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The Employment Law Group® Attorney Quoted in Law360 Article on DOL ARB Decision Broadening the Scope of Coverage under SOX

April 21, 2011

The Employment Law Group® attorney Jason Zuckerman was quoted in a Law360 article titled DOL Board Clarifies Scope of Whistleblower Protection regarding the DOL Administrative Review Board’s recent decision in Johnson v. Siemens Building Technologies, Inc.:

Jason Zuckerman, a principal at The Employment Law Group®, who filed an amicus brief on behalf of whistleblower advocacy groups, said that federal courts will likely heed the decision.“Obviously, Congress intended to protect employees of subsidiaries of publicly traded companies,” Zuckerman said. “Tragically, many meritorious claims were dismissed due to strained and overly narrow constructions of the scope of SOX coverage.”The decision represents the current board’s move toward a broader construction of Sarbanes-Oxley, he said.

The ARB held in Johnson that the whistleblower provision of the Sarbanes-Oxley Act (SOX) applies to employees of subsidiaries of publicly-traded companies and Section 929A of the Dodd-Frank Act further clarified that SOX whistleblower protection coverage extends to employees of subsidiaries of publicly-traded companies.

DOL ARB Holds Sarbanes-Oxley Covers Claims by Employees of Subsidiaries of Publicly-traded Companies (employmentlawgroupblog.com)
Whistleblowers Awarded $2.2 Million in Sarbanes-Oxley Case (employmentlawgroupblog.com)
The Employment Law Group® Attorney Quoted in ABA Journal Article on Dodd-Frank Whistleblower Protections (employmentlawgroupblog.com)

Voices for Corporate Responsibility Hosts Whistleblower Seminar on Dodd-Frank Act SEC Whistleblower Reward Provision

April 21, 2011

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Washington, D.C. — Voices for Corporate Responsibility is hosting a Whistleblower Seminar on Tuesday, May 10, 2011 at the Fairmont Hotel. The seminar will include whistleblower attorney Jason Zuckerman as a panellist and will consist of two sessions: Will Internal Compliance Requirements Strengthen or Weaken the Law? and Can the SEC Handle the Whistleblower Law? To register for the event and learn how the proposed SEC rules will affect the implementation of the Dodd-Frank Act, click here.

Law360 Quotes TELG Attorney on In-House Attorney Turned Whistleblowers

April 13, 2011

Ryan Davis wrote an article titled Courts Grapple With In-House Atty Whistleblower Suits in which he discusses how courts have had difficulty deciding a host of thorny issues that arise when in-house attorneys blow the whistle on illegal activity. These issues often include the scope of attorney-client privilege and confidentiality among other issues, but Jason Zuckerman, a principal attorney at The Employment Law Group® law firm, argues that attorneys should be allowed to report illegal or fraudulent activity. He is quoted in the article further expressing his thoughts on these issues:

The claims [by in-house attorneys] can be acrimonious because the attorneys feel they were doing the right thing to get the company to comply with the law, and the company feels betrayed by a trusted adviser, said Jason Zuckerman, principal of The Employment Law Group, which represents whistleblower plaintiffs.

…

In-house counsel who blow the whistle are never eager to do so, said Zuckerman, the plaintiffs lawyer. They feel they have no other choice to expose misconduct at their companies and essentially destroy their careers in the process, he said.

“It’s not easy for in-house counsel to proceed with these suits. It really takes a lot of courage,” Zuckerman said.

Allowing in-house counsel to pursue whistleblower claims would lead to greater exposure of corporate malfeasance, he said, speculating that attorneys at Lehman Brothers and other scandal-ridden companies must have known what was going on but chose to look the other way.

“I think that it is important in certain instances for in-house counsel to draw a line in the sand, and act not only as an officer of the corporation, but also has an officer of the court,” he said. “If they put themselves on the line and get their head chopped off, it’s important that they can bring a claim.”

The Employment Law Group Attorney Quoted in Law360 Article on DOL ARB Decision Broadening the Scope of Coverage under SOX(employmentlawgroupblog.com)
Fiscal Times Quotes TELG Attorney About Dodd-Frank Whistleblower Provisions (employmentlawgroupblog.com)
Banker & Tradesmen Quotes TELG Attorney on SOX Ruling in Pezza(employmentlawgroupblog.com)

Banker & Tradesmen Quotes TELG Attorney on SOX Ruling in Pezza

April 12, 2011

Laura Schreier wrote an article in Banker & Tradesmen titled Dodd-Frank Weighs Heavily on Mass. Whistleblower Case in which she discusses the recent U.S. District Court ruling in Pezza v. Investors Capital Corp. that Section 922(e) of the Dodd-Frank Act applies to pending cases. Section 922(e) bans pre-dispute agreements in employment contracts that require Sarbanes-Oxley whistleblowers to settle disputes with their employer in arbitration instead of federal court. The article quoted Jason Zuckerman, a principal attorney at The Employment Law Group® law firm:

[Zuckerman] said such cases belong in the public spotlight – indeed, having a courtroom trial is precisely the point of blowing the whistle in the first place.These people take action because they want underhanded deeds brought to light in a public court – an outcome denied by arbitration, Zuckerman said. Dodd-Frank’s new rules essentially correct an oversight from the post-Enron Sarbanes-Oxley Act, where whistleblowers gained protections but were not explicitly protected from signing employment contracts that included arbitration requirements.Dodd-Frank also allows for a reward for whistleblowers who bring their concerns to the SEC, something the American Bankers Association has vigorously opposed.…Zuckerman, for his part, applauds the idea.By providing a significant reward, he said, it is hoped more employees will do the right thing and reveal bad practices.

“From my perspective, one has to ask, where were all those people at the large financial institutions who knew about the significant corporate wrongdoing in the financial industry and the housing industry, and didn’t speak up about it?” he asked.If they had an incentive to come forward, he said, it’s possible that many of the glaring financial problems building in the economy would have come to light before they imploded.

IRS Awards Whistleblower $4.5 Million

April 08, 2011

The IRS Whistleblower Office paid a $4.5 million reward under its new Whistleblower Reward Program to an unidentified accountant who discovered a tax liability greater than $20 million at a Fortune 500 financial services firm. The firm had declined to report the tax liability to the IRS after it was discovered. The whistleblower came forward with information and reported the tax liability to the IRS, resulting in a large reward. In 2006, Congress passed legislation implementing the new IRS Whistleblower Reward Program where individuals who expose tax fraud can receive an award ranging from 15% to 30% of the proceeds recovered by the IRS.

The Employment Law Group® Attorney Quoted in Law360 Article on DOL ARB Decision Broadening the Scope of Coverage under SOX

April 07, 2011

Jason Zuckerman, a principal at The Employment Law Group®, who filed an amicus brief on behalf of whistleblower advocacy groups, said that federal courts will likely heed the decision.“Obviously, Congress intended to protect employees of subsidiaries of publicly traded companies,” Zuckerman said. “Tragically, many meritorious claims were dismissed due to strained and overly narrow constructions of the scope of SOX coverage.”The decision represents the current board’s move toward a broader construction of Sarbanes-Oxley, he said.

DOL ARB Holds Sarbanes-Oxley Covers Claims by Employees of Subsidiaries of Publicly-traded Companies

April 01, 2011

Agreeing with arguments posed by The Employment Law Group® attorneys, the DOL Administrative Review Board (ARB) held that an amendment to the Sarbanes-Oxley Act (SOX) in Section 929A of the Dodd-Frank Act, which provides that Section 806 applies to employees of subsidiaries of publicly-traded companies, was a clarification of existing law and therefore “is not typically subject to a presumption against retroactivity and is applied in all cases pending on the date of enactment.”

The ARB had requested parties and amici curiae in Johnson v. Siemens Building Technologies, Inc. to supplement their briefs by addressing what effect, if any, Section 929A had in whistleblower Carri Johnson’s case. On August 13, 2010, The Employment Law Group® attorneys filed an amicus curiae brief on behalf of the Government Accountability Project, National Employment Lawyers Association, and National Whistleblowers Center arguing that Section 929A of the Dodd-Frank Act clarifies and confirms existing law on the scope of coverage under SOX, and therefore should be applied to pending cases. A copy of the brief is available here. The ARB agreed in its opinion here that clarifications of existing law apply to pending cases, stating:

Courts examine several factors in determining whether an intervening statutory provision clarifies preexisting law rather than substantively changes it, including: [1] whether the enacting body declared that it was clarifying a prior enactment; [2] whether a conflict or ambiguity existed prior to the amendment; and [3] whether the amendment is consistent with a reasonable interpretation of the prior enactment and its legislative history (quotations and citations omitted).

The ARB found that while Congress did not expressly indicate it intended to clarify Section 806, language in Section 806 such as the subsidiary coverage provision was “far from settled law” and Section 929A of the Dodd-Frank Act is a reasonable interpretation of Section 806. Accordingly, the court ruled that Section 929A applies to pending cases:

We conclude that Section 929A is a clarification of Section 806 and does not create retroactive effects. Section 929A’s addition of subsidiary coverage merely makes “what was intended all along ever more unmistakably clear.” United States v. Montgomery Cnty., 761 F.2d 998, 1003 (4th Cir. 1985). Because the amendment by Section 929A does not create retroactive effects, it applies to Johnson’s case on appeal. Accordingly, we hold that, at a minimum, the SOX whistleblower provision covers a subsidiary whose financial information is included in a publicly traded parent company’s consolidated financial statements. The record suggests that SBT is a consolidated entity of Siemens AG, but we do not find the record before us to conclusively establish that fact. The ALJ and parties on remand can address SBT’s status as a consolidated entity in accordance with this order and, if so, determine the issue of liability under the facts presented at hearing.

Federal Court Rules SOX Whistleblower Amendment’s Ban on Predispute Arbitration Agreements Retroactive

March 24, 2011

In Pezza v. Investors Capital Corp., Judge Douglas P. Woodlock of the United States District Court for the District of Massachusetts ruled that Section 922(e) of the Dodd-Frank Act, which bans predispute arbitration agreements regarding the Sarbanes-Oxley Act (SOX) whistleblower protection, is retroactive. The statutory language is as follows:

(e)NONENFORCEABILITY OF CERTAIN PROVISIONS WAIVING RIGHTS AND REMEDIES OR REQUIRING ARBITRATION OF DISPUTES – –

(1) WAIVER OF RIGHTS AND REMEDIES.–The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.

(2) PREDISPUTE ARBITRATION AGREEMENTS.–No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.

The defendants raised the obligation to arbitrate as an affirmative defense and moved to compel arbitration. While the defendant’s motion to compel arbitration was under advisement, the Dodd-Frank Act was enacted, raising the issue of whether the ban on predispute arbitration agreements applies to disputes occurring prior to the law’s enactment. The court applied the following framework from the Supreme Court’s decision in Fernandez-Vargas v. Gonzales, 548 U.S. 30, 37-38 (2006) to this case:

We first look to whether Congress has expressly prescribed the statute’s proper reach, and in the absence of language as helpful as that we try to draw a comparably firm conclusion about the temporal reach specifically intended by applying our normal rules of construction. If that effort fails, we ask whether applying the statute to the person objecting would have a retroactive consequence in the disfavored sense of affecting substantive rights, liabilities, or duties on the basis of conduct arising before its enactment. If the answer is yes, we then apply the presumption against retroactivity by construing the statute as inapplicable to the event or act in question owing to the absence of a clear indication from Congress that it intended such a result.

In applying this framework, the court concluded that congressional intent regarding the temporal reach of the ban was at best unclear. However, since the ban merely confers jurisdiction and does not affect the parties’ substantive rights, the court held the ban applies to conduct arising prior to its enactment:

The rationale is that this type of statute “takes away no substantive right but simply changes the tribunal that is to hear the case.” In other words, present law governs in such a case because statutes conferring or ousting jurisdiction “speak to the power of the court rather than to the rights or obligations of the parties.”

While Section 922 affects the validity of the arbitration clause, a contractual term agreed upon by the parties, I am of the view that this section principally concerns the type of jurisdictional statute envisioned in Landgraf. As the Supreme Court held, “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.”

(citations omitted).

Based on that rationale, the court quashed defendants’ motion to compel arbitration and allowed plaintiff’s SOX whistleblower lawsuit to proceed in federal court – a win for employee rights.

IRS Rewards Enron Whistleblower $1.1 Million

March 18, 2011

The Washington Post reported that the IRS awarded $1.1 million to the anonymous whistleblower who reported Enron for bilking the government out of over $200 million in tax revenue before its collapse in 2001. The whistleblower showed the IRS how Wall Street banks, using business arrangements and entities, provided tax shelters for $600 million of Enron’s income and fraudulently boosted Enron’s earnings by over $300 million. The whistleblower was employed at a Wall Street investment bank while he educated the IRS on those fraudulent tax shelters. In 2006, Congress passed legislation implementing the new IRS Whistleblower Reward Program where individuals who expose tax fraud can receive an award ranging from 15% to 30% of the proceeds recovered by the IRS.

Senator Grassley Introduces Bill to Protect Congressional Whistleblowers

March 17, 2011

WASHINGTON - SEPTEMBER 23: Ranking member Sen... — Image by Getty Images via @daylife

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.

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