found the claim credible based on testimony of plaintiff, her son, and others. Specifically, the ALJ stated:
Complainant has testified that she suffered from depression and loss of self-esteem during and following her employment and constructive discharge from Respondent. Although no medical evidence has been presented in support, Complainant’s son testified in confirmation of Complainant’s emotional distress and depression with the resulting effects on both the family and their economic situation. Moncallo, Asbury, and Colditz all confirmed the Complainant’s distress over what the undersigned has found to be unlawful discriminatory employment actions while in Respondent’s employ. Accordingly, I find Complainant’s testimony regarding her emotional pain and suffering, mental anguish, embarrassment, and humiliation to be generally credible.
Id., slip op. at 54-55. The ARB affirmed the ALJ’s award of emotional distress damages without the testimony of a medical or psychiatric professional. Brown v. Lockheed Martin Corp., ARB No. 10-050, ALJ No. 2008-SOX-00049 (ARB Feb. 28, 2011).
Like claims for emotional distress in other employment litigation, proving the extent of emotional distress and its causal relationship to the unlawful conduct can be problematic. For example, in Kalkunte I, 2004-SOX-56 (ALJ July 18, 2005), the ALJ observed that “compensatory damages may be awarded for emotional pain and suffering, mental anguish, embarrassment, and humiliation,” but found that some elements of the plaintiff’s alleged emotional distress injury were not proved to be causally related to the respondent’s conduct. Id. at 62.
Brown was significant for its holding that emotional distress damages could be recovered without testimony on complainant’s medical condition. The more recent case of Luder v. Contintental Airlines, Inc., ARB No. 10-026, ALJ No. 2008-AIR-9 (ARB Jan. 31, 2012), attempted to clarify when medical testimony was required. Luder noted that the ARB had previously held “that while the testimony of medical or psychiatric experts ‘can strengthen the case for entitled to compensatory damages, it is not required.’ ” Id. at 16 (internal citations omitted). However, in other cases, “where the claim for an award of damages for emotional distress is based solely on the complainant’s testimony that he suffered a specific and diagnosable medical condition, the ARB has reasonably required ‘medical or other competent evidence.’ ” Id. at 17 (citing Gutierrez v. Regents of the Univ. of Cal., ARB No. 99-116, ALJ No. 1998-ERA-19, at 11 (ARB Nov. 13, 2002)). The ARB remanded the case to the ALJ because the ALJ did not adequately explain his findings with respect to causation. Id. at 19-21. The ARB noted that while two doctors submitted reports supporting the complainant’s depression, neither expressed a conclusion on the question of causation. Id. While the speculative nature of compensatory damages has given judges pause, the ARB, like the ALJ in Kalkunte I, recently concluded that it was appropriate to look to awards made in similar cases. See Menendez v. Halliburton, Inc., ARB No. 12-026 ALJ No. 2007-SOX-5 (ARB Mar. 15, 2013).
More recently, OSHA has signaled willingness to award significant non-wage damages. On September 30, 2013, the agency found in favor of the former CFO of Clean Diesel Technologies, Inc. and awarded a total of $1.9 million, $1.4 million of which was for compensatory damages for pain and suffering, reputational damages and lost retirement account contributions. In the press release announcing the award, OSHA quoted the Assistant Secretary of Labor for OSHA, Dr. David Michaels, as saying, “This order should send a clear message to publicly traded companies that silencing those who try to do the right thing is unacceptable.”
The Act does not expressly provide for an award of damages for loss of reputation, but the ARB has routinely sustained awards for reputational damage under whistleblower statutes. See Leveille v. New York Air Nat’l. Guard, ARB 98-079, ALJ 94-TSC-3 (ARB Dec. 16, 2003); Van Der Meer v. Western Kentucky Univ., ARB 97-078, 95-ERA-38 (Apr. 20, 1998).
In one SOX case, Hanna v. WCI Communities., Inc., 348 F. Supp. 2d 1332 (S.D. Fla. 2004), a district court held that reputation damages are allowed under the Act, finding that a plaintiff’s reputation is damaged by termination, therefore diminishing their future earning capacity, and that accordingly plaintiff must be compensated for this loss in earnings in order to be made whole as the statute requires. Id. at 1334. The court relied on the Seventh Circuit’s decision in Williams v. Pharmacia, Inc., 137 F.3d 944 (7th Cir. 1998) in which that court held that Title VII’s remedies, as amended by the Civil Rights Act of 1991, allowed for an award for reputation damages. Mahony v. Keyspan Corp., No., No. 04-cv-554, 2007 U.S. Dist. LEXIS 22042, 2007 WL 805813, at *7 (E.D.N.Y. Mar. 12, 2007), adopted the reasoning of Hanna and denied the defendant’s request to strike the plaintiff’s demand for damages to his reputation.
In contrast, in Murray v. TXU Corp., No. 303-cv-0888, 2005 WL 1356444, at *2-3 (N.D. Tex. June 7, 2005), a district court held that non-pecuniary damages such as reputational injury are not allowable under SOX, finding the remedies under SOX analogous to the remedies under Title VII prior to the passage of the 1991 amendments. Similarly, in Walton v. Nova Information Systems, 514 F. Supp. 2d 1031, 1034 (E.D. Tenn. 2007), the court, relying on the Court’s Title VII decision in United States v. Burke, 504 U.S. 229 (1992), held that non-pecuniary remedies including “injury to reputation, emotional, mental and physical distress and anxiety, or punitive damages” were not recoverable under SOX.
Jones v. Home Federal Bank agreed with Murray and Walton that “general non-pecuniary damages for reputational injury would be akin to damages for emotional distress and allowance for such damages would expand the scope of remedies articulated in and intended by SOX.” 2010 WL 255856, at *6 (D. Idaho 2010). But the court found “the Hanna court’s more specific definition of reputational injury for which damages would be pecuniary in nature plausible, in that allowing a plaintiff to claim damages for a reputational injury that caused a decrease in the plaintiff’s future earning capacity could be consistent with SOX’s goal of making the plaintiff whole.” Id.
In Kalkunte (“Kalkunte II”), ARB Nos. 05-139, 05-140, at 16 (ARB Feb. 27, 2009), the ARB noted that the ALJ had awarded the complainant damages for, among other things, “the effect on her credit [because of her loss of employment] and the humiliation that she suffered.” The ARB continued: “[a]lthough we agree with [the employer] that the damage to credit may not be legally compensable, the balance of the award is supported by the evidence, is not clearly erroneous, and within the ALJ’s discretion. Accordingly, we affirm it.”
The statute does not authorize punitive damages as they are not considered “relief necessary to make the employee whole.” Murray v. TXU Corp., No. 3:03-cv-0888, 2005 WL 1356444, at *4 (N.D. Tex. June 7, 2005) (punitive damages not allowed as the statutory omission of punitive damages is clear and unequivocal, and, in any event, the fact that the original draft of the Act explicitly provided for punitive damages and subsequent drafts removed that language, reinforced the court’s conclusion decision to read the statute as written); see also Hanna v. WCI Communities, Inc., 348 F. Supp. 2d 1332, 1332 (S.D. Fla. 2004) (plaintiff conceded that punitive damages are unavailable under SOX). Additionally, the ARB has held that the Labor Department cannot award exemplary or punitive damages without express statutory authorization. See Berkman v. U.S. Coast Guard Academy, ARB 98-056, 1997-CAA-2 (ARB Feb. 29, 2000).
Due to the unavailability of punitive damages, a federal district court in Oregon found that “SOX does not provide an adequate statutory remedy to preclude” a common law wrongful discharge claim. Willis v. Comcast of Oregon II, 2007 U.S. Dist. LEXIS 79927, 2007 WL 3170987, at *2 (D. Or. Oct. 25, 2007) (denying defendant’s motion to dismiss plaintiff’s wrongful discharge claim). However, in Repetti v. Sysco Corp., 730 N.W.2d 189, 193 (Wis. 2007) the Wisconsin Court of Appeals held that SOX affords adequate relief to employees wrongfully discharged because the Act entitles employees to “all relief necessary” to make the employee whole.
The Act expressly includes reinstatement with the same seniority as a remedy available to a prevailing SOX claimant. 18 U.S.C. § 1514A(c)(2)(A). Reinstatement is a standard component of a “make whole” remedy. Hobby, ARB No. 98-166, at 7-8 (ARB Feb. 9, 2001); Hagman, 2005-SOX-00073, at 33 (ALJ Dec. 19, 2006); Brown v. Lockheed Martin Corp., 2008-SOX-49, at 51-52 (ALJ Jan. 15, 2010).
In addition to mandating reinstatement, the Act (through its incorporation of AIR21’s procedural provisions) and the SOX implementing regulations empower OSHA to require the reinstatement of a complainant-employee even prior to the de novo hearing on the merits before an ALJ. 29 C.F.R. § 1980.105(a)(1). The regulations further provide that an employer’s request for a hearing before an ALJ does not stay the preliminary reinstatement order. 29 C.F.R. § 1980.105(b)(1). Additionally, the regulations provide that a preliminary order of reinstatement is to remain effective while the ALJ’s recommended decision is reviewed by the ARB. 29 C.F.R. § 1980.110(b).
OSHA has ordered a number of reinstatements in the past few years, and significantly increased the frequency with which it reinstated whistleblowers in 2012 under the various whistleblower-protection statutes it administers. According to OSHA’s “News Releases – Whistleblower” page on its website, OSHA ordered 40 whistleblower reinstatements in 2012, up from 27 in 2011, and 26 in 2010. On September 10, 2012, OSHA ordered Dana Holding Corporation to reinstate a SOX whistleblower, in addition to an award of $275,000 in back pay, vacation pay, pension and 401(k) contributions, compensatory damages, and attorneys’ fees. OSHA also ordered that any negative references be expunged from the whistleblower’s record, that Dana Corp. post a notice about Sarbanes-Oxley whistleblower provisions for all employees, and that the company provide training on non-retaliation to employees. See Press Release, US Dep’t of Labor Orders Dana Holding Corp. to Pay Whistleblower Nearly $275,000 in Back Wages, Damages (Sept. 10, 2012), available at http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELEA.... OSHA has ordered a number of reinstatements under statues it enforces other than SOX.
In Stroupe v. Branch Banking & Trust Co., 2008-SOX-00047 (ALJ Apr. 1, 2010), the ALJ ordered BB&T to reinstate a former BB&T corporate investigator who claimed that she had been fired after she had uncovered and reported a $100 million Ponzi scheme, which had been funded in part by fraudulent BB&T loans. Stroupe was also awarded approximately three years of back pay. BB&T argued that Stroupe had been terminated for missing work without permission, for being insubordinate, and for discussing the investigation of the development scam with other employees. The ALJ rejected BB&T’s defense, holding that BB&T had failed to prove by clear and convincing evidence that Stroupe would have been terminated absent her protected activities.
Orders of “preliminary reinstatement” under Section 806 have been contested and even ignored by some employers, who have refused to reinstate complainant employees before the exhaustion of the administrative process. Such actions by employers have prompted some employees to file suit in federal district courts seeking injunctions to enforce OSHA’s preliminary orders of reinstatement. In two prominent decisions, courts have held they lack the power to enforce OSHA’s preliminary orders of reinstatement.
In 2006, a divided panel of the Second Circuit vacated a district court injunction to reinstate a complainant employee and ordered the district court to dismiss the complainant. Bechtel v. Competitive Techs., Inc., 448 F.3d 469 (2d Cir. 2006). The court held that the district court lacked jurisdiction to enforce a preliminary order. Id. at 472. Judge Jacobs observed that three provisions of § 1514A provided for federal power to enforce actions related to complaints under the Act, but none of the provisions authorized enforcement of preliminary orders. Id. Furthermore, Judge Jacobs found that none of the provisions of § 1514A that authorized judicial enforcement referred to AIR21’s subparagraph (b)(2)(A), the source of the Secretary’s power to issue a preliminary order of reinstatement. Id. Judge Jacobs observed that 18 U.S.C. § 1514A(b)(1)(B) provided for de novo review in the district court if the Secretary has not issued a final decision within 180 days, thereby reducing the need for a judicial order, that preliminary orders of reinstatement were based on no more than “reasonable cause to believe that the complaint has merit,” and that immediate enforcement at each level of review could cause a rapid sequence of reinstatement and discharge, and a “generally ridiculous state of affairs.” Id. at 474.
Judge Leval concurred, but expressed the view that the court should vacate the district court’s injunction because the employer was denied due process. Id. at 476-483. Judge Straub, in dissent, noted that the failure to enforce a preliminary reinstatement order negated congressional intent to provide a quick remedy for whistleblowers. Id. at 483-490.
Subsequently, in Welch v. Cardinal Bankshares Corp., 454 F. Supp. 2d 552 (W.D. Va. 2006), vacated and appeal dismissed, 2008 U.S. App. LEXIS 28045 (4th Cir. 2008), a district court adopted Judge Jacobs’ opinion in Bechtel and granted the defendant employer’s motion to dismiss. Id. at 559. The court concluded that the regulations conflicted with the plain language of the statute, which did not grant judicial authority to enforce preliminary orders. The court also noted that the efficient administration of justice requires that the administrative process be final before federal courts begin adjudication. Id. at 558-59. This ensured that appeals go through “all levels of the administrative process before reaching federal court.” Id. at 558. Later, the ALJ’s decision in the complainant’s favor, ALJ No. 2003-SOX-15 (ALJ Feb. 15, 2005), was reversed by the ARB, No. 05-064 (ARB May 31, 2007), and the Fourth Circuit thereafter vacated the district court’s order and dismissed the appeal.
The Sixth Circuit considered, but did not rule upon, the issue of the enforceability of such preliminary reinstatement orders in a case involving a charge filed against Tennessee Commerce Bank by its former CFO. On March 18, 2010, OSHA announced that it had “ordered Tennessee Commerce Bank in Nashville to reinstate the CFO, [Mr. Fort] and pay more than $1 million in back wages, interest, attorney’s fees, compensatory damages, and other relief.” Fort v. Tennessee Commerce Bancorp, Inc., 4-1760-08-017 (OSHA Mar. 17, 2010). In total, the bank was ordered to (1) reinstate Fort as CFO immediately; (2) pay Fort’s back pay; (3) pay for a bonus which Fort missed; (4) pay interest; (5) pay for seven missed Board meeting fees; (6) reinstate Fort’s stock options; (7) pay Fort’s medical expenses, car allowance, insurance, and job hunting expenses; (8) pay attorneys’ fees; (9) expunge Fort’s employment records; (10) refrain from further retaliation; and (11) post a notice to employees about their SOX rights.
After the bank refused to reinstate Fort, both Fort and the Secretary of Labor filed separate actions in the Middle District of Tennessee, seeking a preliminary injunction, requiring the bank to comply with OSHA’s order. The Secretary of Labor was successful in obtaining injunctive relief, Solis v. Tennessee Commerce Bancorp. Inc. (“Solis I”), 713 F. Supp. 2d 701 (M.D. Tenn. 2010), and the court denied the bank’s motion to stay enforcement of the injunction. Solis v. Tennessee Commerce Bancorp., Inc. (“Solis II”), 2010 U.S. Dist. LEXIS 49827, 2010 WL 2025785 (M.D. Tenn. May 20, 2010). Five days later on appeal, the Sixth Circuit stayed enforcement of the injunction, pending expedited briefing on the issue of whether the district court had authority to issue the preliminary injunction. Solis v. Tennessee Commerce Bancorp, Inc. (“Solis III”), No. 10-5602, 2010 U.S. App. LEXIS 15302 (6th Cir. May 25, 2010). In so ruling, the Court stated:
We find that the defendant’s motion for a stay raises a substantial question as to the authority of the district court to issue the preliminary injunction. The defendants assert that they will suffer irreparable harm if Fort is physically reinstated immediately. They argue that Fort’s reinstatement will cause disruption to the bank’s personnel and operations that cannot be undone if this court finds the district court lacked authority to issue the injunction. By contrast, if the reinstatement order was properly issued, Fort can be made whole with compensatory damages, back pay, and interest. A balancing of the harms supports the issuance of a stay.
Id. at *2.
The Sixth Circuit did not rule on the matter because the case which Fort brought separately in district court was dismissed. Fort subsequently terminated the underlying administrative proceedings, and the case brought by the Secretary of Labor was therefore dismissed as moot. See Solis v. Tennessee Commerce Bancorp, Inc. (“Solis IV”), 2010 U.S. Dist. LEXIS 114071 (M.D. Tenn. Oct. 26, 2010).
Two years after Solis IV, the ARB declined an interlocutory review of an ALJ’s denial of a preliminary reinstatement order during remand. See Prioleau v. Sikorskey Aircraft Corp., ARB No. 12-089, ALJ No. 2010-SOX-3 (ARB Aug. 30, 2012). The ARB determined that the appeal was neither a proper interlocutory appeal nor an appeal of a collateral order. Further, the ARB held that the request for reinstatement was premature.
In a recent case, the U.S. District Court for the District of Idaho held that it lacked jurisdiction to enforce a preliminary order of reinstatement that OSHA had issued after finding that the respondent railroad had fired the complainant in violation of the whistleblower-protection provisions of the Federal Railroad Safety Act, which, like SOX, provides for preliminary reinstatement of a prevailing complainant. See Solis v. Union Pacific Railroad Co., No. 4:12-cv-00394 (D. Idaho Jan. 11, 2013). Looking to the AIR21 aviation-safety whistleblower law for the rules governing enforcement actions under the FRSA, the court found that “AIR21 does not empower federal district courts to enforce preliminary reinstatement orders.” The court interpreted the statute to empower it to review only final orders, not preliminary ones, despite the fact that a preliminary order of reinstatement prescribes the same relief as a final order. “Although the relief may be the same,” the court noted, “Congress did not indicate that preliminary and final orders should be treated the same for federal jurisdictional purposes.” Id., slip op. at *5. The court found a “strong presumption that judicial review will be available only when agency action becomes final” and saw that nothing in the statutory language overcame this presumption. Id., slip op. at 6 (internal citation and quotations omitted).
The updated OSHA manual provides that front pay is appropriate when reinstatement is not feasible. See OSHA Manual, at 6-1. It states that it “should be awarded from the date of discharge up to a reasonable amount of time for the complainant to obtain another job.” Id. The ARB has indicated that reinstatement – and not front pay – is the favored remedy under the whistleblower statutes enforced by the Department:
“[W]histle-blower” provisions are intended to promote a working environment in which employees are relatively free from the debilitating threat of employment reprisals for publicly asserting company violations of statutes . . . . If the regulatory scheme is to effectuate its substantial goals, employees must be free from threats to their job security in retaliation for their good faith assertions of corporate violations of the statute. Quite simply, reinstatement is important not only because it vindicates the rights of the complainant who engaged in protected activity, but also because the return of a discharged employee to the jobsite provides concrete evidence to other employees that the legal protections of the whistleblower statutes are real and effective.
Hobby, ARB No. 98-166, slip op. at 7-8 (ARB Feb. 9, 2001) (citations omitted).
A recent case from the Eastern District of Virginia made clear that while front pay is available under SOX, it will only be awarded when reinstatement would be inappropriate and the likelihood of harm from reinstatement requires minimal speculation. Jones v. Southpeak Interactive Corp. of Delaware, No. 3:12cv443, 2013 WL 6092186 (E.D. Va. Nov. 19, 2013) (denying front pay in lieu of reinstatement). Interestingly, the Jones court also noted that granting an award of front pay would not necessarily be a windfall to a plaintiff where the defendant had essentially ceased operations and no longer employed a CFO (the plaintiff’s former position). The court held that “[i]f a plaintiff has been diverted onto a less profitable career path through the unlawful actions of his former employer, an award of front pay to compensate the plaintiff until such time as he can regain his former career track is not a windfall,” and that "[t]his is true without regard to whether the former employer continues to operate and to maintain comparable opening within the company.” Slip op. at 12. The court noted, however, that a plaintiff seeking front pay in the case of a defunct company or eliminate position will need to produce clear data about the impact of the termination on future earnings and the market for jobs of the type the plaintiff held at the time the defendant ceased operations. In Jones, the plaintiff would have been seeking an open CFO position, of which there were few.
In Luder v. Continental Airlines, Inc., ARB No. 10-026, ALJ No. 2008-AIR-9 (ARB Jan. 31, 2012), the ARB remanded the case to the ALJ because the ALJ “failed to provide sufficient reasons and basis for the Monthly Pay Award,” which included front pay. Id., slip op. at 9 (ARB Jan. 31, 2012). In particular, the ARB emphasized that front pay is appropriate only where reinstatement is not possible. In Luder, the plaintiff was a former pilot who suffered from a medical condition that he argued was causally linked to his employment with Continental Airlines. The ARB determined that while it was clear that the plaintiff could not return to work as a pilot, there could be other “suitable, alternative” jobs available at Continental. Id., slip op. at 13. The ARB determined that the ALJ had not sufficiently explored the availability of other suitable positions making an award of front pay. Id. The ARB also admonished the ALJ for failing to set parameters on the front pay remedy, noting that it “must be awarded for a set amount of time and must be based on factors that the complainant proves are reasonable.” Id.
In Hagman, 2005-SOX-00073, at 33 (ALJ Dec. 19, 2006) (internal citations omitted), the ALJ noted the following in connection with awarding front pay as opposed to reinstatement:
Although reinstatement is the preferred and presumptive remedy to make whole employees who have been discharged in violation of the Act, front pay may be awarded instead where reinstatement would be inappropriate. Front pay may be awarded as a substitute when reinstatement is inappropriate due to: (1) an employee’s medical condition that is causally related to her employer’s retaliatory action; (2) manifest hostility between the parties; (3) the fact that claimant's former position no longer exists; or (4) the fact that employer is no longer in business at the time of the decision. Thus, while front pay exists as a potential remedy in a SOX case, it must be determined whether it is an appropriate remedy to which Complainant is entitled.
As noted in Hagman, where the employer is no longer in business at the time of the decision, a plaintiff-employee who is awarded back pay or front pay, or both, will only be entitled to such compensation up to the point in time when the employer went out of business – the rationale being that, in any event, the employee would have been out of a job by that time. See Kalkunte II, ARB Nos. 05-139, 05-140, at 15 (ARB Feb. 27, 2009), (holding that “dissolution of the company is a superseding intervening cause that cuts off [complainant’s] entitlement to back or front pay”). The ALJ in Hagman expounded upon that point as follows:
Under whistleblower case law, it may be appropriate to award front pay in lieu of reinstatement where the employer has closed or restructured its business such that it cannot offer Complainant a comparable position. However, because reinstatement is generally the favored remedy, the ARB and the courts have generally required employers to find a comparable position.
2005-SOX-00073, at 37.
In Brown v. Lockheed Martin Corp., 2008-SOX-49 (ALJ Jan. 15, 2010), the ALJ refused to order front pay in lieu of reinstatement. The ALJ indicated a strong inclination towards reinstatement instead of front pay, even though the complainant tried to avoid being reinstated. While the ALJ found some hostility between the parties, he held that it did not rise to the level of “irreparable animosity” under which “a productive and amicable working relationship would be impossible” as required to justify a front pay award:
[T]he presence of some hostility between parties, which is attendant to many lawsuits, should not normally preclude a plaintiff from receiving reinstatement. Defendants found liable of intentional discrimination may not profit from their conduct by preventing former employees unlawfully terminated from returning to work on the grounds that there is hostility between the parties.
The ALJ also rejected the complainant’s argument that she was entitled to front pay because she had suffered emotional distress during her employment which would make her unable to resume her prior employment. The ALJ noted that the complainant had not submitted any medical records which would substantiate a claim that she was medically unable to perform her job. Finally, the ALJ rejected the complainant’s argument that reinstatement was not possible because there was no longer a position in the company comparable to the one which she once held, because reinstatement does not require placement in the exact position the complainant once held.
In Barrett v. E-Smart Technologies, Inc., 2010-SOX-00031 (ALJ Sept. 9, 2011), front pay was also denied because, the ALJ found, “Complainant chose a vocational path as an entrepreneur at some unspecified time prior to trial.” The ALJ went on to state: “Complainant . . . chose to take himself out of the labor market to engage in business venture with little or no current remuneration but with the potential for very large future profits. That is his right and his choice, but where, as here, it occurred prior to the date of this Order, which is when front pay otherwise would take, it precludes front pay. Id. at 47.
Section 922(c) of the Dodd-Frank Act expressly clarifies that Section 806 plaintiffs have the right to a jury trial. Under pre-Dodd-Frank law, it was unsettled whether plaintiffs were entitled to a jury trial. See, e.g., Walton v. Nova Info. Sys., 514 F. Supp. 2d 1031 (E.D. Tenn. 2007); Schmidt v. Levi Strauss & Co., 2008 U.S. Dist. LEXIS 58332 (N.D. Cal. Aug. 1, 2008); Murray v. TXU, 2005 U.S. Dist. LEXIS 10945 (N.D. Tex. June 7, 2005); Fraser v. Fiduciary Trust Co. Int’l, 417 F. Supp. 2d 310 (S.D.N.Y. 2006); Hanna v. WCI Communities, Inc., 348 F. Supp. 2d 1332 (S.D. Fla. 2004).
Until recently, there were few large verdicts in federal court for SOX plaintiffs. In 2013, however, the Court of Appeals for the Ninth Circuit affirmed an award of $2.2 million in damages and interest and awarded $2.4 million in attorneys’ fees and costs to an employee and his wife who brought claims under SOX and Nevada state law. Van Asdale v. Int'l Game Tech., 549 F. App’x 611, 613 (9th Cir. 2013). Significantly, the lower court dismissed the Van Asdales’ state-law claims, meaning that the entire award was based on their SOX claim. Id. at 614.
More recently, a SOX plaintiff received a record $6 million verdict. See Zulfer v. Playboy Enterprises, Inc. No. 2:12-cv-08263 (C.D. Cal. Mar. 5, 2014). The Zulfer jury concluded that the case also warranted punitive damages, which were available under state law, but not SOX. The plaintiff and Playboy settled the claim before a determination of punitive damages was made.
The large verdict in Zulfer and the award of damages and fees in Van Asdale may encourage more plaintiffs – and their counsel – to utilize SOX’s kick-out provision, forgoing an administrative determination from the backlogged DOL docket in favor of a jury trial in federal court.
The Department of Labor has broad authority to issue abatement orders, which can include, among other things, (1) an order that respondent take all reasonable “affirmative action” to abate discrimination which may discourage employees from raising concerns; (2) requiring the respondent to officially inform all employees of their right to contact the relevant authorities; (3) requiring the sealing of documents and an expungement of all negative information; and (4) requiring that orders of administrative law judges be prominently posted. See, e.g., Chase v. Buncombe County, N.C., 85-SWD-4 (Nov. 3, 1986); Simmons v. Florida Power Corp., 89-ERA-28/29 (Dec. 13, 1989); cf. supra section VII(E) (discussing OSHA enforcement orders).
SOX expressly allows a complainant to recover expert witness fees and litigation costs, including attorney fees. 18 U.S.C. § 1514(c)(2)(C). The ALJ in Hagman stated the applicable standard for calculating recoverable attorneys’ fees as follows:
The most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate.” Hensley, 461 U.S. at 433. Hours not “reasonably expended” or which are excessive, redundant or otherwise unnecessary should be excluded, according the principle that “[h]ours that are not properly billed to one's client are not properly billed to one’s adversary pursuant to statutory authority.” Id. at 434. A petition for attorney’s fees must specify the date on which the attorney's time was expended, the amount of hours expended, and a specific description of the tasks undertaken by the attorney during that time.
2005-SOX-00073, slip op. at 42.
The ARB applies the “lodestar” method for calculating reasonable attorney fees. See Negron v. Vieques Air Link, Inc., ARB 04-021, 2003-AIR-10, at *2 (Mar. 7, 2006). The “lodestar” figure is the reasonable rate multiplied by the reasonable number of hours expended. See Hensley, 461 U.S. 424, 433 (1933). This figure may then be adjusted in accordance with other factors; however there is a “strong presumption” in favor of the lodestar figure and upward adjustments are allowed only in exceptional cases that are supported by specific evidence.
A “reasonable” hourly rate is usually the market rate of attorneys within the community where the case is tried, of reasonably comparable skill, experience, and reputation. See Clemmons v. Ameristar Airways, Inc., ARB No. 11-061, ALJ No. 2004-AIR-11, at 4-5 (ARB Apr. 27, 2012); Murray v. Air Ride, Inc., ARB 00-45, 99-STA-34, at 9-11 (Dec. 29, 2000); Platone, 2003-SOX-27, at 10 (ALJ July 13, 2004). In Hagman, the ALJ awarded $305,748 of the requested $500,000 in attorney fees and costs. See id. at 42, 52. The ALJ in Hagman refused to consider New York rates in its determination of the fee award, finding that the plaintiff could have found representation in Southern California where the case was heard. In so holding, the ALJ stated:
At the outset, I note that the relevant geographic market or legal community for purposes of determining the appropriate hourly rate for attorney’s fees is normally the locality of the hearing. The specialized nature of the case and the unavailability of local counsel may be grounds for exception to that rule. However, I do not find special circumstances exist in this case to warrant changing the relevant legal market from the Los Angeles area, the proper location of the hearing and witnesses, to New York, the location of only Complainant’s counsel.
Id. at 44 (citations omitted).
The ALJ awarded attorneys’ fees at the Altman Weil Survey of Law Firm Economics rate for Los Angeles. The ALJ in Platone, 2003-SOX-27 (overruled on other grounds) also used the Altman Weil Survey. Additionally, Platone identified other, more subjective factors to consider in determining appropriate rates for attorneys’ fees awards: the complexity of the issues presented; the lead attorney’s experience; and the quality of the attorneys’ performance at trial. Id. The ALJ applied a rule of “reasonability,” taking into account these particular factors and the totality of the circumstances in determining that the rates requested in the fee petition were objectively reasonable and within the market range. Id.
Similarly, in Clemmons v. Ameristar Airway, Inc., the ARB affirmed the ALJ’s refusal to award non-local Washington, DC rates in a case in which the relevant legal market for determining hourly rates was the Dallas-Fort Worth area. ARB No. 11-061, ALJ No. 2004-AIR-11, at 4-5. The ALJ concluded that the complainant had not demonstrated the unavailability of competent local attorneys to handle the claim. Id. As a result of this decision, the ALJ also refused to reimburse the attorneys’ travel expenses. Id. at 8-9. However, the ALJ rejected the suggestion by respondents’ counsel that their hourly rate of $255 was the best evidence of local rates, relying instead on a recent federal district court case that awarded $355 per hour as the standard rate in the area, and noting the high caliber of complainant’s attorneys. Id. at 4-5.
The second step in the calculation of the lodestar figure is to ascertain the reasonable number of compensable hours expended by the complainant’s attorneys. A reasonable amount of compensable hours is equivalent to the reasonable amount of time that complainant’s counsel should have expended to reach a positive result, given the nature and circumstances of the case. See Platone, 2003-SOX-27, at 9-10 (ALJ July 13, 2004). A judge has discretion in determining the reasonableness of the compensable hours. Id.
Attorneys litigating SOX cases should be careful to ensure that their billable time entries are described in adequate detail, and should avoid the practice of block billing. Hagman explained:
Entries such as “review documents,” “depositions,” “trial preparation,” or “legal research” are too vague to provide a meaningful opportunity for review of whether the hours were reasonably expended. Where the billing descriptions do not afford a meaningful opportunity to determine the reasonableness of the time expenditures, an ALJ need not engage in an item by item reduction of the hours, but rather, may make reductions based upon a percentage basis.
Id. at 47 (internal citations omitted); see also Clemmons, ARB No. 11-061, ALJ No. 2004-AIR-11, at 7 (reiterating disfavor of block billing).
Costs, including copying, computer research fees, mailing, and facsimile, are reimbursable damages where attorneys document, for example, through a retainer agreement, that such costs were billed to the complainant rather than being overhead costs. See Clemmons,, ARB No. 11-061, ALJ No. 2004-AIR-11 at 8-9.
The ARB “has routinely declined to reduce attorneys’ fee awards solely because the amount requested is larger than the damages recovered.” Id. at 7-8. In Clemmons, the ALJ rejected respondents’ request to reduce the attorneys’ fee award from $230,085.69 because it was disproportionate to the $37,995.09 plus interest on damages awarded to complainant, noting that the complainant had requested only back pay, had mitigated his damages, did not seek compensatory damages, and was successful on each issue raised. Id. The ALJ additionally noted that the respondents’ “aggressive litigation strategy” had increased the costs for both sides. Id. ALJs have also awarded attorneys’ fees in amounts exceeding the damages awarded to the complainant. See, e.g., Platone v. FLY, Inc., 2003-SOX-27 (ALJ July 13, 2004), rev’d on other grounds, ARB No. 04-154 (ARB Sept. 29, 2006) (awarding $169,000 in attorneys’ fees and $62,000 to complainant).
A prevailing employer may be awarded up to $1,000 in attorneys’ fees if the complaint is found to be frivolous or brought in bad faith, see 49 U.S.C. § 42121(b)(3)(C), but such awards are extremely rare. In Pittman v. Siemans AG, 2007-SOX-15, at 8 (ALJ July 26, 2007) the ALJ denied the respondents’ request for attorney fees even though the pro se complainant’s case was not strong because case was not completely frivolous and the complainant had demonstrated a deep belief in his claims).
In Greene v. Omni Visions, Inc., ARB No. 09-109, ALJ No. 2009-SOX-44 (ARB March 9, 2011), the respondent moved for an award of $1,000 in attorney’s fees under 29 C.F.R. § 1980.110(e). Id. at 8 n.35. The Board denied the request, stating that “[w]hile we agree that there is some merit to Omni’s position given that Greene filed her complaint 3 years after the period for such filing had expired, with no recognized basis for doing so, given Green’s pro se status, we are not prepared to find that the complaint was totally baseless or brought in bad faith.” Id.
In Reamer v. Ford Motor Co., ARB No. 09-053, 2009-SOX-3 (ARB July 21, 2011), a panel of ALJs denied the company’s request for attorney’s fees and costs, which the company made based on its allegations that the complaint and appeal were frivolous or brought in bad faith. Id. at 7. The panel noted that the complaint “contains at least an arguable basis in law because it is based on [the complainant’s] contention that Ford Credit retaliated because of SOX-protected activity.” Id.
In Windhauser v. Trane, ARB 05-127, 2005-SOX-17 (ARB Oct. 31, 2007), the ARB held that an ALJ did not have the power to sanction an employer that declined to obey the Judge’s order to reinstate the plaintiff in a SOX case. According to the ARB, without statutory authority, DOL has no power to impose monetary sanctions. Rather, this enforcement remedy must be imposed by the federal district court.
In Boyd v. Accuray, Inc., No. 11-CV-01644, 2012 WL 4936591 (N.D. Cal. Oct. 17, 2012), the District Court for the Northern District of California declined to award attorneys’ fees to the defendant as a sanction, finding that there was no evidence that the claim was brought in bad faith. The court stated that “the grant of summary judgment establishes only that Plaintiff had not marshaled enough evidence to support his claim—not that the claim was so lacking in merit as to be frivolous.” Id. at *4.
In Gonzalez v. J.C. Penney Corp., Inc., ARB No. 10-148, ALJ No. 2010-SOX-045, (ARB Sept. 28, 2012), the ARB held that ALJ review of OSHA’s approval of the settlement was warranted because there were “legitimate concerns as to OSHA’s approval process that could invalidate the finality of the Secretary’s order.” Id. at 8. After reaching a settlement with the respondent, complainant Gonzalez withdrew her complaint from OSHA. OSHA reviewed the agreement, pursuant to 29 C.F.R. § 1980.111(e), and approved it as “fair, adequate, and reasonable” despite the fact that respondent J.C. Penny had provided OSHA a copy of the agreement with the settlement amount redacted. Id. at 4. The ARB found that “OSHA erred in approving a settlement agreement that redacted the monetary settlement amount” because terms of a settlement agreement, including the monetary terms, are a matter of public concern. Id. at 9. However, the ARB held that this error did not warrant withdrawal of approval, in part because the ALJ had reviewed the non-redacted agreement and determined that it was fair and reasonable. Id. Gonzalez’s argument that the agreement should be rescinded because her attorneys pressured her to sign it also failed. Id. at 10-11. The ARB relied on Macktal v. Brown & Root, Inc., 923 F.2d 1150 (5th Cir. 1991), which likewise would not invalidate an agreement on this basis. Although in Macktal and in the instant case there was evidence of attorney pressure on the complainant to sign, the ARB explained that the complainant was free to get another attorney and, therefore, the complainant and not the respondent should bear the risk of the complainants’ attorney’s misconduct. Id. at 10-11.
In Michaelson v. Officemax, Inc., 2004-SOX-17, at 3 (ALJ June 11, 2004), the ALJ refused to approve a settlement agreement because it included a broad confidentiality provision that “could be construed as restricting Complainant from communicating voluntarily with or providing information to any federal or state governmental agency.” Likewise, an administrative record cannot be sealed in order to maintain confidentiality of a settlement. See, e.g., Kacques v. Competitive Technologies, Inc., 2005-SOX-34, at 2 (ALJ June 14, 2005); Thomas v. Pulte Homes, Inc., 2005-SOX-9 (ALJ Aug. 9, 2005) (denying motion to seal agreement).
In addition to amending Section 806 and creating a new cause of action for whistleblowers who faced retaliation for reporting securities violations to the SEC, the Dodd-Frank Act, in Section 1079B, amended the anti-retaliation provision of the False Claims Act, 31 U.S.C. § 3730(h), by expanding the scope of protected activity and by establishing a standard statute of limitations of three years. This amendment brought a welcome degree of order to the litigation of retaliation claims under the False Claims Act, which had previously been subject to a patchwork of limitations periods.
A subsequent ARB decision did not reach the corporate identity issue and instead dismissed the complaint on a finding that Platone had not engaged in protected activity. Platone v. FLYi, Inc., ARB No. 04-154, ALJ No. 2003-SOX-27 (ARB Sept. 29, 2006).
 Dodd-Frank’s anti-retaliation provisions, codified at 15 U.S.C. §78u-6(h), are discussed in Section II.C, infra.
Dodd-Frank created a nearly identical program for information regarding violations of commodities-trading regulations, which is administered by the Commodities Trading Futures Commission (“CTFC”). This article addresses only the SEC program, which the SEC is further along in establishing than is the CTFC, and which has generated considerably greater attention from both sides of the whistleblower bar.
Section 922 of the Dodd-Frank Act amended the Securities Exchange Act of 1934 to add Section 21F, which establishes the whistleblower award program. Citations herein are to the Exchange Act, in accordance with the practice of the Securities and Exchange Commission (“SEC”). These rules have been codified at 17 C.F.R. pt. 240 and 249 (2012), but this article, like most written on the subject, uses instead the numbering system used in the rules as issued by the and the Adopting Release that explains them.
 Section 922 of the Dodd-Frank Act amended the Securities Exchange Act of 1934 to add Section 21F, which establishes the whistleblower award program. Citations to the “Act” herein are to the Exchange Act.
The Adopting Release and the final rules, a combined 305 pages, are available on the SEC’s website at http://www.sec.gov/rules/final/2011/34-64545.pdf. The text of the rules themselves begins on page 241.
 Lawyers who are considering providing the SEC with information about securities violations need to be particularly careful, as they may run afoul of ethical prohibitions even if they would otherwise qualify under a rule of practice before the SEC. The Professional Ethics Committee of the New York County Lawyers Association has issued a bar opinion stating that New York’s rules of professional conduct prohibit attorneys from collecting SEC awards, and presumably other “bounties,” based on the confidential information of a client. See New York County Lawyers Association, Ethics Opinion 746, Ethical Conflicts Caused by Lawyers as Whistleblowers under the Dodd-Frank Act of 2010 (Oct. 7, 2013).
The SEC’s description of its law-enforcement interests provides some guidance to practitioners who are assessing the Commission’s likely response to a given “tip.” Key to the SEC’s response will be, inter alia, whether the conduct at issue involves an industry-wide practice, Rule 21F-6(a)(3)(iii); the type, severity, duration and isolated or ongoing nature of the violations, id.; the danger to investors “and others,” Rule 21F-6(a)(3)(iv); and the number of entities and individuals who have suffered harm. Id.
 Section 922 of the Dodd-Frank Act amended the Securities Exchange Act of 1934 to add Section 21F, which establishes the whistleblower award program. Citations herein are to the Exchange Act, in accordance with the practice of the Securities and Exchange Commission (“SEC”). These rules also appear at 17 C.F.R. pt. 240 and 249 (2012).
A plaintiff’s relevant experience and knowledge are also relevant to the objective component. See Allen v. DOL, 514 F.3d 468 (5th Cir. 2008) (complainant’s belief was unreasonable due to accountant’s background and work experience and because potentially non-compliant financial statements were publicly available for verification); Perez v. Progenic’s Pharmaceuticals, Inc., 965 F. Supp. 2d. (S.D.N.Y. 2013) (plaintiff chemist’s belief that fraudulent activity was occurring was objectively reasonable, in part, because of his advanced professional degrees and significant professional experience, and his relative lack of experience with securities law and the use of “puffery” in corporate press releases); see also Harkness v. C–Bass Diamond, LLC, 2010 WL 997101 (D. Md. Mar. 16, 2010) (granting summary judgment where plaintiff was a lawyer with twenty years of experience, but failed to conduct any “legal research to ascertain the applicability of various laws”); Welch v. Cardinal Bankshares Corp., ARB 05-064, 2003-SOX-15 (ARB May 31, 2007) (“an experienced CPA/CFO like Welch could not have reasonably believed that the ... report presented potential investors with a misleading picture of Cardinal’s financial condition”), aff’d, Welch v. Chao, 536 F.3d 269 (4th Cir. 2008).
See Jones v. First Horizon Nat’l. Corp., ARB No. 09-005 (ARB Sept. 30, 2010) (letter appended to an EEOC complaint that included accusations of fraudulent conduct was not the “precise statement” necessary to engage in protected conduct under SOX); Platone v. FLYi, Inc., ARB 04-154, 2003-SOX-27 (ARB Sept. 29, 2006) (holding that the complainant did not engage in protected activity because she did not provide her employer with specific information regarding conduct she believed constituted fraud).
 See infra Chapter III
 Section 806 claims have two separate burdens of proof: a preponderance of evidence for the whistlebower, Fordham v. Fannie Mae, ARB No. 12-061, ALJ No. 2010-SOC-051, 2014 WL 5511070, at *7 (Dep’t of Labor Oct. 9, 2014) (citing Sylvester v. Parexel Int’l, ARB No. 07-123, ALJ Nos. 2007-SOX-039, -042; slip op. at 9 (ARB May 25, 2011) and 29 C.F.R. § 1980.109(a).), and a clear and convincing burden for the employer. Id. (citing Menendez v. Halliburton, Inc., ARB Nos. 09-002, 09-003; ALJ No. 2007-SOX-005, at 11 (ARB Sept. 13, 2011)). See infra Chapter VI.
 See infra Chapter IV.
 See U.S. Dept. of Labor, “US Labor Department's OSHA orders Clean Diesel Technologies Inc. to pay over $1.9 million to former CFO fired for reporting a conflict of interest; Company violates Sarbanes-Oxley Act whistleblower protection provisions” (Sept. 30, 2013), available at https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELE....
See OSHA, News Releases – Whistleblower, http://www.osha.gov/pls/oshaweb/owanews_releases.level_subject?p_keyvalue=Whistleblower.
A month earlier OSHA ordered T-Mobile to pay a SOX whistleblower an award of nearly $346,000, provide a neutral reference, and train employees on the provisions of Sarbanes-Oxley. OSHA found that the whistleblower was terminated in retaliation for blowing the whistle on the company’s practice of fraudulently billing roaming charges. See Press Release, US Department of Labor Orders T-Mobile and Deutche Telekom to Pay Whistleblower Nearly $346,000 in Back Wages, Damages (August 9, 2012), available at http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELEASES&p_id=22830.
See, e.g., Press Release, US Dep’t of Labor Sues Nat’l Council of La Raza Action Fund, Inc., Ordering Reinstatement of Whistle-blower Fired for Mold Exposure Complaint (Dec. 26, 2012), available at http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELEA... (under OSH Act Section 11(c); Press Release, Northern Illinois Flight Center Ordered by US Labor Department’s OSHA to Reinstate, Pay More than $500,000 to Illegally Terminated Pilot (Nov. 7, 2012), available at http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELEA... (AIR 21); Press Release, U.S. Dep’t of Labor’s OSHA Order Arizona Trucking Co. to Reinstate Whistleblower, Pay $315,000 in Back Wages and Damages (Aug. 28, 2012), available at http://www.osha.gov/pls/oshaweb/owadisp.show _document?p_table=NEWS_RELEASES&p_id=22905 (under STAA); Press Release, US Department of Labor’s OSHA Orders AirTran Airways to Reinstate Pilot, Pay More than $1 million in Back Wages and Damages (Jan. 17, 2012), available at http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_id=21651&p_table =NEWS_RELEASES (AIR 21).
United States Department of Labor, Press Release, US Labor Department Orders Tennessee Commerce Bank to Reinstate Whistleblower and Pay More than $1 million in Back Wages and Other Relief (Mar. 18, 2010), available at http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELEA... (last accessed Jan. 15, 2013); Letter from Cindy Coe, OSHA Regional Administrator, to Waverly Crenshaw, Attorney for Tennessee Commerce Bancorp, Inc. (Mar. 17, 2010), available at, http://www.whistleblowers.org/storage/whistleblowers/documents/ blogdocs/fortsigned%20secretarys%20findings %20and%20order%20fort%20v%20tncc2.pdf (last accessed Jan. 15, 2013).