Tag Archives: whistleblowing

New FINRA Rule Confirms That Whistleblower Claims Need Not Be Arbitrated

Written by Lauri F. Rasnick

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Expansion of Protected Activity Under Sarbanes-Oxley Continues

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

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

 

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

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

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

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

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

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Whistleblowing & Compliance Law Blog 2012-02-17 11:49:56

By: Stuart M. Gerson

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

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First Circuit Limits SOX Whistleblower Protection to Employees of Public Companies

By: Christina Fletcher

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

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