1 Whistleblower & Retaliation Law Update Todd D. Wozniak, Esq.
2 Recent Trends in Claims More Statutes are Including Whistleblower and/or Retaliation Provisions, e.g., Dodd-Frank, Health Care Reform Result: More whistleblower & retaliation claims Innovative Schemes to Incentive Whistleblowers E.g., Dodd-Frank s financial bounty provisions More Claims Being Filed in Court Because New Laws Prohibit Arbitration of Claims
3 Recent Trends in Claims Retaliation claims are the most common individual charge filed with EEOC 38.1% of all individual charges From 1997 to 2012, EEOC charges up by 23% Retaliation charges up by 108% Monetary benefits increased by over $100 million 33% increase in 2007, the year after Burlington Northern
4 Recent Trends in Claims Reasons for Growth in Retaliation Claims More statutes are creating protections against retaliation. The Supreme Court has also read retaliation protections into statutes that do not, on their face, have them (i.e., 42 U.S.C. 1981) Under applicable standards, retaliation claims are often easier to establish than the underlying substantive claim (discrimination, failure to pay overtime, etc.) Recent Supreme Court rulings have broadly expanded the types of protected activities and adverse actions that may serve as the basis for a retaliation claim
5 New Laws DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES
6 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ( Dodd-Frank ) Highlights: New whistleblower and retaliation protections and financial bounty program -- expands whistleblower incentives to cover all securities law violations, not just frauds perpetrated against the government Extends Sarbanes-Oxley ( SOX ) whistleblower protections
7 DODD-FRANK WHISTEBLOWER PROVISION AND SEC S CLARIFYING RULES
8 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES Section 922: Allows SEC in any action involving sanctions of at least $1 million to compensate whistleblowers in an amount ranging from 10% to 30% of the sanctions Consider the recent case brought by the SEC against Goldman Sachs that resulted in a $550 million settlement: If initiated by a whistleblower, would have collected between $55 million and $165 million Incentivized yet?
9 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES On May 25, 2011, the SEC approved its final rules (the Whistleblower Rules ) implementing the whistleblower protections of Section 21F of the Securities and Exchange Act (added by Dodd-Frank sec. 922) The SEC s Office of the Whistleblower opened on August 12, 2011
10 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES Under SEC rules, award is available to: Whistleblower; who voluntarily provides SEC; with original information; that leads to successful enforcement action (or related action) by SEC that results in monetary sanctions of more than $1 million arising out of same core facts.
11 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES Whistleblower - Someone who, alone or jointly with others, provides the Commission with information [that] relates to a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur. Information Must be Voluntarily Submitted Must be provided before a request, inquiry or demand is directed to the whistleblower by the Commission or other specified regulatory body. Original information information based on whistleblower s independent knowledge or analysis, and that is not already known to the Commission to the Commission or derived exclusively from allegations made in hearings, reports, investigations, or from the media.
12 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES Must lead to a successful enforcement action (3 ways to do this): Information causes the staff to commence or open an investigation that is ultimately successful Information leads staff to reopen an investigation or approach a current investigation from a different angle, and the investigation is ultimately successful Investigation is already underway, but the information significantly contributes to the success of the action
13 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES The Whistleblower Rules delineate several factors that may increase or decrease the whistleblower s reward. Multiple cases arising out of same nucleus of operative facts, as well as related actions, may be aggregated for purposes of determining Certain individuals are excluded from receiving awards under the Whistleblower Rules
14 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES Retaliation Section 922 creates new private right of action for retaliation Statute of limitations of 6 years from date of violation or 3 years after employee should reasonably have known of violation, but in any event no longer than 10 years after date of violation Damages may include double back-pay (plus reinstatement, attorneys fees litigation costs, and expert witness fees)
15 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES Retaliation Section 929A extends SOX whistleblower protections Clarifies jury trial right Statute of limitations extended from 90 to 180 days Prohibits pre-dispute arbitration agreements Expands coverage to subsidiaries, affiliates, and statistical rating organizations
16 DODD-FRANK WHISTEBLOWER PROVISIONS AND SEC S CLARIFYING RULES Effect on Internal Compliance SEC rules do not require employees to report possible violations of law through internal compliance processes as a prerequisite to eligibility under the bounty program Rules include incentives for whistleblowers to report internally Now after all the hard work that compliance and legal advisors did to set up effective internal fraud monitors under SOX, whistleblowers can score millions in awards by simply bypassing internal reporting options and going straight to the SEC
17 New Laws Health Care Reform s Expanded Retaliation Protections
18 Health Care Reform s Expanded Retaliation Protections The Patient Protection and Affordable Care Act of 2009 (the PPACA or Health Care Reform ) was signed by President Obama in March 2010
19 Health Care Reform s Expanded Retaliation Protections Section 1558: Creates New Private Right of Action For Whistleblower Retaliation Amends the FLSA to prohibit retaliation against an employee who provides, or is about to provide, to any employer, the Federal Government, or a State Attorney General, information that the employee reasonably believes to be a violation of Title I of the PPACA (which covers a broad range of topics) Further prohibits retaliation against employees who participate in an investigation or proceeding regarding a Title I violation, or refuse to participate in any activity they reasonably believe to be a Title I violation
20 Health Care Reform s Expanded Retaliation Protections Incorporates procedures, burden of proof, and remedies set forth in the Consumer Product Safety Improvement Act of 2008 Employee required to initially file complaint with OSHA within 180 days of becoming aware of adverse action Employee may prevail by showing by a preponderance of the evidence that her protected activity was a contributing factor to the adverse action Employer can avoid liability by proving by clear and convincing evidence that it would have taken the same action regardless of the employee s protected conduct Employer has more difficult standard
21 Cont d Health Care Reform s Expanded Retaliation Protections May remove claim to federal court 210 days after filing complaint, or within 90 days after receiving a written determination from OSHA. Either party may request a trial by jury Mandatory arbitration agreements are inapplicable Remedies may include reinstatement (or front pay in lieu of reinstatement); back pay; damages for pain and suffering, mental anguish and career damage; attorney s fees; expert witness fees; and litigation costs
22 Health Care Reform s Expanded Retaliation Protections Other Notable Provisions Section 6703(b)(3): Adds certain reporting requirements to long-term care facilities designed to prevent elder abuse and prohibits retaliation against employees because of lawful acts done by the employee. Section 6105: Mandates implementation of a complaint resolution process for nursing homes, including assurance that complainants are not subjected to retaliation Section 10104(j): Broadens the original source exception to the public disclosure bar under the False Claims Act
23 Same Law, New Interpretation Conduct Constituting Retaliation
24 Conduct Constituting Retaliation Retaliation What is it? Generally Anti-retaliation provision is part of statutory scheme Protect employees who engage in activity in furtherance of the statutory scheme Free employees to engage in the activity without fear of reprisal from employer Basic Elements Employee engages in protected activity; Employee suffers material adverse action; Material adverse action is causally related to protected activity.
25 Conduct Constituting Retaliation Recent Supreme Court Cases Burlington Northern v. White (2006) (Title VII) Issue: What is Adverse Action? Holding: Any material adversity (not just ultimate employment decisions) Any action that might dissuade a reasonable worker from making or supporting a complaint Not confined to employer activity that is related to employment or that occurs in the workplace Practical consequence: What isn t adverse action?
26 Conduct Constituting Retaliation Recent Supreme Court Cases Crawford v. Metropolitan Gov t of Nashville (2009) (Title VII) Issue: What is protected activity? Holding: Opposition to any unlawful employment practice means not just the employee making initial complaint, but others who also complain during the course of any investigation Practical consequence: How far from investigation and in what medium can opposition take place?
27 Conduct Constituting Retaliation Recent Supreme Court Cases Thompson v. North American Stainless (2011)(Title VII) Issue: Who is protected? Co-workers of those engaged in protected activity? Holding: Fiancé of employee who complained of discrimination was held protected from adverse action/retaliation Practical consequence: Before taking adverse action, employer must now consider employee s relationship to others who may have engaged in protected activity
28 Conduct Constituting Retaliation Understanding and Recognizing Protected Activity Complaints Other Protected Activity Oral/Written Requests for disability Formal/Informal accommodation Subject (wages, overtime, discrimination) Request for/taking family, Recipient (role, title) Complaining employee s belief/veracity Inside/Outside Workplace (e.g., complaints made in medical, or military leave. Filing a workers compensation claim Filing an unemployment insurance claim
29 Assessing Retaliation Claims Reasonable Belief Standard
30 Reasonable Belief Standard The principal test under Dodd-Frank s retaliation provision is whether the individual has a reasonable belief that the information he is providing relates to a possible securities law violation that has occurred, is ongoing, or is about to occur. This reasonable belief standard has both a subjective and an objective component. The ultimate question is, does the employee hold a subjectively genuine belief that the information demonstrates a possible violation, and that this belief is one that a similarly situated employee might reasonably possess?
31 Reasonable Belief Standard Caution: A whistleblower claim does not have to be successful for an employee to meet the reasonable belief standard Somewhere between definite and frivolous Fact-intensive inquiry made on a case-bycase basis
32 Same Law, New Interpretation Associational Retaliation
33 Associational Retaliation Thompson v. North American Stainless LP The Supreme Court opened the door for associational retaliation claims under Title VII when it ruled that an employee, who was terminated three weeks after his fiancée (who also worked for the company) made a discrimination complaint, had standing to assert a retaliation claim.
34 Associational Retaliation The Court in Thompson relied on its prior ruling in Burlington Northern, and reasoned that a reasonable worker might be dissuaded from engaging in protected activity if that worker believed that her fiancé would be terminated The Court, however, did not go so far as establish a fixed-class of relationships that would support a claim for associational retaliation Case-by-Case Inquiry
35 Associational Retaliation Thompson essentially expanded the meaning of persons aggrieved under Title VII to include not only the individual who engaged in protected activity, but also certain third-parties who are within the zone of interest sought to be protected by Title VII This zone of interest test could easily be extended to other statutes with whistleblower and retaliation provisions
36 Unintended Retaliation Cease & Desist Letters or Counterclaims as Retaliation
37 Cease & Desist Letters & Counterclaims As Retaliation Hertz v. Luzenac America, Inc. Held: former employer s cease and desist letter accusing a former employee, who had a pending discrimination suit against the former employer, of stealing trade secrets could be a materially adverse action sufficient to support a retaliation claim
38 Cease & Desist Letters & Counterclaims As Retaliation Cease-and-desist letters and counterclaims could have the effect of dissuading a reasonable person from making or supporting a charge of discrimination, and thus could serve as basis for a retaliation claim Cease-and-desist letters remain viable and constructive methods to deter and address instances of unlawful misappropriation, solicitation, and competition by former employees However, employers should conduct a sufficient investigation to ensure that they have a colorable claim before sending a ceaseand-desist letter or filing litigation against former or current employees who have arguably engaged in some form of protected activity
39 The Price of Retaliation RECOVERING FEES & COSTS
40 Recovering Fees & Costs American Rule: typically cannot recover fees from losing party Statutory exceptions For defendants to recover, claims typically must be frivolous or unreasonable Fox v. Vice 42 U.S.C allows defendants to recover fees even if not all of the plaintiff s claims are frivolous Be aware of fee-shifting provisions and warn opposing plaintiffs that you are not afraid to use them
41 Avoiding Retaliation MINIMIZING RISK
42 Minimizing Risk Review and revise legal, compliance, and audit systems Develop and encourage a good open door policy and internal complaint policy. The goal is to keep the complaint within the company - once the government or a plaintiff s attorney has the claim, it is out of the company s hands. If disclosure is inevitable, consider self-reporting
43 Minimizing Risk Make certain that management is trained and incentivized Management needs to understand that they may be personally liable Obtain more release agreements. Legal and moral impediment Even if not enforceable, may be able to get severance pay back
44 Minimizing Risk Implement a policy prohibiting discrimination and retaliation against employees who report suspected wrongdoing of any kind Train managers and supervisors to recognize and understand protected activity Make certain that complaints are investigated and handled properly by individuals with knowledge of the subject matter, and who are properly trained
45 Minimizing Risk Leave no room for the inference of a causal connection. Ask the following questions: Are policies and practices being applied differently to the protected employee? Are employees in similar situations being treated differently? Were than any changes in the employee s treatment or work environment after the protected activity? Do not be afraid of intervening misconduct that calls for discipline or retaliation, but be wary and document, document, document