OSHA: A New Frontier for Whistleblowers?

Transcription

1 OSHA: A New Frontier for Whistleblowers? Connie Bertram & Steve Pearlman Co-Chairs, Whistleblower and Retaliation Group Proskauer LLP Kathy Cheung Marriott International 1

2 What We Will Cover DOL/OSHA Trends OSHA Investigations and Litigation Recent SOX Decisions Mitigating the Risk of SOX and Other Whistleblower Claims Settlement Considerations 2

3 Federal Whistleblower Protection Provisions Enforced By OSHA Consumer Product Safety Improvement Act Energy Reorganization Act Federal Railroad Safety Act International Safe Container Act National Transit System Security Act Pipeline Safety Improvement Act Surface Transportation Assistance Act Occupational Safety and Health Act Sarbanes-Oxley Act Asbestos Hazard Emergency Response Act Clean Air Act Comprehensive Environmental Response, Compensation, and Liability Act Federal Water Pollution Control Act Safe Drinking Water Act Solid Waste Disposal Act Toxic Substances Control Act Wendell H. Ford Aviation Investment and Reform Act 3

4 Trends OSHA recently released statistics showing increases in both the number of whistleblower cases filed with OSHA and the number of OSHA determinations Almost 3,000 whistleblower cases filed with OSHA in FY 2013, up 2% from 2012 The number of complaint determinations made by OSHA increased by 14% - 26% resulted in settlements approved by DOL - 2% resulted in a finding or preliminary order by the Assistant Secretary of Labor The number of SOX whistleblower claims filed with OSHA in 2013 (175) up dramatically in past several years 4

5 DOL Priorities for OSHA Improve investigation process based on recent comprehensive audits - Established training institute - Hired 35 new investigators Undertake comprehensive top-to-bottom review of the disposition process Reinvigorate protection for employees who report corporate fraud Expand ADR program (currently in two Regions) Advocate positions in federal court through amicus briefs 5

6 OSHA Procedures 6

7 General Procedures Must file complaint with OSHA within 180 days of adverse action Employee can pursue claim through DOL s adjudicative regime: OSHA OALJ ARB Federal Appellate Court Employee can kick out claim to federal district court (de novo review) if DOL does not issue a final order within 180 days - Even where an ALJ already adjudicated the claim - Employer may challenge if complainant did not pursue claim diligently 7

8 Other Remedies Complainant entitled to pursue other remedies available under federal and state law in court Critical given overlapping and conflicting claims (SOX v. Dodd-Frank) However, ARB s determination may be afforded preclusive effect in related actions - Circuit split on Chevron v. Skidmore deference for ARB determinations - Supreme Court declined to address the issue in Lawson 8

9 OSHA S Initial Investigation Employer has 20 days to submit a written position statement - OSHA will then contact respondent to interview witnesses, review records, and obtain documentary evidence - Employer can request that confidential commercial or financial information be held in confidence to the extent allowed by law Investigator will dismiss unless complainant establishes prima facie case i.e., protected activity was a contributing factor in the adverse employment decision Investigator has authority to order preliminary reinstatement if it finds reasonable cause to believe a violation has occurred If party appeals to ARB, all relief stayed, other than preliminary reinstatement 9

10 OALJ Updating its rules of practice to more closely align them with the federal rules of practice De novo review of evidence and law Complaint not subject to Iqbal/Twombly pleading standards - Complainant only need to provide fair notice of claims - Generous about allowing amendments Procedures: - Generally afforded full discovery - Right to move for summary disposition - Rules of evidence applied, except hearsay is generally admissible Can appeal to ARB within 10 business days 10

11 Standards of Proof Employee must make prima facie showing - Employed by covered entity - Engaged in protected activity - Protected activity contributed to adverse employment action Causation standard varies: a factor, contributing factor, substantial factor, but/for Employer must present clear and convincing evidence that employer would have acted the same absent the whistleblowing 11

12 Settlement of Claims Before OSHA Must contain certain core provisions: - Stipulate that employer agrees to comply with relevant statutes, including those prohibiting retaliation - Specify the relief obtained - Show constructive effort to alleviate the chilling effect of the claim/allegations, such as an electronic posting OSHA will not approve any gag provision that restricts the complainant s ability to participate investigations or testify in proceedings concerning his employment Does not resolve pending/future government investigations 12

13 Recent Cases How Bad Could It Really Be? 13

14 Sylvester v. Parexel Int l, LLC, ARB (May 25, 2011) Protected conduct not limited to disclosures of shareholder fraud Not required to prove each element of fraud (scienter, materiality, etc.) Disclosures about a potential violation protected Rejects ARB s Platone decision requiring that disclosure definitively and specifically relate to an enumerated violation Iqbal/Twombly pleading standard does not apply to claims filed at OSHA 14

15 Lockheed Martin Corp v. DOL (10th Cir. June 4, 2013) Employee complained that her supervisor used company funds to engage in sexual affairs with soldiers she met though a company pen pal program After reporting her supervisor, employee had her responsibilities taken away and had her desk moved to a storage closet She brought a SOX retaliation claim and received a favorable holding from the ALJ Circuit court upheld ALJ s holding in favor of employee Takeaway: A report identifying any fraud or violation of an SEC regulation, even if it does not directly impact shareholders, can trigger SOX s protections 15

16 Zulfer v. Playboy Enterprises, Inc., No. CV (C.D. Cal. Mar. 5, 2014) Plaintiff, a controller, worked for PBE for 30+ years Fired after refused to authorize $1 million in executive bonuses that had not been approved by board Playboy argued that a whistleblower complaint regarding anticipated conduct is not protected under SOX Jury awarded plaintiff $6 million, even though she was not seeking front pay 16

17 Nielsen v. AECOM Technology Corp. (2d Cir. Aug. 8, 2014) Plaintiff alleged employer failed to take action and terminated his employment after he reported a subordinate for approving fire safety designs without actually reviewing the designs District Court determined that plaintiff did not engage in protected activity because his claims were not definitively and specifically related to the enumerated provisions in Section 806 of SOX. Second Circuit affirmed the dismissal, but rejected the definitively and specifically standard applied by the lower court, embracing the ARB s decision in Sylvester 17

18 SEC Issues Order Against Paradigm Capital June 2014 Order is first enforcement action the SEC has taken for violations of Dodd-Frank anti-retaliation provisions SEC s Order asserted that Paradigm violated the anti-retaliation provisions of Dodd-Frank by engaging in a series of retaliatory actions against a head trader who had reported improper principal trades to the SEC Without admitting or denying any wrongdoing, Paradigm and its principal agreed to pay disgorgement of $1.7 million, prejudgment interest of $181,771 and a civil penalty of $300,000 The Order against Paradigm is consistent with the SEC s repeated pronouncements that it intends to pursue anti-retaliation enforcement actions 18

19 Mitigating Risk 19

20 Know Your Whistleblower Private Attorney General - Seeks to right the ship - Attempting to protect the company, employees and shareholders. Opportunistic or disgruntled employee - Sees the writing on the wall - Seeks leverage - Seeks recognition or influence - Seeks money (bounty) 20

21 Conducting an Effective Investigation Evaluate who should conduct the investigation - Sufficient authority, but not a witness - Good witness? Engage the appropriate stakeholders Bring in the necessary experts Review documents, interview witnesses and the whistleblower Balance need for information with the desire to protect confidentiality (and limiting the number of people with knowledge) 21

22 Dealing with Whistleblowers Who are Current Employees Promptly appoint a liaison to the whistleblower Promptly conduct a thorough investigation - Report back to the extent practicable - Temper expectations of confidentiality - Review removal and use of confidential information - Identify moles and leaks Oversee evaluations and discipline of whistleblowers, with an emphasis on objective metrics - Studiously comply with applicable policies and procedures - Review treatment of comparators Negotiated transition may be necessary if disruptive or using continued employment merely to collect evidence 22

23 Consider and Develop Your Available Defenses From day one, employers should consider the claims and defenses they may have available All too often claimants: - Participate in or create the fraud about which they are complaining - Engage in self-help discovery - Spoliate evidence - Engage in other misconduct, such as competitive activity, that provides a defense - Refuse to cooperate in investigations - Manipulate witnesses 23

24 Consider and Develop Your Available Defenses As you are investigating the claimant s allegations, also need to investigate his or her own conduct and motives - Determine his or her role in and knowledge of the alleged fraud or violation - Review responses to COC questionnaires - Conduct forensic review of computers, devices and accounts, including personal devices (if permitted by policy and state law) - Ask witnesses (including the claimant) about removal and spoliation of evidence and other misconduct Focus on potential improper motives, including performance status Conduct background checks and review social media 24

25 An Example: Self-Help Discovery Does protected activity include self-help or informal discovery, including - Taking documents? - Downloading data? - Imaging a hard drive? When and how can an employer control or discipline the employee s conduct and what impact can it have on litigation? The scary truth: - Almost every complainant engages in this conduct - from retaining selected employment-related documents to imaging entire hard drives and databases - Their counsel, unaware of the limitations, encourage and participate in this conduct 25

26 Limitations On Self-Help Discovery Complainant may have the right to engage in lawful and reasonable efforts to collect information and evidence supporting his claims But: - Must be undertaken for legitimate investigative purposes - Must have right to access the document or data - May not violate company policy or the law - May not disclose confidential information to third parties (other than counsel, potentially) - May not interfere with job duties or performance 26

27 Limitations On Self-Help Discovery Courts balance the employee s right to develop evidence in support of his claim with the employer s right to maintain confidentiality and control its workforce May also be allowable if sole purpose is to support a complaint or report to a government agency Must be mindful of SEC rules, which prohibits using confidentiality agreements to restrict employees right to provide information to the SEC 27

28 Be Mindful of Recent Self-Help Discovery Cases Quinlan v. Curtiss-Wright Corp., 204 N.J. 239 (2010) - although Company could have terminated the plaintiff for her removal of documents, it could not (having chosen not to terminate her for the theft) terminate her for using those documents to pursue her claims of discrimination Vannoy v. Celanese Corp., ALJ Case No SOX (ALJ July 24, 2013) - the transmission of confidential company information to the government (specifically, the IRS) is protected activity under the SOX 28

29 Best Practices and Solutions Avoid discouraging or prohibiting reports to SEC or other governmental agencies in agreements Craft whistleblower protection policies and modernize code of conduct to encourage internal complaints Implement whistleblowerspecific training Encourage good-faith internal complaints: letter to file; bonus; other financial incentive? Transparency in functioning of compliance program Ensure objectivity in oversight of evaluations and discipline of whistleblowers Use focus groups and audits to identify emerging compliance problems 29

30 Settlement Considerations 30

31 Settlement Considerations Critical first to conduct an investigation to understand the risks raised by the claims/anticipated claims - How did the employee first raise his concerns? - Who knew about the allegations and what did they know about them? - Who made the challenged employment decision? - What did they know about the protected activity? - What is the package of evidence that supports the decision? Also need to understand the alleged underlying violation - What is the scope of the claimed fraud? - Who is implicated within the company? - Was the complainant involved? - Had it been addressed? 31

32 Settlement Considerations Undertake a classic risk management analysis, assessing: - The types of claims that may be asserted (by the complainant AND by the government) - The fora and relief available - The likelihood of an adverse finding - The range of damages and penalties that could be awarded - The impact of interim relief, such as preliminary reinstatement - The impact of an adverse award (PR, internal, reporting) - The other claims/investigations the proceeding could generate The same considerations apply once suit is filed, but it may be difficult to unring the bell for government investigations and/or to obtain a full release 32