LABOR AND EMPLOYMENT ALERT    July 2010

New Reform Act Expands Whistleblower Liability

On July 21, 2010, President Barack Obama signed the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (“Act”) into law.   The almost 2,400 pages of federal legislation create the hotly debated “Bureau of Consumer Financial Protection” and significantly expand whistleblower liability by:

• Adding new whistleblower rights for direct reports to the Securities and Exchange Commission;
• Adding new whistleblower rights for financial services employees;
• Enhancing provisions for Sarbanes-Oxley whistleblowers; and
• Enhancing provisions for the anti-retaliation provisions of the False Claims Act.

The Act creates two new whistleblower frameworks, providing the federal government a new scope of claims.  It also enhances existing whistleblower and anti-retaliation provisions in the Sarbanes-Oxley Act (“SOX”) and the False Claims Act (“FCA”).   

1. New Whistleblower Provisions for Direct Reports to SEC and CFTC

Section 922 of Title IX of the Act contains a monetary incentive for individuals to make whistleblower reports to the SEC and the Commodity Futures Trading Commission (“CFTC”).  Individuals who provide original information to these Commissions that results in monetary sanctions in excess of $1 million in civil or criminal proceedings will receive a reward.  “Original information” is derived from the independent knowledge or analysis of the whistleblower, is not known to the SEC/CFTC from any other source, and is not exclusively derived from an allegation in an administrative hearing, governmental report, hearing, audit or investigation or from the news media. 

The reward can range from 10 to 30 percent of the amount recouped by the SEC/CFTC and is determined in the respective Commission’s discretion, subject to judicial review if the amount is not within the statutory range.  Factors considered in determining the amount of the reward include the significance of the information provided, the degree of assistance provided, the programmatic interest of the Commission in deterring violations and other factors each Commission may establish. 

In contrast to qui tam actions under the FCA, the Act does not provide a private cause of action to whistleblowers to prosecute securities fraud or other SEC violations.     Section 922 provides, however, a private right of action for employees or other individuals who have suffered retaliation due to lawful whistleblower acts, including providing information to the SEC, initiating or otherwise participating in investigations or judicial or administrative actions of the SEC, or making disclosures required or protected under SOX, the Securities Exchange Act of 1934 or any other law, rule or regulation in the SEC’s jurisdiction. 

The private right of action is not limited to employees, extending to claims by any individual claiming to have been threatened, harassed or subjected to discrimination because of protected activity.  Unlike SOX actions, these private actions may be asserted directly in federal court and remedies may include reinstatement, double back pay with interest, litigation costs, expert witness fees and reasonable attorneys’ fees.  The statute of limitations for such actions is six years after the date on which the retaliation occurred or three years after the date on which the facts material to the right of action are known or reasonably should be known to the employee.  There is no administrative exhaustion requirement to bringing such an action in federal court.

2. New Whistleblower Provisions for Financial Services Employees

The Act also contains dedicated whistleblower protection for financial services employees who disclose information about fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service.  Section 1057 of the Act prohibits retaliation against a covered employee who:

• provides, causes to be provided, or is a about to provide or cause to be provided, to an employer, the newly-created Bureau of Consumer Financial Protection or any other state, local or federal government authority or law enforcement agency, information the employee reasonably believes to be a violation of the Consumer Fraud Protection Act of 2010 (Title X of the Act) or any other provision of law subject to the jurisdiction of the Bureau or any rule, order, standard or prohibition prescribed by the Bureau;
• testifies in any proceeding regarding the same; or
• files, institutes or causes to be filed, any proceeding under any federal consumer financial law.

Employees who believe they have been retaliated against for engaging in protected activity under Section 1057 must file a complaint with the Secretary of Labor within 180 days of the alleged retaliation.  In order to establish a prima facie case under Section 1057, an employee need demonstrate only that the protected activity was a contributing factor in the adverse action.  The employer must then demonstrate by clear and convincing evidence that it would have taken the same action absent the protected activity.  The parties can appeal the Department’s findings to the Office of Administrative Law Judges.  In the event the Department fails to issue a final order within 210 days of the filing of the complaint, the complainant can bring a claim in federal court for de novo review and either party may request a trial by jury.

Significantly, claims under Section 1057 are exempt from arbitration agreements.     

3. Enhanced SOX Whistleblower Provisions

The Act contains significant amendments to the SOX whistleblower provisions, which will likely have a dramatic affect on the handling and defense of these cases.  In general, the amendments either undo prior favorable provisions or contradict prior, employer-friendly, interpretations of key SOX provisions. 

Under the amendments, the SOX statute of limitations period is doubled from 90 days to 180 days, which will likely open the door to additional claimants.  The amendments clarify that SOX litigants are entitled to a jury trial, an issue left unresolved by prior SOX jurisprudence and one that may have prompted SOX litigants to resolve their claims by way of the OSHA administrative agency process rather than seeking entry to federal court.

The Act’s amendments further clarify that subsidiaries and affiliates of publicly traded companies are subject to SOX if the financial information of the subsidiary or affiliate is included in the consolidated financial statements of the public company.   Finally, pre-dispute arbitration agreements are no longer enforceable under SOX, nor may any agreement waive the rights and remedies under SOX. 

4. Enhanced Anti-Retaliation Provisions to the False Claims Act

The Act amends the FCA’s anti-retaliation provisions by expanding the definition of what is deemed “protected conduct” and by clarifying a three-year statute of limitations period.   The 1986 Amendments to the FCA provide remedies for persons wrongfully discharged or otherwise discriminated against in their employment because of lawful acts done in furtherance of an FCA action.  Section 1079B of the Act amends these anti-retaliation provisions by expanding “protected conduct” to include “lawful acts done by the employee… in furtherance of an action under this section….”  In so doing, the FCA’s protective anti-retaliation provisions extend to individuals who take action pursuant to the Act’s consumer protection efforts. 

Case Law Update: Pharmaceutical Sales Representatives are not exempt from FLSA Overtime Requirements

The Second Circuit Court of Appeals reversed the lower court’s holding that pharmaceutical sales representatives were exempt from overtime wages under FLSA.  In re Novartis Wage and Hour Litigation, Case No. 09-0437-cv (2d Cir. 2010).  The Court of Appeals found that the pharmaceutical sales representatives whose primary job responsibilities included traveling to various physicians’ offices to encourage the use of prescriptions of their employer’s products were not considered outside salesmen. Likewise, the pharmaceutical sales representatives failed to meet the requirements of the administrative exemption because their job requirements did not allow for significant discretion or use of independent judgment in matters of significance to their employer. In making its determination that these plaintiffs were not exempt from FLSA overtime requirements, the Court of Appeals granted “controlling” deference to the Department of Labor Secretary’s interpretations.

The full text of the opinion is available by accessing the following link: In re Novartis Wage and Hour Litigation

“Silent Raids” Sweep Illegal Workers from Jobs

In a speech earlier this month, President Obama explained a shift in the country’s immigration policy.  The President promised tough enforcement against illegal immigration, in workplaces and at the border, saying it would prepare the way for a legislative overhaul to give legal status to millions of illegal immigrants already in the country.  In another shift, the Obama administration has replaced immigration raids at factories and farms with a much quieter enforcement strategy:  sending federal agents to scour companies’ records for illegal immigrant workers.  The silent raids usually result in the workers being fired, but in many cases they are not deported.   The immigration agency has moved away from bringing criminal charges against immigrant workers who lack legal status but have otherwise clean records. 

The head of the Immigration and Customs Enforcement agency commented that the goal of the audits is to create “a culture of compliance” among employers so that verifying new hires would be as routine as paying taxes.  The agency leaves it up to employers to fire workers whose documents cannot be validated, and the risk of prosecution lies with the employer who fails to do so.  The agency is now turning its focus on egregious employers who commit both labor abuses as well as immigration violations.

Over the past year, the agency has conducted audits of employee files at more than 2,900 companies and has levied a record $3,000,000 in civil fines on businesses that hired unauthorized immigrants.

Case Law Update: Eleventh Circuit Weighs In on Office Politics

The Eleventh Circuit’s opinion in Randall v. Scott (Case No. 09-12862), issued June 30, 2010, is a comprehensive attempt to address the pleading requirements of a Section 1983, First Amendment claim related to a discharged, office-seeking employee; discuss the merits of the case on its face; and determine the applicability of qualified immunity to the plaintiff’s supervisor.  Plaintiff Earl Randall was a senior level investigator in the office of Defendant District Attorney Jewell Scott.  Randall had political aspirations in the form of Chairman of the Clayton County (Georgia) Board of Commissioners.  According to his allegations, initially when Randall informed Scott of his intention to run for office, Scott had no objection because Scott did not want her husband to run for that office.  However, the initial approval of Randall’s aspirations dissolved when Scott’s husband decided he wouldrun for the same Chairman position and allegedly resulted in Randall’s termination.

In a detailed discussion, reversing the dismissal of Randall’s Complaint, the Eleventh Circuit eliminated the heightened pleading standard it created for 1983 claims, stating it could not maintain this standard based on the Supreme Court’s decision in Iqbal.  While not specifically addressing a First Amendment claim, the Court stated Iqbal was sufficiently similar in dealing with a claim of a deprivation of constitutional rights to eliminate a heightened requirement for pleading other than as is specifically stated in Fed. R. Civ. P. 9. 

In assessing the Complaint using a non-heightened standard, the Court also determined the dismissal was improper.  Randall’s ability to run for office was entitled to some protection based on the allegations in the Complaint because there is very limited or no state interest in a supervisor’s spouse running for the same office and, therefore, Randall’s Complaint could not be dismissed for failure to state a violation of his First Amendment rights.  However, because Randall’s constitutional rights were not clearly established, there was no means to show Scott intentionally acted to deprive him of that right and Scott was entitled to qualified immunity.
The full text of the opinion is available by accessing the following link: Randall v. Scott

Case Law Update: Third District Court of Appeal Reaffirms in Separate Cases That Isolated Misconduct Does Not Disqualify Employee from Unemployment Benefits

In two separate cases, the Third District Court of Appeal reversed decisions of the Florida Unemployment Appeals Commission denying benefits to claimants based on “misconduct connected with the work.”  In both instances, the agency had determined that the former employees’ actions met the statutory standards for disqualification from unemployment benefits, relieving the employers of their payment burden.  On appeal, the Third District reiterated the standard that “the mere exercise of poor judgment does not amount to misconduct sufficient to support the denial of unemployment compensation benefits.”

In Godoy v. Florida Unemployment Appeals Commission and Autotronic Auto Service Inc., Case Number 3D09-196, the employee was an automotive repairs technician who was fired for failing to contact his work when he took off several days without permission, ostensibly to be with his pregnant wife.  Despite recent Florida Supreme Court precedent which held that unauthorized absences from work could constitute “misconduct connected with work” and disqualify a claimant, the Third District held that this was an isolated incident of poor judgment, and not enough to meet the standards for denial.

In Hernandez v. American General Finance and Florida Unemployment Appeals Commission, Case Number 3D09-3326, an employee processed a loan for a borrower, intended to benefit a third party.  Later, the third party came directly to the employee to increase the amount of the loan, and the employee did so without verifying that the borrower had agreed to the increase.  Upon discovery of the error, the employee was discharged.  The Third District again held that this isolated occurrence did not justify the denial of benefits, particularly where the claimant had been employed for fourteen years without prior incident

PAST ISSUES OF SLF LABOR AND EMPLOYMENT ALERT

You may view past issues of the SLF Labor and Employment Alert on the “Publications” page. Links to the 2006, 2007, 2008 adn 2009 Archives are provided below for your convenience.