When Employment Law and Law Enforcement Intersect

Transcription

1 When Employment Law and Law Enforcement Intersect Joe H. Tucker, Jr. V. Amanda Witts Tucker Law Group LLC One Penn Center at Suburban Station, Suite 1700 Philadelphia, PA (215)

2 Joe H. Tucker, Jr., the founder and managing partner of Tucker Law Group LLC in Philadelphia, has tried more than 75 cases to jury verdict in state and federal court. Always well prepared and instinctive, Mr. Tucker has yet to lose a federal jury trial. He is AV-rated by Martindale-Hubbell and, from 2007 through 2011, has been recognized as a Pennsylvania Super Lawyer. His law firm handles a range of matters from employment discrimination to personal and complex commercial disputes. V. Amanda Witts is an associate at the Tucker Law Group.

3 When Employment Law and Law Enforcement Intersect Table of Contents I. Introduction II. Recent Case Developments A. The Dodd-Frank Act, 111 P.L. 203, 124 Stat B. The Sarbanes-Oxley Act, 107 P.L. 204, 116 Stat C. The False Claims Act, 31 U.S.C When Employment Law and Law Enforcement Intersect Tucker and Witts 239

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5 When Employment Law and Law Enforcement Intersect I. Introduction Retaliation has always been a hot topic in the Employment Litigation arena. Employees frequently use retaliation as a basis for bringing an employment discrimination action against an employer. Most significantly, courts have been reticent to dismiss retaliation claims. With the addition of new anti-retaliation provisions and recent case law interpreting the anti-retaliation provisions under the Dodd-Frank, the Sarbanes-Oxley, and the False Claims Acts, employers and corporations can expect a surge in litigation premised on retaliation. In fact, the stakes will now be greater than ever. II. Recent Case Developments A. The Dodd-Frank Act, 111 P.L. 203, 124 Stat The Dodd-Frank Wall Street Reform and Consumer Act was signed into law on July 21, On the face of the statute, its purpose is described is to promote the financial stability of the United Stated by improving accountability and transparency in the financial system, to end too big to fail, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. The Act, passed in response to the recent recession, has been described as the most comprehensive set of financial regulatory reform measures since the Great Depression. Spanning well over eight hundred pages, the Act reforms corporate governance and executive compensation, imposes new registration requirements for hedge funds and private equity fund advisors, heightens regulation of over-the-counter derivatives and asset-backed securities, and changes the authority of regulatory agencies. New changes are expected to the Dodd-Frank Act as the Commodity Futures Trading Commission will soon vote on a rule that will heavily regulate the swaps market. Egan v. TradingScreen, Inc., No , 2011 U.S. Dist. LEXIS (S.D.N.Y. May 4, 2011) Egan involves a former employee informing the company s President that the CEO was diverting company assets into another company owned by the CEO. The President and independent members of the Board of Directors launched an internal investigation and confirmed Plaintiff s allegations. Despite the truth of the allegations, the CEO managed to gain control of the board and fired Plaintiff, denying him of the company s customary severance package. Plaintiff brought suit against his former employer, alleging violations of the Dodd-Frank Act, Securities Exchange Act of 1933, and Delaware law. In deciding whether to grant Defendants motion to dismiss, the Court addressed whether the Dodd-Frank Act s anti-retaliation provisions required disclosures to the SEC and whether it is sufficient under the Dodd-Frank Act that information provided to attorneys retained by independent directors was ultimately reported to the SEC. The anti-retaliation provision of the Act defines a whistleblower as any individual who provides information relating to a violation of the securities law to the Commission in a manner established, by rule or regulation, by the Commission. Citation? The Act further protects individuals who make disclosures in one of four categories: 1) the Sarbanes-Oxley Act; 2) the Exchange Act; 3) 18 U.S.C. 1513(e); and 4) any other law, rule, or regulation subject to the SEC. The Court held that the anti-retaliation whistleblower provision of the Act requires plaintiffs to show they provided information to the SEC or fell under one of the four enumerated categories. Because, in Egan, Plaintiff did not make disclosures protected under the Sarbanes-Oxley Act, the Dodd-Frank Act s antiretaliation provisions offered no protection. When Employment Law and Law Enforcement Intersect Tucker and Witts 241

6 Plaintiff further argued that even if the Dodd-Frank Act required reporting to the SEC, the whistleblower provisions protect him because he acted jointly with outside attorneys to report the information to the SEC. Defendants argued that the Act did not protect Plaintiff because he was not an integral participant in the investigation efforts. The Court held that Plaintiff adequately pled that he acted jointly with attorneys in investigating the wrongdoing. Further, nothing in the plain language of the Dodd-Frank Act suggested that the individual working with the attorney need to have led the investigative efforts; rather, he must have at least acted with others in the reporting. The Court granted Plaintiff leave to amend his complaint to make the appropriate allegations. As the first case to interpret the scope of the Dodd-Frank Act s whistleblower anti-retaliation protections, Egan was integral. Egan establishes that simply reporting violations does not necessarily afford an individual the protections of the whistleblower anti-retaliation provisions of the Dodd-Frank Act. The whistleblower must, instead, carefully comply with the requirements set forth under the Act. B. The Sarbanes-Oxley Act, 107 P.L. 204, 116 Stat. 745 On July 30, 2002, the Sarbanes-Oxley Act of 2002 became law. The Act s stated purpose is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. The Sarbanes-Oxley Act was enacted in response to major corporate and accounting scandals, including the Enron, WorldCom, and Tyco International scandals. The Act is divided into eleven sections, including Corporate Responsibility, Auditor Independence, White Collar Crime Penalty Enhancement, and Corporate and Criminal Fraud Accountability. The Sarbanes-Oxley Act has been lauded for encouraging transparency and responsibility amongst top level management and employees. Vannoy v. Celanese Corp., ARB Case No (Sept. 28, 2011) In Vannoy, the Administrative Review Board ( ARB ) reversed the Administrative Law Judge s ( ALJ ) ruling that Plaintiff could not rely on the whistleblower protections of the Sarbanes-Oxley Act. Specifically, Plaintiff filed an internal complaint after discovering evidence of company credit card misuse. Plaintiff also filed an IRS complaint under its whistleblower rewards program. To assist with the investigation, Plaintiff secured confidential company documents. Defendant subsequently discovered that the Plaintiff ed himself confidential company documents containing personal information, including social security numbers for over 1,600 employees, in violation of the company s policy. As a result, Plaintiff was suspended without pay. Plaintiff in turn filed a complaint alleging a violation of the whistleblower protection provision of the Sarbanes-Oxley Act, which requires a plaintiff to establish that 1) Plaintiff engaged in protected activity or conduct under 1514A; 2) Defendant took an adverse personnel action; and 3) Plaintiff s protected activity was a contributing factor in Defendant s adverse personnel action. The ALJ dismissed Plaintiff s complaint, finding that he failed to allege definitive violations by Defendant or conduct that amounted to actual fraud. The ALJ further found that the IRS is not a federal regulatory or law enforcement agency as contemplated under 1514A and that Plaintiff did not suffer an unfavorable personnel action due to protected activity. The ARB reversed the ALJ s determination, holding that Plaintiff s reasonable belief that Defendant s actions were in noncompliance with federal securities law and fraud was adequate. The ARB further found that the Act imposed no limitation that precluded the IRS from being a federal regulatory or law enforcement agency as contemplated by the Act. Lastly, the ARB found that Plaintiff suffered an adverse employment action, stating that an adverse employment action is simply an unfavorable employment action, not necessarily retaliatory or illegal. The case was remanded for a determination of whether Plaintiff s protected activity was causally related to Defendant s adverse personnel action. 242 Employment and Labor Law Seminar May 2012

7 Vannoy acted to broaden the protections afforded under the whistleblower anti-retaliation provisions of the Sarbanes-Oxley Act. C. The False Claims Act, 31 U.S.C The False Claims Act (FCA), often referred to as the Lincoln Law, was first passed in The FCA imposes liability on entities and individuals who improperly receive payment from or avoid payment to the Federal Government. In 1986, Amendments were passed to strengthen the FCA. Such amendments included increasing rewards for qui tam plaintiffs and adding protection for whistleblowers, including double back pay and special damages. The Fraud Enforcement and Recovery Act of 2009, later passed, was the most significant amendments since the 1986 Amendments. The Fraud and Enforcement Recovery Act successfully expanded the scope of liability, increased protection in qui tam/realtor actions beyond employees to contractors and independent agents and expanded conspiracy liability for any violation of the False Claims Act. United States ex rel. Bartz v. Ortho-McNeil Pharm., Inc., No , 2012 U.S. Dist. LEXIS (D. Mass. Mar. 2, 2012) Plaintiff, a former employee of one of the defendants, Ortho-McNeil-Janssen Pharmaceuticals, Inc., initiated a qui tam action alleging violations of the FCA. Plaintiff claimed that he was demoted and ultimately terminated after he confronted corporation executives with allegations of wrongdoing, including manipulation of rebate amounts owed to the Federal Government under Medicaid, the false reporting of the Average Manufacture Price and Best Price of certain drugs, and the payment of kickbacks to nursing home drug purchasers. The FCA protects employees from being discharged, demoted or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee in furtherance of an [FCA] action. To successfully set forth an FCA retaliation claim, an individual must demonstrate: 1) the employee engaged in conduct protected under the FCA; 2) the employer knew employee was engaging in the conduct; and 3) the employer discriminated against the employee because of the protected conduct. In the instant matter, Plaintiff alleged that Defendants retaliated against him by demoting, harassing, and terminating his employment after he complained about inaccurate data and the Sarbanes-Oxley Act violations. Conversely, Defendants argued that Plaintiff was not entitled to whistleblower protection because he did not make Defendants aware of his FCA claims. The Court found that Defendants argument misstated the requirements of an FCA retaliation claim, as the issue is not whether the employee informed the employer of the exact nature of the investigative activities, but rather whether the employer knew of (or suspected) the employee s disloyal acts and punished him accordingly. The Court found that Plaintiff s allegations were sufficient to meet the pleading standard for a retaliation claim under the FCA. This case clearly demonstrates that courts are understandably reluctant to set an insurmountable pleading requirement in qui tam actions. When Employment Law and Law Enforcement Intersect Tucker and Witts 243

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