The Washingtonian magazine’s list of top lawyers in the Washington, D.C. metropolitan area lists Jason Zuckerman,a Principal at The Employment Law Group® law firm on its list of top whistleblower lawyers. The Employment Law Group® law firm has established key precedent under the whistleblower provision of the Sarbanes-Oxley Act and has substantial experience representing corporate and government whistleblowers in a wide variety of state and federal statutory and common law whistleblower retaliation actions, including actions under the Sarbanes-Oxley Act and the False Claims Act. We are proud of the results we achieve for our clients, and are equally proud of our role in helping clients blow the whistle on corporate fraud, government contractor fraud, tax fraud and misconduct that threatens public health and safety.
Department of Labor Administrative Law Judge William Dorsey has denied summary judgment in a SOX case brought by a former in-house attorney who was terminated for blowing the whistle on violations of SEC rules. Judge Dorsey’s order resolves several significant substantive and procedural issues under SOX, including:
The Duty Speech Doctrine Does Not Apply to SOX. The employer argued that the complainant could not have engaged in protected conduct because she was merely doing her job an in-house attorney, and therefore her disclosures cannot be protected unless she acted outside her role as in-house counsel. Applying well-established DOL precedent, Judge Dorsey unequivocally rejected this argument, holding that an employee whose own job duties encompass reporting illegal conduct may obtain whistleblower relief. Judge Dorsey noted: “The SOX Act and the Secretary’s implementing regulations specifically protect reports employees make to their supervisors. Nektar cannot invent exceptions to those federal protections.” The employer also argued that the Supreme Court’s duty speech doctrine set forth in Garcetti v. Ceballos, 126 S. Ct. 1951 (2006) applies to SOX and therefore employees must step outside their official duties to be protected. Judge Dorsey held that Garcetti is inapposite as it “involved no whistleblower protection statute [and] it dealt with public employees who claimed their termination,” whereas a SOX action “is a statutory claim a private employee filed . . . . [and has] nothing to do with the reach of First Amendment.”
Protected Conduct is Not Limited to Disclosures of Shareholder Fraud. While some ALJs have erroneously held that protected conduct under SOX is limited to disclosures about shareholder fraud, Judge Dorsey, applying the plain meaning of SOX and the ARB’s decision in Klopfenstein v. PCC Flow Technologies Holdings, ARB No. 04-149, ALJ No. 2004-SOX-11 (ARB May 31, 2006), held that “allegations of fraud are not the sole means for whistleblowers to secure SOX protections.” In particular, Judge Dorsey held that disclosures about violations of SEC-mandated internal controls can constitute protected conduct.
The Cat’s Paw Doctrine Applies to SOX. The employer claimed that the decision-maker was an officer who has joined the company shortly before the complainant was terminated and knew nothing about her protected conduct. Judge Dorsey rejected the employer’s effort to pin the decision on a clean slate, holding that the “clean slate” relied heavily upon the input of a supervisor who knew of the complainant’s protected conduct. Acomplainant may hold an employer liable for discrimination without proof that the individual who made the final decision to terminate her knew of her protected activity. The employee need only make a protected disclosure to an individual with supervisory authority over her. 18 U.S.C. § 1514A(a)(1)(C). Once an employee’s supervisor has actual knowledge of the protected activity, that knowledge is attributed to the ultimate decision-maker.
Individual Liability Does Not Require a Showing of Malice. While more than 800 SOX retaliation claims have been filed, very few opinions address the standard for individual liability. Judge Dorsey held that individual liability under SOX can be established absent a showing of actual malice. Instead, “[a]n individual’s liability is assessed in same manner that the corporate employer’s liability is assessed. Individual liability must be predicated on retaliatory intent that contributed to the decision to take an unfavorable personnel action; it need not be the sole factor that motivated the named individual.”
Formal Rules of Evidence Do Not Apply to SOX Claims. Judge Dorsey also clarified the standard of admissibility at the summary decision stage. In this action, the employer filed 506 pages of objections to the complainant’s statement of material facts, contending that the materials submitted by the complainant were not properly authenticated and contained hearsay. Judge Dorsey rejected the employer’s attempt to strictly construe the rules of evidence at the summary judgment stage, noting that formal rules of evidence do not apply to SOX claims. Moreover, as “[w]histleblower discrimination claims commonly turn on inferences drawn from circumstantial evidence,” the adjudication of such claims requires full presentation of a broad range of evidence that may prove, or disprove, retaliatory animas and its contribution to the adverse action taken. Judge Dorsey also held that discovery documents and depositions need not be authenticated on personal knowledge when submitted in opposition to a motion for summary decision.
On behalf of the Government Accountability Project, the National Whistleblower Center and Taxpayers Against Fraud, the leading whistleblower advocacy organizations, The Employment Law Group® law firm filed an amicus brief in Welch v. Chao urging the Fourth Circuit to reverse the Department of Labor Administrative Review Board’s decision establishing a standard for protected conduct that is plainly contrary to the plain meaning and intent of Section 806 of SOX.
In order to protect a broad range of disclosures about potential accounting fraud, securities fraud, and violations of securities laws, Congress specifically included in the language of Section 806 a “reasonable belief” test under which a complainant can engage in protected conduct without disclosing an actual violation of law. Contrary to the plain meaning and intent of SOX, the ARB is requiring complainants to prove that they disclosed unequivocal, actual violations of securities law and is requiring complainants to demonstrate that their disclosures pertained to actual investor fraud even though Section 806 expressly protects disclosures about a violation of any SEC rule. The ARB’s standard undermines the prophylactic purpose of Section 806 depriving employers of the opportunity to receive an early warning of potential violations of Securities and Exchange Commission (“SEC”) rules that can ultimately result in shareholder fraud. For example, protecting disclosures about deficient internal accounting controls or misleading financial reporting enables employers to correct these problems before investors are harmed. Moreover, by speculating about whether Welch’s disclosures implicated securities laws, rather than consulting the pertinent SEC rules, the ARB has adopted an “I know it when I see it” standard that will chill employees from making the disclosures that Congress intended to protect and encourage. If allowed to stand, the ARB’s erroneous interpretation of protected conduct will undermine the clear intent of Congress and inevitably increase the risks of the very financial disasters that SOX was enacted to prevent.
Rep. Lynn Woolsey (D-CA), Chairwoman of the House Education and Labor Subcommittee on Workforce Protections, has introduced robust and comprehensive whistleblower protection legislation for private sector employees. H.R. 4047 would close loopholes in existing federal whistleblower protection statutes and protect employees who disclose threats to public health and safety, financial fraud, insurance fraud, or violations of environmental protection laws, food and drug safety laws, or transportation safety laws. A section-by-section analysis of the legislation from the Education and Workforce Subcommittee is available here. The bill would also create a new office at DOL to investigate whistleblower complaints. While there are many hardworking OSHA investigators who try to conduct thorough investigations of whistleblower complaints, OSHA has shown itself often unwilling and unable to enforce existing whistleblower protection laws. This is due in part to OSHA applying incorrect legal standards and OSHA’s propensity to adopt employers’ pretextual allegations against whistleblowers instead of conducting investigations. Under the current Administration, OSHA has found for employers in more than 90% of whistleblower claims and now appears to require smoking gun evidence to find for an employee. DOL’s failure to enforce whistleblower protection laws has real consequences for public health and safety. Indeed, Congressional testimony about recent mine explosions and collapses revealed that many of the miners killed in these tragic accidents were aware of violations of mine safety laws, but were afraid to report such violations for fear of losing their jobs. Hopefully, Congress will promptly enact H.R. 4047, and in the interim, hopefully DOL will consider enforcing existing whistleblower protection laws, rather than undermining them. The Government Accountability Project has done a terrific job informing Congress of the flaws and loopholes in existing whistleblower protection laws and working with the House Education and Labor Subcommittee on Workforce Protections to devise appropriate legislative corrections. GAP’s testimony concerning the inadequacy of existing whistleblower protection laws is available here.
On October 30, 2007, the Senate Committee on Commerce, Science and Transportation unanimously approved the CPSC Reform Act S. 2045 which includes protection for employees who disclose to the Federal government or a state Attorney General information relating to any violation of a consumer product safety standard, regulation, or order of the Consumer Product Safety Commission. In addition to protecting whistleblowers form retaliation, S. 2045 rewards whistleblowers whose disclosures about consumer product safety issues result in civil penalties. Similar to the qui tam provision of the False Claims Act, a whistleblower whose disclosure to the CPSC or a state AG results in successful prosecution would receive between 15 to 25 percent of the civil penalty. Unlike the qui tam provision of the False Claims Act, however, only the government could bring an action prosecuting a violation of consumer product safety regulations or orders.