According to Securities and Exchange Commission (SEC) Chairman Mary Schapiro, the SEC’s new whistleblower program is already providing “significant benefits” one year after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In a letter sent to Rep. Barney Frank (D-MA), co-author of Dodd-Frank, SEC Chairman Schapiro argued that recent calls to change the whistleblower law “before it has had an opportunity to demonstrate its full value seem premature, particularly in the absence of any evidence of problems with the current program.”

Chairman Schapiro’s letter came in advance of last week’s move by the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises to approve an amendment to Dodd-Frank.  The bill, H.R. 2483,  also known as the “Whistleblower Improvement Act of 2011”, is sponsored by Rep. Michael Grimm (R-NY) and would require potential whistleblowers first to report wrongdoing internally to employers prior to notifying the government in order to be eligible for a whistleblower award. The bill would wave this requirement in the event that the SEC determines that there is evidence that management of a company may have participated in wrongdoing or fraud. The full House Committee on Financial Services is yet to vote on the proposed legislation.

Chairman Schapiro noted in her letter that mandating internal reporting of suspected wrongdoing would likely “have a chilling effect” on whistleblowers and that the current program already allows whistleblowers to collect an award if they report information internally first.  Those whistleblowers are still eligible for an award even if the company self-reports the same information to the SEC and that information leads to a successful SEC enforcement action against that company.

The proposed changes to Dodd-Frank may progress further in the House, but Senate passage is unlikely as a majority of members are expected to oppose efforts to make such changes to the Dodd-Frank Act whistleblower provisions.

On Monday, the Department of Justice (DOJ) announced that it collected more than $3 billion in judgments and settlements of fraud cases under the False Claims Act (FCA) for fiscal year 2011. This marks the second consecutive year in which the DOJ exceeded $3 billion in recoveries and brings the total recovered since 2009 to $8.7 billion – the largest ever three-year total.

Of the $3 billion recovered during fiscal year 2011, a record $2.8 billion was recovered under the whistleblower, or qui tam, provisions of the FCA which allow individuals to file lawsuits on behalf of the government and, as an incentive, offers whistleblowers a portion of the amount recovered. $2.4 billion of the amount recovered for fiscal year 2011 involved fraud against federal healthcare programs such as Medicaid, Medicare, and the Department of Defense’s TRICARE program.

Assistant Attorney General Tony West offered his praise for whistleblowers who have come forward to report fraud, saying “we are tremendously grateful to whistleblowers who have brought fraud allegations to the government’s attention and assisted us in this public-private partnership to fight fraud.”

In 1986, the FCA was amended to increase the incentives offered to whistleblowers. According to Sen. Chuck Grassley (R-IA), a co-sponsor of the amendments, the FCA has “[proven] to be the most powerful tool in rooting out fraud against the federal treasury.”

“The whistleblowers who bring these cases to light know the secrets hidden by those who are ripping off federal taxpayers,” he added. Since the 1986 amendments, the DOJ has successfully recovered more than $30 billion.

KV Pharmaceutical (KV), the parent company for Ethex Corporation (Ethex), this month agreed to pay $17 million to settle claims that Ethex of violated the False Claims Act when it allegedly reported false information to the Centers for Medicare and Medicaid Services (CMS).

According to the complaint filed by the Department of Justice (DOJ), Ethex falsified Food and Drug Administration (FDA) certifications of two products, Nitroglycerin ER and Hyoscyamine Sulfate ER, to CMS, thereby allowing the company to sell these unapproved drugs to Medicare patients.  The Food, Drug, and Cosmetic Act requires that all drugs must be approved by the FDA for safety and effectiveness before they can be marketed for mass consumption.  Neither drug has received FDA approval, which potentially places consumers at risk.  Ilisa Bernstein, acting director of the Office of Compliance for the FDA, outlined the seriousness of this violation, stating, “This settlement sends a strong message to those who seek to put the health of American patients at risk by distributing and promoting drugs which have not been approved by the FDA.”

To settle the case, KV has agreed to pay the federal government $10,158,695 and $6,841,305 to the state Medicaid Services.  The whistleblower who reported the company’s unlawful actions received $1,523,804 of the federal share and additional amounts from the state share.

The Pentagon has reassured members of the military and their families that the Air Force addressed all of the problems at the mortuary.  However, the Office of Special Counsel has said that the Air Force has not taken full responsibility for Dover’s operational shortcomings. In November, Panetta initiated a special review of the mortuary to gather more information about how the Air Force disciplined those responsible.  In another case of mishandling and misidentification of remains at the Arlington National Cemetery in Virginia, three supervisors were punished, but no one was fired.

“Let me make very clear to the families of our fallen heroes that every step will be taken to protect the honor and dignity that their loved ones richly deserve,” Panetta said in a written statement.

One of the nation’s largest privately held mortgage companies, Allied Home Mortgage Corporation (Allied), and two of its top executives, CEO Jim Hodge and Executive VP Jeanne Stell, are facing scrutiny for providing false loan certifications to the Department of Housing and Urban Development (HUD). Peter Belli, a former regional manager at Allied, filed suit against his former employer under the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).  The government, through U.S. Attorney for the Southern District of New York, Preet Bharara, joined Belli and others in claiming that Allied lied about its compliance with HUD regulations.

In the complaint, Belli asserts that Allied made many loans through various “shadow” branches that were not HUD-approved and lacked proper quality control. Allied would then “submit those loans to HUD using one of the unique branch identification numbers (“HUDIDs”) assigned to a HUD-approved branch.”  Then, “HUD endorsed these loans for insurance based on false certifications that the loans were originated in compliance with HUD requirements, including, most fundamentally, that the loans originated from HUD-approved branches.”   To maintain this ‘culture of corruption’ at Allied, the complaint states that Hodge and others threatened senior management with termination, aggressively monitored employees’ e-mail communications,  and even silenced former employees by threatening legal action.

The federal government claims that nearly 1 in 3 of the HUD-insured loans Allied made between 2001 and 2010 went into default because of Allied’s reckless lending practices. These defaults reportedly created more than $834 million in insurance claims and forced thousands of borrowers out of their homes while Allied earned millions of dollars. Another 2,509 loans underwritten by Allied are currently in danger of default, which may result in additional losses estimated at $363 million.

The government is seeking triple damages and civil fines for Allied’s alleged fraud and is seeking an injunction to stop Allied from making any further loans out of its undisclosed branches.

Related articles

• U.S. Sues Allied Home Mortgage Over Lending Practices (nytimes.com)
• Feds sue Allied Home Mortgage and founder for fraud (usatoday.com)
• NYC U.S. Att’y Sues Allied Home Mortgage For Fraud (newyork.cbslocal.com)

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In Hasan v. Enercon Services, Inc., the Department of Labor’s Administrative Review Board (ARB) overturned a summary decision order in favor of whistleblower Syed Hasan who alleges that Enercon Services, Inc. refused to hire him because he is a whistleblower.

Hasan is a structural engineer who was previously discriminated against by his former employer, American Electric Power Company, for reporting unsafe practices at the D.C. Cook Nuclear Plant to the Nuclear Regulatory Commission.

For Hasan to prevail on his whistleblower complaint under the Energy Reorganization Act of 1978 (ERA), he must show that his whistleblowing while at his former employer was a contributing factor in Enercon’s decision to not hire him.  Evidence of inconsistencies in an employer’s reasons for not hiring a whistleblower can support a finding of pretext by the employer.

The ARB ruled in Hasan’s favor, stating a summary decision was improper given the existence of a genuine factual dispute that requires an evidentiary hearing:

Hasan’s claim is not based on one application to one advertisement for one job vacancy whereupon his application was filed away and forgotten, as likely occurs to thousands of applicants each day across the county.  Rather, Hasan’s claim is that he repeatedly applied for positions at Enercon, and Enercon refused to hire him at any point at least partly due to his whistleblower activities.  Hasan’s letters to Enercon expressed that he was willing to work for Enercon “at any place, for any shift and for any salary” that Enercon deemed was reasonable.  Hasan sent more than one letter making this statement.  He sought employment with Enercon numerous times over the course of two years.  In a letter dated February 5, 2003, Enercon expressly told Hasan that it would keep his resume “on file and hope to identify a work opportunity in the future.”  Enercon admittedly hired more than a dozen civil/structural engineers after its February 5, 2003 letter to Hasan.  So Hasan’s claim is that Enercon repeatedly rejected him, and he believes it was because of his whistleblowing activities.

Recognizing Hasan’s claim as a claim of repeated rejections over a two-year period, there are sufficient documents and facts to allow (but not require) a factfinder to believe that Enercon’s proffered reasons are pretext or that Hasan’s protected activity was a contributing factor in Enercon’s failure to hire Hasan.  Enercon asserts that: (1) the jobs in its advertisements never materialized; (2) the advertisements were used to find former Scientech engineers; (3) the job vacancies were for the Germantown office; or (4) the advertisements never resulted in any hires.  Yet, the advertisements on their faces were for “immediate opportunities” throughout 2003 and 2004 and expressly described the “available positions.”  Enercon’s February 5, 2003 letter expressly told Hasan he would be considered for future opportunities.  The existence of future vacancies was repeatedly confirmed by the dozen engineers hired in 2003 and 2004.  The advertisements only expressed a preference for “local candidates” and had no reference to Scientech employees.  This is not to say that Enercon’s reasons will not prove to be true or legitimate.  However, to choose Enercon’s assertions in its motions over its contradictory advertisements is to engage in factfinding without an evidentiary hearing.  These factual contradictions, even though created by Enercon’s own choices, must be resolved in an evidentiary hearing….

(citations omitted).

On June 30, 2011, the United States Court of Appeals for the Third Circuit ruled in United States ex rel. Wilkins v. United Health Group  overturned the decision of the lower court and held in favor of whistleblowers Charles Wilkins and Daryl Willis.  The whistleblowers allege that United Health Group (UHG) provided kickbacks to those physicians who switched patients to UHG’s services in violation of the Medicare Anti-Kickback Statute.   This statute provides that whoever knowingly and willfully pays a kickback in return for a referral for their health care services (paid for by a Federal Health Care program) are guilty of a felony.

Whistleblowers Wilkins and Willis began employment with United Health Group in 2007, Willis as a general manager for Medicare/Medicaid marketing and sales and Wilkins as a sales representative.  In April 2008, United Health terminated Wilkins’ employment in reaction to his complaints concerning what he perceived were United Health’s illegal practices. Similarly, at some point during 2008, United Health, after demoting Willis for his conduct in making complaints to his supervisors about what he perceived were United Health’s illegal practices, went further and terminated his employment.

On July 10, 2008, Wilkins and Willis filed a qui tam action under the Federal False Claims Act (FCA) alleging that United Health Group also violated the FCA by offering physicians illegal kickbacks and then charging the federal government’s Medicare program for services.

Under the False Claims Act, a private individual with knowledge of fraud committed against the federal government may sue on behalf of the government to recover losses caused by the fraud.  To encourage whistleblowers to come forward and expose fraud on the government, the FCA awards whistleblowers 15% to 30% of the government’s recovery.  The FCA also prohibits any action taken by an employer which has a negative effect on the terms, conditions, or privileges of employment of the whistleblower. This includes termination, demotion, suspension, harassment, and other forms of retaliation.

The Third Circuit, adopting the majority viewpoint among the Federal Appellate Circuits, applied the implied certification theory of liability under the FCA.  This theory of liability is favored by whistleblower advocates because companies defrauding the government can be liable under the FCA without having explicitly stated they were in compliance with applicable laws such as the Medicare Anti-Kickback Statute.  This ruling is a victory for whistleblowers who report corporate or government agency fraud.

Law360 quoted The Employment Law Group® Principal Jason Zuckerman in an article regarding the U.S. Department of Labor’s Administrative Review Board’s en banc decision in Sylvester v. Parexel International on May 25, which clarified the broad scope of protected conduct for Sarbanes-Oxley Act (SOX) whistleblowers.

 Jason Zuckerman, a principal at The Employment Law Group, which represents employees, said the Sylvester decision was in contrast to past ARB rulings that had erected barriers to complainants.

“The current ARB is applying the statute as Congress intended, and in light of the recent financial crisis, it could not be clearer that robust protection of whistleblowers is a crucial bulwark against corporate fraud,” Zuckerman said.

The ARB held that the heightened pleading standards established in federal courts did not apply to SOX claims initiated with OSHA, and that an allegation of shareholder fraud was not a necessary component of protected activity under SOX.  The Sylvester decision will likely lead to more claims surviving initial motions to dismiss or summary judgment than in the past.

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Senator Chuck Grassley, R-Iowa, introduced bill S. 586 titled the Congressional Whistleblower Protection Act of 2011, which would extend whistleblower protections to congressional employees. In a press release, Grassley stated:

Whistleblowers in the executive branch have helped me do my job of oversight. It’s simply not fair, nor is it good governance, for Congress to enact whistleblower protections on the other branches of government without giving its own employees the same consideration. This effort is about two things: making sure Congress practices what it preaches and making sure Congress values the importance of whistleblowers for increasing accountability in the representative branch of government.

While the bill limits these protections to employees of the Government Accountability Office and the Library of Congress, it is still a step in the right direction. The bill would protect employees who report

• a violation of any law, rule, or regulation;
• gross mismanagement, a gross waste of funds, and abuse of authority; or
• a substantial and specific danger to public health or safety.

If an employer illegally retaliates against a whistleblower, remedies would include those listed under chapter 12 of title 5, which includes:

• placing the individual in as nearly as possible the position the individual would have been in had the employer not retaliated against them;
• back pay and benefits, medical costs, travel expenses, and any other reasonably foreseeable damages; and
• attorneys fees and costs.

The bill follows two years worth of whistleblower legislation that extended protection to employees who speak the truth to authority from government contractors to corporations, to the financial services industry, to those in charge of our food supply.  Hopefully Congress will continue on its course and the future will bring further whistleblower protections for every congressional, executive, and judicial employee.

Related articles

• Congress delays on whistleblowers (politico.com)

The Employment Law Group® attorney Jason Zuckerman was quoted in an Ammerican Bar Association article titled SEC is Giving Whistle-blower Protection One Last Lick:

“After the Bernard Madoff scandal broke the SEC had a lot of egg on its face,” says Jason Zuckerman, principal of [T]he Employment Law Group, a Washington, D.C.-based firm that represents whistle-blowers.

“It’s clear that they need to do more to be responsive to the allegations they get and to encourage employees to report corporate fraud,” says Zuckerman, who co-chairs the Whistleblower Subcommittee of the American Bar Association’s Labor and Employment Section’s Employee Rights and Responsibilities Committee.

The Dodd-Frank Act (DFA) was passed in July of 2010 to deter securities violations by corporations.  The law includes whistleblower reward and protection provisions that require the SEC to provide a monetary reward up to 30% for whistleblowers who report violations to the SEC.  Corporations often characterize whistleblowers as troublemakers and have consistently lobbied the SEC to weaken the DFA’s whistleblower provisions by adopting regulations requiring all whistleblowers to report violations internally to the corporation, rather than to the SEC.  Zuckerman responded as follows:

…[W]histle-blower advocates like [T]he Employment Law Group’s Zuckerman maintain that the backlash against the SEC’s proposed rules is unfounded.

“I don’t think individuals are ever eager to blow the whistle,” says Zuckerman. He co-authored a comment letter to the SEC on Dec. 17 as a member of the whistle-blower advocacy group, Voices for Corporate Responsibility, along with Change to Win, the National Employment Lawyers Association and the Government Accountability Project. “What they want to do is keep their jobs, especially when we have such high unemployment.”

He says whistle-blower programs with robust monetary rewards have proven successful, citing the False Claims Act, whose provisions were strengthened in 1986. The act authorizes whistle-blowers to prosecute contractors for fraud on behalf of the U.S. government. Those claims have resulted in the recovery of more than $24 billion, Zuckerman says.

“There is tremendous empirical evidence that it works,” he says, citing large settlements against companies such as Pfizer and Eli Lilly. “If companies are so concerned about employees blowing the whistle directly to the SEC, then they should enhance their compliance programs to address employee concerns more effectively.”

The groups co-authoring the letter with Zuckerman also worry that the proposed SEC rules don’t address coordination of investigations by overlapping federal agencies, a need they say is “particularly critical where the SEC has limited resources and must respond to claims originating from a universe of approximately 6,700 publicly traded companies and related advisors and entities.”

For more information about the SEC’s Whistleblower Program, click here.

Senator McCaskill (with Senator Jim Webb co-sponsoring) re-introduced to the Senate a bill titled the Non-Federal Employee Whistleblower Protection Act of 2011 which would extend whistleblower protections to employees of federal government contractors and employees of institutions receiving federal grants, including state and local governments.  Whistleblowers who report fraud, waste, and abuse would be protected from retaliation by their employer.  For more information on federal whistleblower laws, 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. 

Covered Employees

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:

1. 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;
2. testified or is about to testify in a proceeding concerning such violation;
3. assisted or participated or is about to assist or participate in such a proceeding; or
4. 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

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.

Today the Senate passed S. 510 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.  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.  The bill must be reconciled with a House version of the bill, H.R. 2749, which passed on July 30, 2009, and final passage is expected to occur by the end of the year.

Covered Employees

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:

1. 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;
2. testified or is about to testify in a proceeding concerning such violation;
3. assisted or participated or is about to assist or participate in such a proceeding; or
4. 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

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.

According to an article in Politico, the Congressional Whistleblower Protection Act introduced by Senators Chuck Grassley (R-Iowa) and Claire McCaskill (D-Missouri) has yet to be reported to the full Senate and continues to languish in the Committee on Homeland Security and Government Affairs.  Similar to the Whistleblower Protection Act which protects most federal employees who blow the whistle on illegal activity from retaliation, the Congressional Whistleblower Protection Act would extend the same retaliation protection to congressional staff who report illegal activity occurring within Congress. 

For more information about the firm’s Whistleblower Law Practice, click here.