Terry Harden, a client of The Employment Law Group® law firm, is suing his Connecticut employer Berlin Steel Construction Co. and its Virginia steel fabricator subsidiary Pillar Enterprises for allowing plant manager Randy Glass to promote illegal drug use at work and favor drug-using employees over those who refuse to use drugs. In the complaint Harden filed in Frederick County Circuit Court in Virginia, he alleges the following:
- Glass purchased oxycodone, a prescription painkiller and controlled substance, from employees he supervised;
- Prescription drugs, cocaine, and heroin were prevalent at work;
- Harden frequently observed Glass and other employees leaving the bathroom “with glassy and bloodshot eyes, impaired motor skills, and slurred speech;”
- Upon reporting Glass’s behavior to other supervisors, they told him that they “weren’t surprised” and “that’s Glass for you.”
- Harden, who had approximately twenty-six years of experience in the welding and fabrication industry, was laid off while employees who supplied Glass with drugs and who had lower seniority were not laid off.
Terry Harden alleges that his employer wrongfully discharged him in violation of public policy. The Virginia Supreme Court first recognized the common law tort of wrongful discharge in 1985 in the case of Bowman v. State Bank of Keysville. In Virginia, the state where Harden was employed, ordinarily employees are employed-at-will and can quit for any reason and can be fired or laid off for any reason (unless a contract stipulates a length of time for employment). However, wrongful discharge is an important exception to the employment-at-will doctrine. An employee will prevail on a claim of wrongful discharge by showing that any of the following occurred:
- The employer interfered with the employee’s exercise of a statutory right or civil obligation;
- The employee refused to engage in illegal activity; or
- The employee reported illegal conduct to supervisors or government authorities.
For more information on the tort of wrongful discharge, click here.
Harden is represented by R. Scott Oswald and Nicholas Woodfield, principal attorneys at The Employment Law Group® law firm.
Jason Zuckerman, principal at The Employment Law Group® law firm, published a Special Feature article in the December 2010 issue of the American Bar Association Section of Labor and Employment Law’s Flash, analyzing the impact of the whistleblower provisions of the Dodd-Frank Act:
As described in the August issue of the Flash, the whistleblower provisions of the Dodd-Frank Act (“Dodd-Frank”) provide a strong financial incentive for employees to report fraud directly to the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”), and robust protection against retaliation, including three new causes of action and enhancements to the anti-retaliation provisions of the Sarbanes-Oxley Act (“SOX”) and the False Claims Act (“FCA”). This article briefly analyzes some of the implications of these provisions.
Employers Have a Strong Incentive to Encourage Employees to Disclose Securities Law Violations Internally
The whistleblower rewards provisions of Dodd-Frank give employees a strong inventive to report securities law violations directly to the SEC, rather than disclosing violations internally. Accordingly, companies will need to establish effective internal reporting mechanisms that respond appropriately to whistleblower disclosures. To ensure that employees perceive internal reporting mechanisms as legitimate (rather than as “window-dressing” intended to protect upper management), employers must conduct prompt and thorough investigations and keep the whistleblower in the loop about corrective actions. If whistleblowers believe that their employers are not taking their concerns seriously, they will likely report their concerns directly to the SEC. Companies should consider establishing organizational ombuds programs to offer independent, impartial, and confidential assistance to employees who seek to correct unlawful conduct.
Whistleblower Litigation Will Shift from the DOL to Federal Court
The robust anti-retaliation provisions in the whistleblower award provisions of Dodd-Frank (Sections 748 and 922) authorize whistleblowers to bring retaliation actions directly in federal court without having to exhaust administrative remedies before the Department of Labor (“DOL”). In addition, Dodd-Frank amends the whistleblower protection provision of SOX to clarify that SOX plaintiffs who remove their claims to federal court are entitled to try their SOX claims before a jury. And Dodd-Frank exempts both SOX and FCA retaliation claims from mandatory arbitration. The increased opportunities to try whistleblower retaliation claims before juries will likely result in higher damages awards, especially in light of general public resentment of the role the financial services industry played in precipitating the current recession. While Section 806 of SOX and the whistleblower retaliation provisions of Dodd-Frank do not authorize punitive damages, a whistleblower could add state law tort claims, such as a common law wrongful discharge action, and potentially recover punitive damages.
Employees of Government Contractors Will Have Several Strong Options to Remedy Retaliation
Section 1079B amends the anti-retaliation provision of the FCA by expanding the scope of protected conduct, applying a three-year statute of limitations, and prohibiting associational discrimination. In 2009, Congress strengthened the FCA’s anti-retaliation provision by broadening the scope of coverage to include contractors and agents and protecting efforts to stop a violation of the FCA. In addition, Congress included in the economic stimulus bill robust whistleblower protections for individuals who disclose gross mismanagement or waste of covered funds, abuse of authority related to the use of covered funds or a violation of law relating to covered funds. And several states have recently enacted False Claims Act statutes that include whistleblower retaliation provisions that are substantially similar to the FCA’s anti-retaliation provision. In sum, employees of government contractors have multiple options to remedy retaliation. In an era of substantial belt-tightening in public expenditures, retaliation claims against government contractors will likely result in high jury awards because of public anger about fraud on the public fisc.
Potential Decline in Retaliatory Counterclaims
In the wake of questionable decisions holding that overly broad confidentiality policies trump federal whistleblower protection statutes and entitle employers to suppress evidence of fraud, some employers have resorted to aggressively prosecuting frivolous counterclaims to force whistleblowers to abandon or settle retaliation claims. But the SEC’s proposed rules implementing Section 922 of Dodd-Frank may curb this practice by specifically prohibiting any person from taking “any action to impede a whistleblower from communicating directly with the Commission staff about a potential securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.” The Commission has concluded that “efforts to impede a whistleblower’s direct communications with Commission staff about a potential securities law violation” conflict with the purpose of Section 922 “to encourage whistleblowers to report potential violations of the securities laws.” In addition, the proposed rule clarifies that the “staff is authorized to communicate directly with these individuals without first seeking the consent of the entity’s counsel.”
Broad Whistleblower Protections in the Financial Services Industry
In addition to whistleblower protections under Section 806 of SOX, Section 922 of Dodd-Frank, and state common law and statutory protections, employees in the financial services industry now have an additional cause of action for retaliation under Section 1057 of Dodd-Frank, which protects employees who disclose fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service. The scope of coverage is broad in that Section 1057 applies to organizations that extend credit or service or broker loans; provide real estate settlement services or perform property appraisals; provide financial advisory services to consumers relating to proprietary financial products, including credit counseling; or collect, analyze, maintain, or provide consumer report information or other account information in connection with any decision regarding the offering or provision of a consumer financial product or service. Protected conduct includes a disclosure of information to an employer or the newly created Bureau of Consumer Financial Protection (“Bureau”), or any other government authority or law enforcement agency, that the employee reasonably believes relates to any violation of any rule, order, standard or prohibition prescribed or enforced by the Bureau.
In sum, Dodd-Frank substantially expands whistleblower protections in the private sector, and may help avert another economic crisis precipitated by financial fraud.
For more information on reporting fraud or illegal employer retaliation, click here.
Congress has passed the FDA Food Safety Modernization Act (FSMA), which imposes stricter food safety standards and grants the Food and Drug Administration greater authority to regulate tainted food and had previously passed the Senate. President Obama is expected to sign the FSMA into law.
The FMSA was prompted in part by numerous instances of fatal food contamination that revealed insufficient regulation and oversight of food production, including outbreaks of contaminated peanuts, eggs, and produce. The Centers for Disease Control and Prevention estimate that there are 76 million cases of foodborne disease each year in the United States, 5,000 of which result in death.
To ensure that workers can disclose food safety concerns without fear of reprisal, Congress included in the FMSA a robust whistleblower protection provision (Section 402) that protects workers engaged in the manufacture, processing, packing, transporting, distribution, reception, holding, or importation of food.
Section 402 applies to any entity “engaged in the manufacture, processing, packing, transporting, distribution, reception, holding, or importation of food.”
Broad Scope of Protected Conduct
The FSMA prohibits retaliation against an employee who has:
- provided, caused to be provided, or is about to provide or cause to be provided to the employer, the Federal Government, or the attorney general of a State information relating to any violation of, or any act or omission the employee reasonably believes to be a violation of any provision of this Act or any order, rule, regulation, standard, or ban under this Act, or any order, rule, regulation, standard, or ban under this Act;
- testified or is about to testify in a proceeding concerning such violation;
- assisted or participated or is about to assist or participate in such a proceeding; or
- objected to, or refused to participate in, any activity, policy, practice, or assigned task that the employee (or other such person) reasonably believed to be in violation of any provision of this Act, or any order, rule, regulation, standard, or ban under this Act.
A Section 402 complainant need not demonstrate that she disclosed an actual violation of a food safety law or regulation. Instead, Section 402 employs a “reasonable belief” standard that the Department of Labor (DOL) and federal courts have construed as protecting a reasonable but mistaken belief that an employer may have violated a particular law. See Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1001 (9th Cir. 2009) (“to encourage disclosure, Congress chose statutory language which ensures that an employee’s reasonable but mistaken belief that an employer engaged in conduct that constitutes a violation of one of the six enumerated categories is protected.”) (internal quotation, citation omitted); Allen v. Admin. Review Bd., 514 F. 3d 468, 477 (5th Cir. 2008) (applying “reasonable belief” standard in a Sarbanes-Oxley whistleblower retaliation action); Kalkunte v. DVI Fin. Svcs., Inc., ARB Nos. 05-139 & 05-140, 2004-SOX-056 (ARB Feb. 27, 2009) (clarifying that a reasonable but mistaken belief is protected under SOX). The reasonable belief standard consists of both a subjective and objective component, and 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 aggrieved employee.” Allen, 514 F.3d at 477.
The “duty speech” doctrine will not apply to FSMA retaliation claims, as the text specifically protects disclosures made “in the ordinary course of the employee’s duties.”
Some examples of protected conduct include the following:
- reporting that imported cheese is being stored at the wrong temperature and is therefore susceptible to spoiling or containing harmful bacteria;
- reporting that an additive harmful only to infants was added to infant formula;
- reporting that bread is being stored in a facility infested with flies and rodents;
- reporting that a peanut butter manufacturer did not recall peanut butter it knew might have been made using a batch of contaminated peanuts; and
- reporting that a chemical used to lubricate sorting machines has contaminated dietary supplements.
Broad Scope of Prohibited Retaliation
An employer is prohibited from discharging or “in any manner discriminat[ing] against any employee with respect to his or her compensation, terms, conditions, or other privileges of employment.” The DOL’s Administrative Review Board (ARB) applies the Burlington Northern standard to analogous whistleblower protection statutes, and therefore Section 402 will prohibit not only tangible adverse actions, but also any action that may dissuade a reasonable employee from engaging in further protected activity. See Melton v. Yellow Transp. Inc., ARB No. 06-052, 05-140, ALJ No. 2005-STA-002 (ARB Sept. 30, 2008) (holding that the Burlington Northern standard applies to whistleblower retaliation claims before the DOL). Prohibited acts of retaliation will likely include termination, suspension, demotion, reduction in pay, demotion, failure to promote, failure to hire, diminution in job duties, and blacklisting.
Employee-Favorable Causation Standard and Burden of Proof
A complainant can prevail merely by showing by a preponderance of the evidence that her protected activity was a contributing factor in the unfavorable action. A contributing factor is any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision. See Klopfenstein v. PPC Flow Techs. Holdings, Inc., ARB No. 04-149 at 18, ALJ No. 2004-SOX-11 (ARB May 31, 2006) (internal citation omitted). Once a complainant meets her burden by a preponderance of the evidence, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same action in the absence of the employee’s protected conduct. Clear and convincing evidence is “[e]vidence indicating that the thing to be proved is highly probable or reasonably certain.” See Peck v. Safe Air Int’l, Inc., ARB No. 02-028 at 9, ALJ No. 2001-AIR-3 (ARB Jan. 30, 2004).
Remedies include injunctive relief, reinstatement, back pay with interest, “special damages,” attorney’s fees, litigation costs, and expert witness fees. Where reinstatement is unavailable or impractical, front pay may be awarded. “Special damages” has been construed under similar whistleblower protection statutes to include damages for pain, suffering, mental anguish and an injured career or reputation. See, e.g., Kalkunte, ARB Nos. 05-139 & 05-140 at 15 (SOX case awarding complainant emotional distress damages); Hannah v. WCI Communities, 348 F. Supp. 2d 1332, 1334 (S.D. Fla. 2004) (“a successful Sarbanes-Oxley Act plaintiff cannot be made whole without being compensated for damages for reputational injury that diminished plaintiff’s future earning capacity”). A complainant may also be entitled to damages for loss to his reputation as part of the “make whole” remedy provided by the statute. See Hannah, 348 F. Supp. 2d at 1334.
Procedures Governing Section 402 Claims
A complainant must file her complaint with the Occupational Safety and Health Administration (OSHA) within 180 days after the date on which the retaliatory adverse action occurred. OSHA will investigate the claim and can order preliminary relief, including reinstatement. Either party can appeal OSHA’s determination by requesting a de novo hearing before a DOL Administrative Law Judge (ALJ), but objecting to an order of preliminary relief will not stay the order of reinstatement. Discovery before an ALJ typically proceeds at a faster pace than discovery in state or federal court, and the hearings are less formal than federal court trials. For example, ALJs are not required to apply the Federal Rules of Evidence. Either party can appeal an ALJ’s decision to the ARB and can appeal an ARB decision to the circuit court of appeals in which the adverse action took place.
If the Secretary of Labor fails to issue a final decision within 210 days of the filing of a complaint, or within 90 days after receiving a written determination from OSHA, the complainant can remove her claim to federal court for de novo review and either party may request a trial by jury. Section 402 does not preempt or diminish any other remedy for retaliation provided by Federal or State law, and therefore a Section 402 complainant could remove the claim to federal court and add additional claims, such as a common law wrongful discharge action, which would provide an opportunity to obtain punitive damages.
R. Scott Oswald and Jason Zuckerman, principals at The Employment Law Group® law firm, published an article in the Taxpayers Against Fraud Education Fund Quarterly Review outlining recently enacted federal whistleblower protections and whistleblower reward statutes. Recognizing the critical role that whistleblowers play in exposing financial fraud, threats to public health and safety, and fraud committed against the government, Congress has enacted numerous robust whistleblower protection laws and strengthened existing whistleblower protection statutes. The article discusses the whistleblower provisions of the False Claims Act, American Recovery and Reinvestment Act, Federal Acquisitions Streamlining Act, Sarbanes-Oxley Act (SOX), Consumer Product Safety Reform Act, Consumer Financial Protection Act of 2010, Dodd-Frank Act, and Patient Protection and Affordable Care Act, and offers practical tips on claim selection, forum selection, maximizing damages, pleading whistleblower retaliation claims, and prosecuting whistleblower claims. To learn more about whistleblower protection, click here.
In today’s Wall Street Journal article titled “Whistleblower Bounties Pose Challenges,” Jason Zuckerman, a principal at The Employment Law Group® law firm, states that the IRS “needs to be more responsive” to whistleblowers claims. Zuckerman is referring to the IRS whistleblower program under which whistleblowers who report tax fraud can obtain a reward of up to 30 percent of any taxes collected as a result. While the IRS’s whistleblower program has been largely touted as a success at generating quality leads, the IRS has yet to reward any of the hundreds of whistleblowers who provided the agency with the information