Tag: Whistleblower

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Retaliation Whistleblower Law

Expanded Whistleblower Protections: Sarbanes-Oxley extends to employees of privately held companies

On March 4th, the United States Supreme Court handed down the decision of Lawson, et al.  v. FMR LLC, et al., 2014 U.S. LEXIS 1783 (March 4, 2014). Lawson addressed a situation where employees of a privately held company that contracted with a publically held firm claimed to be “whistleblowers” under the protection of the Sarbanes-Oxley anti-retaliation law.

The majority in Lawson constituted a rather motely crew. Justice Ginsburg, a reliable liberal on the bench, delivered the majority opinion. To no surprise, she was joined by Justice Breyer and Kagan. As a bit of a surprise, she was also joined by Chief Justice Roberts and Justice Scalia. Justice Thomas dissented. He was joined by Kennedy and Alito. Justice Sotomayor also filed a dissenting opinion.

The case involved a Plaintiff who alleged “that he was fired in retaliation for raising concerns about inaccuracies in a draft SEC registration statement concerning certain Fidelity funds.” Fidelity is a publically held company. However, it is a publically held company that has absolutely no employees. Zero. The Plaintiffs were essentially part of a management company, which is not publically held, that provides services to Fidelity. According to the Supreme Court, the issue was whether Sarbanes-Oxley:

shield[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][s] only those employed by the public company itself, or does it shield as well employees of privately held contractors and subcontractors – for example, investment advisors, law firms, accounting enterprises – who perform work for the public company?

The Supreme Court, citing both statutory interpretation and “common sense,” held:

We hold, based on the text of [the statute] the mischief to which Congress was responding, and earlier legislation Congress drew upon, that the provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public companies served by the private contractors and subcontractors.

This makes a whole heck of a lot of sense. A company should not be able to shield itself from whistleblower protection by simply refusing to employ anybody. In other words, it shouldn’t be able to outsource all of their management to a privately held company to avoid Sarbanes-Oxley liability. Moreover, it provides a deterrent to the exact type of illegality that Sarbanes-Oxley attempted to address. Now, lawyers, accountants, consultants, and other contractors who were aware of fraud at a publically held client, can do what they should do. They can blow the whistle on this activity and be assured that the whistleblower protections of Sarbanes-Oxley will protect them in the event they are a victim of retaliation.

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Retaliation Whistleblower Law

TENNESSEE LAW: Everyone Loses Under Proposed “Whistleblower” Legislation*

You’ll have to search long and hard to find a group of folks who love the great state of Tennessee more than my law partners and I do.  Unfortunately, there is some legislation being proposed that is quite uncharacteristic of the values that make this state so special. Especially for those of you who work in, manage and/or own businesses.

 Under proposed Senate Bill 2126/House Bill 1954, there are two general realities:

–         Employees who “blow the whistle” on illegal conduct within their place of work will be virtually unprotected from retaliation;  and

–         Employers will lose internal control when it comes to handling illegal conduct that may be occurring within its operations.

Under current state law, an employee can blow the whistle on illegal activity in the workplace without fear of retaliation in two ways: (1) report illegal activity and/or (2) refuse to engage in illegal activity. And, if an employer uses the report or refusal as a factor in making the decision to take an adverse action against the employee, then the employee may recover economic and non-economic damages. Makes sense, right?

Well, the proposed bill would change existing law in several detrimental ways:

–         First, it requires employees to prove that the report or refusal was the “sole cause” for the retaliation.  That means that if an employer can point to, not prove, any other reason to discharge the employee, even if it is trivial (e.g. “we had a personality conflict…”), the employee is left unprotected.

–         Second, if employees bring the illegal activity to the attention of management (Which almost always happens. And, sensibly so, I might add)…you guessed it, the employee is not protected.  Instead, they are protected only if they go outside of management such as to a third party.  Think about it, shouldn’t an employee feel secure in bringing this type of information to his boss without fear of losing his job? Further, as an owner or manager, don’t you deserve (or want) to know about the illegal activity in order that it may be stopped expeditiously?   The proposed bill instructs employees to take the matters outside the company.  Over time, of course, employees may learn to go outside the company more frequently.  But, this will burden employers and regulatory agencies much more significantly than internal reporting.

–         Third, this law actually encourages employers to retaliate quickly.  If an employee dares bring a matter to the attention of higher management, but before going to an outside source, higher management is rewarded by firing them immediately.  Is the employee protected? NOPE.

–         Fourth, the economic relief for an employee who is fired for reporting or refusing to engage in illegal activity, is limited.  This, in turn, rewards corporate wrongdoers at the expense of the blameless employee. Surely we don’t want to encourage any corporate misfits to calculate the financial risk of breaking the law only to find that the risked loss is less than the gain…

–         Finally, this law will limit the types of illegal actions which can be the basis of a whistleblower claim. Strange…my parents taught me that wrong was wrong and right was right.

 Some of you (if you’re still reading) may be asking, “okay Jonathan, what’s the silver lining?”  Well, the bill hasn’t passed yet…get on the phone and talk to your representative.

*The information above is taken largely from some materials created by my partners and colleagues who are far more versed in these legislative issues than I. With some commentary thrown in, I wanted to highlight some of the points I find to be particularly alarming. Feel free to contact our office if you would like some more information.

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Retaliation Whistleblower Law

Silencing the Whistleblower: Using Confidentiality Agreements to Prevent the Reporting of Illegal Activity by Employees

          Increasingly, employers are adopting generic “confidentiality policies” which prevent employees from sharing any internal documents with persons outside of the company.  But what if these internal documents implicate ongoing illegal activity by the employer?  What if the employee, by remaining silent, faces criminal prosecution for remaining silent about illegal activity?

          The rights of employees to “blow the whistle,” or to oppose unlawful activity, may often conflict with an employer’s internal confidentiality policies.  Whether the employee’s right to blow the whistle usurps the employer’s right to strict confidence can be a thorny issue.

          The Sixth Circuit has employed a six-factor test to determine whether an employee may provide confidential information which otherwise violates an employer’s internal confidentiality agreement.  Those six factors include:  (1) how the documents were obtained; (2) to whom they were given; (3) the content of the documents; (4) the reason they were produced; (5) the scope of the confidentiality agreement; and (6) whether the employee could preserve the evidence without violating the confidentiality agreement. Niswander v. Cincinnati Ins. Co., 529 F.3d 714 (6th Cir. 2008).

          The employee in Niswander, an insurance adjuster, produced significant information from claims files to her attorney.  The Sixth Circuit found that her actions in obtaining the documents were appropriate in light of her position, and giving them to an attorney was appropriate as well.  However, the employer ultimately prevailed because much of the content of the information was unrelated to the legal claims she sought to pursue.

          After Niswander, a few courts have criticized the vagueness and weight to be given to the various factors.  For example, the New Jersey Supreme Court, in Quinlan v. Curtiss-Wright Corp., 204 N.J. 239, 248 (N.J. 2010), ruled that an employee may use 1,800 documents which she copied to support her lawsuit for gender pay equality. When the employer fired her for breaching the internal confidentiality agreement by using those documents in litigation, the jury found in her favor in a retaliation case.  Boy, did they ever—a $10,649,117 total verdict, including $4,565,479 in punitive damages.  Perhaps peculiarly, the Quinlan court held that copying and removing the documents was not protected activity, but using them in the deposition was protected activity.  In other words, this “fruit from a poisonous tree” was still good fruit indeed.

          What if the employee needs to report illegal activity to the United States in a Qui Tam (False Claims Act) case?  Is there a difference when the government is involved?  It appears so. The False Claims Act (FCA) makes it illegal to fire a person for providing documents to the government. 31 U.S.C. §3730(h).  Some courts have held that claims to the government under the FCA trump any internal confidentiality agreement. See, e.g., United States v. Cancer Treatment Ctrs. Of Am., 350 F.Supp.2d 765, 773 (N.D. Ill. 2004).  Indeed, under the FCA, and employee is supposed to provide information to the United States in secret because the government “must investigate the alleged fraud without tipping off investigation targets at a sensitive stage.” 31 U.S.FC. §3730(b); U.S. ex. Rel. Yesudian v. Howard Univ., 153 F.3d 731, 743 (D.C. Cir. 1998).

          So, what are the recommendations for an employee who wishes to report ongoing illegal activity to a lawyer?

          First, per Niswander, determine whether note-taking, as opposed to document production, may be sufficient information for counsel;

          Second, if the employee fears the employer will destroy the documents, consider making an additional copy of the documents and storing them in a safe place at the employer’s worksite;

          Third, if production of the documents to counsel is genuinely necessary for case evaluation, produce a narrow, limited sample and make sure those documents are strictly relevant to the claims to be asserted in a lawsuit;

          Fourth, do not share the documents with family members, friends, or other employees. Instead, limit the production to attorneys only, labeling them “attorney client privileged” so as to indicate the closely held nature of the production; and

          Fifth, if the matter is being produced to the government in furtherance of a False Claims Act case (Qui Tam), consider asking the government to seek an Ex Parte Order from a court allowing the documents to be reviewed by an impartial official.  That provides an additional layer of respect for the documents.

Categories
Retaliation Whistleblower Law

A Lesson in Whistleblower Employment Law from Penn State

Like everyone, I’ve watched the events at Penn State unfold with shock. As an employment lawyer, there was one aspect of this case that was troubling but, unfortunately, not surprising.

Do you recall the portion of the report commissioned by the university that detailed the experience of two janitors in the Penn State athletic department? One of the janitors witnessed an incident of child rape. He was a Korean War veteran. He told his fellow custodian about it. He said that it was most horrible thing he had ever witnessed, worse than the hell of war.

The janitors, however, did not report it. Why?  Because they understood the culture of the place where they worked. They believed they would be fired if they came forward. In his report, Judge Freeh infers they were probably right.

Employment lawyers see this all the time. A victim doesn’t report sexual harassment because she needs her job and fears the consequences. A whistleblower comes forward and finds himself in the unemployment line.

Very little of any value will come of the events in State College, PA.  Hopefully, however, some  lessons will be learned. Here are a few from the prospective of someone who deals with employment lawsuits every day.

1. For victims, don’t be afraid to report abuse, sexual harassment, or employer misconduct.

2.  For workers who know of illegality in the workplace, have the courage to speak out. If you don’t stop it, nobody will. Talk to an employment attorney. There are laws in place to protect you.

3.  For employers, the lesson is clear. Culture matters. You have a choice. You can create a culture of compliance that values the well-being of your employees. Alternatively, you can cultivate a culture that discourages reports of illegal activity.  If you choose this course, however, you may face a jury one day and have to explain how you’re any different from those that called the shots at Penn State.