Whistleblower Law Blog

Dodd-Frank Bill Provides Robust Whistleblower Protections

July 15, 2010

Recognizing that robust whistleblower protection is critical to preventing another financial crisis, Congress included in the Dodd-Frank financial services reform bill (H.R. 4173) numerous provisions designed to encourage whistleblowing and to provide robust protection from retaliation.  These provisions create monetary awards for whistleblowers who provide original information to the SEC or CFTC, strengthen the whistleblower protection provisions of the Sarbanes-Oxley Act and the False Claims Act, and create additional whistleblower retaliation causes of action.

Reward for Whistleblowing to the SEC and Prohibition Against Retaliation

Under Section 922, the SEC will be required to pay a reward to individuals who provide original information to the SEC which results in monetary sanctions exceeding $1 million.  The award will range from 10 to 30 percent of the amount recouped and the amount of the award shall be at the discretion of the SEC.   Factors to be considered in determining the amount of the award include the significance of the information provided by the whistleblower, the degree of assistance provided by the whistleblower, the programmatic interest of the SEC in deterring violations of the securities laws by making awards to whistleblowers, and other factors that the SEC may establish by rule or regulation.  If the amount awarded is less than 10 percent or more than 30 percent of the amount recouped, a whistleblower may appeal the SEC’s determination by filing an appeal in the appropriate federal court of appeals within 30 days of the determination.

Section 922 prohibits the SEC from providing an award to a whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower provided information; who gains the information by auditing financial statements as required under the securities laws; who fails to submit information to the SEC as required by an SEC rule; or who is an employee of the DOJ or an appropriate regulatory agency, an SRO, the PCAOB or a law enforcement organization.

Section 922 creates a new private right of action for employees who have suffered retaliation “because of any lawful act done by the whistleblower– ‘(i) in providing information to the Commission in accordance with [the whistleblower incentive section]; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002,’” the Securities Exchange Act of 1934, and “‘any other law, rule, or regulation subject to the jurisdiction of the [SEC].’”  The action may be brought in federal court and remedies include reinstatement, double back pay with interest, as well as litigation costs, expert witness fees, and reasonable attorney’s fees.

New Whistleblower Protection for Financial Services Employees

Section 1057 creates a robust private right of action for employees in the financial services industry who suffer retaliation for disclosing information about fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service.  The scope of coverage is quite 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.

Section 1057 prohibits retaliation against an employee who has engaged in any of the following protected acts:

• Provided, caused to be provided, or is about to provide or cause to be provided, to an employer, the newly created Bureau of Consumer Financial Protection (Bureau), or any other government authority or law enforcement agency, information that the employee reasonably believes relates to any violation of any provision of Title X of the bill, which establishes new consumer financial protections, or any rule, order, standard or prohibition prescribed or enforced by the Bureau;
• Testified or will testify in a proceeding resulting from the administration or enforcement of any provision of Title X;
• Filed, instituted, or caused to be filed or instituted any proceeding under any federal consumer financial law; or
• Objected to, or refused to participate in any activity, practice, or assigned task that the employee reasonably believes to be a violation of any law, rule, standard, or prohibition subject to the jurisdiction of, or enforceable, by the Bureau.

Remedies include reinstatement, backpay, compensatory damages, and attorney’s fees and litigation costs, including expert witness fees.  Where reinstatement is unavailable or impractical, front pay may be awarded.

Section 1057 employs a burden-shifting framework that is favorable to employees.  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.  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.

The procedures governing Section 1057 claims are substantially similar to those governing retaliation claims brought under the Consumer Product Safety Improvement Act of 2008, 15 U.S.C. § 2087.  The statute of limitations is 180 days and the claim must be filed initially with the Occupational Safety Health Administration (OSHA), which will investigate the complaint and can order preliminary reinstatement.  Once OSHA issues its findings, either party can request a hearing before a Department of Labor (DOL) administrative law judge.  If the DOL has not issued a final order within 210 days of the filing of the complaint, the complainant has the option to remove the claim to federal court and either party can request a trial by jury.  Section 1057 claims are exempt from mandatory arbitration agreements.

Reward for Whistleblowing to the CFTC

Section 748 amends the Commodity Exchange Act, 7 U.S.C. § 1 et seq., to create a whistleblower incentive program and whistleblower protections similar to those in section 922, including a new private right of action.  One notable difference between sections 748 and 922 is the ability of a commodity whistleblower to appeal any determination regarding an award made by the Commodity Futures Trading Commission (CFTC) within 30 days.  Protected conduct under section 748 includes providing information to the CFTC in accordance with the whistleblower incentive provision and “assisting in any investigation or judicial or administrative action of the [CFTC] based upon or related to such information.”

Strengthening Sarbanes-Oxley’s Whistleblower Protection Provision

Sections 922 and 929A contain important amendments to the Sarbanes-Oxley act (SOX) that broaden the scope of coverage, increase the statute of limitations, exempt SOX whistleblower claims from mandatory arbitration, and clarify that SOX claims removed to federal court can be tried before a jury.

Section 929A clarifies that the whistleblower protection provision of the Sarbanes-Oxley Act (SOX), 18 U.S.C. § 1514A, applies to employees of subsidiaries of publicly-traded companies “whose financial information is included in the consolidated financial statements of [a publicly] traded company.”  This amendment eliminates a significant loophole that some courts have read into SOX that has substantially narrowed the scope of SOX coverage.  Elevating form over substance, some judges have permitted publicly-traded companies to avoid liability under SOX merely because the parent company that files reports with the SEC has few, if any, direct employees, and instead employs most of its workforce through non-publicly traded subsidiaries.

As Judge Levin pointed in Morefield v. Exelon Servs., Inc., ALJ No. 2004-SOX-002 (ALJ Jan. 28, 2004), this loophole is contrary to the purpose of SOX in that “[a] publicly traded corporation is, for Sarbanes-Oxley purposes, the sum of its constituent units; and Congress insisted upon accuracy and integrity in financial reporting at all levels of the corporate structure, including the non-publicly traded subsidiaries . . . [Congress] imposed reforms upon the publicly traded company, and through it, to its entire corporate organization.”  Section 922(b) further expands the coverage of section 806 of SOX to include employees of nationally recognized statistical ratings organizations (NRSROs), including A.M. Best Company, Inc., Moody’s Investors Service, Inc., and Standard & Poor’s Ratings Service.

Section 922(c) increases the statute of limitations for SOX whistleblower claims from 90 to 180 days and clarifies that SOX retaliation plaintiffs can elect to try their cases in federal court before a jury.  In addition, section 922(c) declares void any “agreement, policy form, or condition of employment, including a predispute arbitration agreement” which waives the rights and remedies afforded to SOX whistleblowers.

Strengthening the False Claims Act’s Whistleblower Protection Provision

Section 1079B amends the anti-retaliation provision of the False Claims Act, 31 U.S.C. § 3730(h), by expanding the definition of protected conduct to include “lawful acts done by the employee, contractor, or agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of [the False Claims Act],” thereby protecting against associational discrimination and covering a broad range of activities that could further a potential qui tam action or could stop a violation of the FCA.  Section 1079B clarifies that the statute of limitations for actions brought under section 3730(h) is three years, which brings much-needed clarity in the wake of the Supreme Court’s decision in Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 545 U.S. 409 (2005) holding that the most closely analogous state statute of limitations applies to FCA retaliation claims.

A copy of the whistleblower provisions of the bill is available for download here.

For information about The Employment Law Group® law firm’s Whistleblower Retaliation Practice, click here.

New Legislation Drafted to Increase Mine Safety Following Death of 29 Miners at Upper Big Branch Mine

July 12, 2010

On June 29, 2010, a discussion draft of new federal legislation to increase mine safety was released.  The legislation, introduced by Senators Harkin, Murray, and Rockefeller is intended to “improve compliance with mine and occupational safety and health laws, empower workers to raise safety concerns, prevent future mine and other workplace tragedies, [and] establish rights of families and victims of workplace accidents . . .”

The bill, entitled the Miner Safety and Health Act of 2010, contains two whistleblower provisions.  The first provision prohibits an employer from retaliating against “any miner, or other employee of an operator, representative of miners, or applicant for employment,” who files a complaint with the employer, employer’s agent, representative of the miner, or government agency.  Individuals are also protected if they participate in an investigation or refuse to violate the law or perform duties which are reasonably believed to pose a safety or health hazard.  Relief available to aggrieved employees includes reinstatement with back pay, expungement of any derogatory references, compensatory damages, attorney’s fees, and “exemplary damages where appropriate.” 

The second whistleblower provision in the bill would amend the Occupational Safety and Health Act, 29 U.S.C. 660(c)(1), to protect employees who refuse to perform their duties due to a “reasonable apprehension that performing such duties would result in serious injury to, or serious impairment of the health of, the employee or other employees.”  Remedies available to employees would be the same as under the first provision. 

Notably, the bill would also open the possibility of criminal penalties for knowing retaliation against workers who raise safety concerns and require employees to undergo one hour annually of “miner’s rights training.” 

The official summary of the bill is available here, and the discussion draft is available here.

The employment lawyers at The Employment Law Group® law firm have substantial experience representing whistleblowers.  To learn more about the firm’s Whistleblower Retaliation Practice, click here.

Northrop Grumman Agrees to Settle FCA Allegations for $12.5 Million

July 06, 2010

On June 23, 2010, the FBI’s Los Angeles office announced that Northrop Grumman paid $12.5 million to settle allegations that it knowingly submitted false claims to several government agencies.  Northrop Grumman allegedly supplied the government with untested commercial-grade electrical components which were used in military and space applications.  The components should have been tested to ensure that they would withstand the extreme temperatures inherent to military and space systems.  Allen Davis, a former quality assurance manager, filed the qui tam action in May of 2006 and will receive $2,375,000.

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, the False Claims Act provides an award of up to 30 percent of the government’s recovery.  The False Claims Act also prohibits employers from retaliating against whistleblowers.

The whistleblower lawyers at The Employment Law Group® law firm have experience protecting whistleblowers and litigating qui tam actions brought under the False Claims Act.  For more information about TELG’s False Claims Act Practice, click here.

Delta Subsidiary Ordered to Pay Ramp Agent $67,000 for AIR21 Violations

July 01, 2010

On June 25, 2010, the Department of Labor ordered DAL Global Services, a wholly owned subsidiary of Delta Air Lines, to pay ramp agent Steven Gray over $67,000 after he was fired in retaliation for reporting numerous safety complaints.  The damages include three years of front pay.

The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, also known as AIR21, protects employees who expose air carrier safety violations.

SEC Agrees to $755,000 Settlement for Wrongful Discharge

June 29, 2010

The SEC has agreed to pay $755,000 to settle a wrongful discharge claim brought by former employee Gary J. Aguirre.  Aguirre, an attorney at the SEC, headed an investigation of Pequot Capital Management for insider trading.  After urging management at the SEC to issue a subpoena for Wall Street banker John Mack, Aguirre was discharged.  The $755,000 is for four years and ten months of back pay plus attorney’s fees.  Coincidentally, last month the SEC filed charges against Pequot. 

Sarbanes-Oxley Act Withstands Constitutional Challenge

June 29, 2010

On June 28, 2010, the Supreme Court issued an opinion upholding the Sarbanes-Oxley Act in Free Enterprise Fund v. Public Company Accounting Oversight Board.  The Court ruled that in order to maintain a constitutional separation of powers, Securities and Exchange Commission must be allowed remove members of the Public Company Accounting Oversight Board at will.  A copy of the opinion is available here.

The Sarbanes-Oxley Act prohibits employers from retaliating against an employee who reports suspected violations of federal mail, wire, bank, or securities fraud; federal law relating to fraud against shareholders; or any rule or regulation of the Securities and Exchange Commission.  The employment lawyers at The Employment Law Group® law firm have substantial experience representing employees in Sarbanes-Oxley whistleblower proceedings before the Department of Labor and have written numerous articles about the whistleblower provisions of the Sarbanes-Oxley Act.  For more information about TELG’s Sarbanes-Oxley Whistleblower Practice, click here.

UPS Ordered to Pay $111,000 for Retaliating Against Whistleblowing Truck Driver

June 23, 2010

On May 26, 2010, the Department of Labor ordered UPS to pay one of its drivers $111,008 in back wages, benefits, compensatory damages, punitive damages, and attorney’s fees for violations of the whistleblower provision of the Surface Transportation Assistance Act (STAA).  According to OSHA, UPS terminated the driver for refusing to drive a truck and trailer with inoperable lights.  The amount awarded includes $100,000 in punitive damages.

The STAA protects bus drivers, truckers, other employees who blow the whistle about the unsafe operation of commercial motor vehicles.  To learn more about The Employment Law Group® law firm’s Commercial Motor Carrier Whistleblower Practice, click here.

Washington Business Journal Covers TELG Client’s Whistleblower Lawsuit

June 21, 2010

On June 18, 2010, the Washington Business Journal wrote an article discussing the False Claims Act retaliation lawsuit filed by Robert Fagg against his former employer SmithGroup.  The article is titled “Fired SmithGroup engineer files whistle-blower suit.”  Robert, a former vice president in charge of quality-control reviews, raised numerous concerns about serious defects in mechanical designs for the renovation of the Navy hospital at Camp Lejeune, NC.  Just days after meeting with SmithGroup President, Carl Roehling, Robert was laid off with his managing director citing a “complete and mutual lack of trust.”  Robert filed suit for unlawful retaliation in violation of the False Claims Act and breach of contract.

Robert Fagg is represented by employment attorney R. Scott Oswald, Principal at The Employment Law Group® law firm.  For more information about the firm’s Whistleblower Retaliation Practice, click here.

Qui Tam Action Against Software Giant Oracle Unsealed

June 17, 2010

On April 2, 2010, a False Claims Act qui tam action against Oracle Corp. and Oracle USA, Inc. was unsealed in the U.S. District Court for the Eastern District of Virginia.  Oracle entered into Multiple Award Schedule agreements with the GSA.  Under these agreements, the federal government is supposed to receive discounts “equal to or greater than the discount given to the firm’s most favored customer.”  According to the complaint filed by former Oracle employee Paul Frascella, Oracle routinely offered commercial customers deeper discounts and overcharged the government.  The complaint was filed under seal in May of 2007.

The False Claims Act permits an individual to file a qui tam action on behalf of the federal government and provides for an award of up to 30% of the government’s recovery.  The False Claims Act also prohibits an employer from retaliating against an individual who: 1) investigates an FCA action; 2) initiates an FCA action; 3) testifies for an FCA action; or 4) assists in an FCA action.

Medical Device Manufacturer, Hospitals Settle False Claims Act Allegations for $3.8m

June 16, 2010

According to a Department of Justice press release dated June 4, 2010, St. Jude Medical Inc., a heart device manufacturer, Parma Community General Hospital, and Norton Healthcare have settled allegations of an illegal kickback scheme for $3.8 million.  According to the press release, the kickbacks caused false claims to be submitted to federal health care programs in violation of the False Claims Act.  The whistleblower who brought these claims will receive $640,050 for his efforts to reduce waste and fraud.

The whistleblower attorneys at The Employment Law Group® law firm have experience protecting whistleblowers and litigating qui tam actions brought under the False Claims Act.  For more information about the firm’s False Claims Act Practice.