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Difference between revisions of "Whistleblower Protection Laws"
→Differences between SOX and Dodd-Frank Acts
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=='''Four advantages to bringing a SOX claim in addition to a Dodd-Frank claim:'''== | |||
*Uncapped special damages: The Dodd-Frank Act authorizes economic damages and equitable relief but does not authorize non-economic damages. In contrast, SOX authorizes uncapped “special damages” for emotional distress and reputational harm. | |||
*Exemption from mandatory arbitration: SOX provides an unequivocal exemption from mandatory arbitration, but Dodd-Frank claims are subject to arbitration. | |||
*Preliminary reinstatement: If an OSHA investigation concludes that an employer violated the whistleblower protection provision of SOX, OSHA can order the employer to reinstate the whistleblower. | |||
*Favorable causation standard: A far more generous burden of proof (“contributing factor” causation under SOX, rather than “but for” causation under Dodd-Frank). | |||
=='''Four advantages to bringing a Dodd-Frank claim in addition to a SOX claim:'''== | |||
*Double back pay: Dodd-Frank authorizes an award of double back pay (double lost wages) plus interest, whereas SOX authorizes ordinary back pay with interest along with other damages. Both statutes authorize reinstatement and attorney fees. | |||
*Longer statute of limitations: Whereas the statute of limitations for a SOX retaliation claim is just 180 days, the statute of limitations for a Dodd-Frank retaliation claim is six to ten years. | |||
*Broader scope of coverage: SOX whistleblower protection applies primarily to employees of public companies and contractors of public companies. The Dodd-Frank prohibition against whistleblower retaliation applies to “any employer,” not just public companies. | |||
*No administrative exhaustion: In contrast to SOX, Dodd-Frank permits a whistleblower to sue a current or former employer directly in federal district court without first exhausting administrative remedies at DOL. | |||
=='''Section 1985 Haddle Remedy for Conspiracy to Interfere with Civil Rights of SEC Whistleblowers'''== | |||
At-will employees that suffer retaliation for participating in a federal court proceeding can bring claims under 42 U.S.C. § 1985(2). This civil rights statute prohibits conspiracies to intimidate or retaliate against parties, witnesses or jurors testifying or participating in federal court proceedings. Under 42 U.S.C. § 1985(2), a victim of intimidation or retaliation who suffers injury to “his person or property” can recover damages against the perpetrators of the conspiracy. The Supreme Court held in Haddle v. Garrison, 525 U.S. 121 (1998) that a conspiracy to terminate an employee’s at-will employment constitutes injury to person or property and is therefore actionable under 42 U.S.C. § 1985(2). | |||
=='''RICO Prohibition Against SEC Whistleblower Retaliation'''== | |||
Section 1107 of SOX, 18 U.S.C. § 1513(e), criminalizes whistleblower retaliation. It provides: | |||
*Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than 10 years, or both. | |||
As Section 1513(e) is a predicate offense under the '''Racketeer Influenced and Corrupt Organizations Act''' (RICO), there is a private right of action to remedy a violation of 1513(e). Protected conduct includes reporting a possible criminal securities law violation to the SEC. RICO is a potent remedy because it authorizes treble damages. 18 U.S.C. § 1964(c). | |||
In DeGuelle v. Camilli, 664 F.3d 192 (7th Cir. 2011), DeGuelle, a tax employee of S.C. Johnson & Son, Inc. (“SCJ”), was terminated after reporting an alleged tax scheme to his employer and federal agencies. | |||
*Over an eight year period beginning in 2001, DeGuelle relayed a series of concerns regarding SCJ tax practices to Daniel Wenzel, Global Tax Counsel of SCJ. Wenzel directed DeGuelle to alter or destroy documents to avoid detection of a tax issue that DeGuelle brought to Wenzel also instructed DeGuelle and another employee to fabricate a business transaction in order to exploit accounting rules for the company’s benefit. DeGuelle finally met with Camilli, Director of Human Resources, to discuss that Wenzel was creating a hostile work environment. DeGuelle also spoke with Gayle Kosterman who informed DeGuelle that the company hired a law firm to investigate his tax fraud allegations and DeGuelle spoke with attorneys from the firm. | |||
*Wenzel told DeGuelle to keep his complaints about the tax department within the department, instead of taking them to human resources. Wenzel made disparaging comments towards DeGuelle in front of other employees and acted aggressively towards him. DeGuelle received a negative performance review, which was conducted off-cycle and at odds with the award he received earlier that year recognizing his stellar performance. | |||
*On September 10, 2008, DeGuelle and Camilli met again to discuss DeGuelle’s safety concerns relating to Wenzel’s behavior. Later that month, DeGuelle and Wenzel had another verbal altercation and DeGuelle received a negative review from Wenzel. DeGuelle spoke with Camilli alleging that the negative review was in retaliation for his whistleblowing, which she said she would investigate. | |||
*In November, DeGuelle contacted Camilli in writing to inform her that if the company did not take action, he would contact state or federal authorities regarding the retaliation. | |||
*On December 18, 2008 DeGuelle was informed that the negative review was retaliatory and would be revoked. DeGuelle was directed to drop his tax fraud complaints, but DeGuelle said he would file a whistleblower complaint with the Department of Labor. The company offered a salary increase and offered to pay part of his attorney fees if he signed a confidentiality agreement and release of claims. | |||
*Instead, on December 18, 2008, DeGuelle filed a complaint under SOX with the Department of Labor, attaching tax documents, financial statements and internal communications to his complaint. | |||
*In January 2009, DeGuelle met with Kosterman to withdraw his salary request, fearing that it could be viewed as an attempt to profit from the company’s tax fraud. | |||
*On February 17, 2009, the DOL determined that SCJ was not a covered entity under SOX. Id. at 197. | |||
*On March 10, 2009 SCJ sent another fraudulent tax return to the IRS. | |||
*On March 19, 2009 DeGuelle sent a memorandum detailing his concerns to SCJ counsel, after which Kosterman offered him a year’s salary if he were to resign and signed a confidentiality agreement and released all claims. | |||
*On April 9, 2009, SCJ began investigating DeGuelle for disclosing confidential company documents. DeGuelle met with Camilli and other investigators and denied disclosing documents, but admitted that he attached them to the DOL complaint, asserting that Camilli was aware of those disclosures. | |||
*After that meeting, Kosterman and another employee placed DeGuelle on administrative leave, ultimately terminating him for taking and disclosing confidential business documents. SCJ filed suit in Racine County Circuit court seeking recovery of SCJ property and confidential information and for breach of contract and conversion. Following the suit, SCJ made defamatory statements about DeGuelle in the media. | |||
*DeGuelle then filed suit in federal court alleging multiple claims, including RICO violations. Id. at 198. | |||
*The district court dismissed the RICO claims, holding that the tax fraud and retaliation are unrelated offenses and thus do not form a pattern of racketeering activity. The district court also reasoned that since by the time the retaliation occurred, the government was already aware of alleged tax fraud, the predicate offenses were not the proximate cause of DeGuelle’s injuries. | |||
*The Seventh Circuit Court of Appeals reversed, holding that “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower… Accordingly, we believe a relationship can exist between § 1513(e) predicate acts and predicate acts involving the underlying cause for such retaliation.” Id at 201. The court determined that despite SCJ officials’ attempts to investigate DeGuelle’s concerns and protect him from retaliation, SCJ can still be held liable for retaliatory termination. The court also noted that a whistleblower does not have to show that the same officials participated in both the crime and the retaliation. | |||
Following DeGuelle, in Simkus v. United Airlines, No. 11 C 2165, 2012 WL 3133603, (N.D. Ill. July 31, 2012), Simkus brought a suit against United Airlines under RICO. | |||
*Simkus alleged two predicate acts in his civil RICO suit that occurred within a ten year period, mail and wire fraud related to United providing Simkus with incorrect information regarding his stock allocation in 2006 and retaliation against Simkus in violation of SOX for reporting asbestos violations to the Occupational Health and Safety Administration (OSHA). The court found that these two acts failed the “continuity plus relationship” test. | |||
*Unlike the alleged tax fraud and retaliation committed by SCJ, there was no relationship between the two acts alleged by Simkus. Id. at *3-4. | |||
The Seventh Circuit’s holding in DeGuelle illustrates how a whistleblower who has been retaliated against can bring a RICO action against an employer relying upon Section 1107 as a predicate offense. | |||
[1] This case was ultimately dismissed on remand and again on appeal, due to collateral estoppel relating to the judgement in the state court case filed by SCJ, in which DeGuelle represented himself pro se, failing to include affidavits in his response to SCJ’s motion for summary judgment. See DeGuelle v. Camlli 724 F. 3d 9ss (7th Cir. August 1, 2013). | |||
=='''Breach of Contract Claim'''== | |||
An employer’s breach of an anti-retaliation policy in a Code of Ethics can potentially give rise to a breach of contract claim, although the law varies by state. | |||
For example, in 2015, a federal district court held that an employer’s anti-retaliation policy created legally enforceable rights. See Leyden v. Am. Accreditation Healthcare Comm’n, 83 F. Supp. 3d 241, 247–48 (D.D.C. 2015). In Leyden, the trial court held that the plaintiff had a valid claim based on the employer’s alleged violation of its internal anti-retaliation policy. The court relied on law construing whether employee handbooks created implied contractual rights. | |||
*In Leyden, the plaintiff was the Chief Accreditation Officer at the American Accreditation Healthcare Commission, a nonprofit offering accreditation and certification programs to healthcare entities. The defendant had an anti-retaliation policy, which stated: “No URAC employee who in good faith reports any Improper Activities in accordance with this policy shall suffer, and shall be protected from threats of harassment, retaliation, discharge, or other types of discrimination.” The plaintiff voiced concerns that new management was mistreating female executives and that two board members were engaged in conduct that she thought jeopardized the organization’s independence. The defendant then terminated the plaintiff’s employment. | |||
*The defendant moved to dismiss the complaint, arguing in relevant part that the anti-retaliation policy did not create contractual rights. Even if it did, the defendant contended, it had disclaimed any such rights in its employee handbook. | |||
*However, the court held that the anti-retaliation policy created an implied contract. The court began by reviewing Strass v. Kaiser Foundation Health Plan, a case holding that an employee handbook created an implied contract. Id. at 247 (citing Strass v. Kaiser Found. Health Plan, 744 A.2d 1000 (D.C. 2000)). The court discussed how a manual could create rights, and how an employer could effectively disclaim those rights. The court also rejected the defendant’s argument about the disclaimer, noting that a disclaimer that was “rationally at odds” with the other language in the document may not cut off an implied contract. | |||
In finding an implied contract, the court focused on the employer’s invitation to report “Improper Activities” internally and on the language of the anti-retaliation policy. The court also concluded that the employer’s disclaimer, which was found in a different document, was rationally at odds with the anti-retaliation policy. The reasoning in Leyden may be persuasive in other jurisdictions and provide an important remedy to whistleblowers that are not covered under federal or state whistleblower protection statutes. | |||
=='''Defense Contractor Whistleblower Protection Act'''== | |||
In an article titled “New law drove whistleblower complaints against DOD contractors up,” Jill Aitoro reports that the NDAA whistleblower protection provisions, which became effective one year ago, have generated a substantial increase in whistleblower complaints to the Department of Defense Office of Inspector General. According to the article, “the rate of complaints from Defense Department whistleblowers increased from about four to six a month as of August 2013 to more than 200 since Jan. 1.” In addition, the article reports that whistleblower disclosures about DOD contractor fraud have resulted in several substantial recoveries for the government. | |||
Sections 827 and 828 of the NDAA provide robust whistleblower protection to employees of most government contractors and grantees. Under the NDAA whistleblower protection provisions, protected conduct includes the disclosure of information that the employee reasonably believes is evidence of: | |||
*gross mismanagement of a Federal contract or grant; | |||
*a gross waste of Federal funds; | |||
*an abuse of authority relating to a Federal contract or grant; or | |||
*a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract. | |||
To be protected, the disclosure must be made to a Member of Congress or Congressional committee, an IG, the GAO, a federal employee responsible for contract or grant oversight or management at the relevant agency, an authorized official of DOJ or other law enforcement agency, a court or grand jury or a management official or other employee of the contractor or subcontractor who has the responsibility to investigate, discover, or address misconduct. | |||
=='''Differences Between False Claims Act Whistleblower Protection and NDAA/Defense Contractor Whistleblower Protection'''== | |||
Whistleblowers disclosing DoD contractor fraud can pursue claims both under the FCA and the NDAA. The following table summarizes key distinctions between Section 3730(h) of the False Claims Act and Sections 827 and 828 of the NDAA: | |||
{| class="wikitable" | |||
|- | |||
! Topic Area !! False Claims Act Whistleblower Protection !! NDAA/Defense Contractor Whistleblower Protection Act | |||
|- | |||
| Coverage || Employee, contractor, or agent of federal contractor || Employee of a contractor, subcontractor, grantee, or subgrantee, or a personal services contractor | |||
|- | |||
| Scope of Protected Conduct (protected whistleblowing) || Protects lawful acts done by the employee, contractor, agent, or associated others (1) in furtherance of an action under the FCA or (2) other efforts to stop 1 or more violations || Protects disclosures to employer or the government concerning: | |||
* Violation of law, rule, or regulation related to a federal contract | |||
* Gross mismanagement of a federal contract or grant | |||
* Gross waste of federal funds | |||
* Abuse of authority relating to a federal contract or grant | |||
* Substantial and specific danger to public health or safety | |||
|- | |||
| Damages || Double back pay, reinstatement, uncapped special damages (emotional distress and harm to reputation), attorney’s fees || Back pay, reinstatement, uncapped special damages, attorney’s fees | |||
|- | |||
| Causation Standard || "But for" causation || Contributing factor causation | |||
|- | |||
| Administrative Exhaustion || No exhaustion requirement; file directly in federal court || Must file initially at OIG and after 210 days, can remove claim to federal court | |||
|- | |||
| Statute of Limitations || 3 years || 3 years | |||
|} | |||
=='''Defense Contractor Whistleblower: Reporting Fraud Internally or Directly to the Government'''== | |||
There are many factors to consider in deciding whether to blow the whistle directly to the government in the form of a qui tam whistleblower lawsuit and which laws offer the best remedy to combat retaliation. It is important to assess your options at an early stage to avoid waiving claims or rights. For example, entering into a global release or global waiver with your employer to resolve a retaliation claim could waive your right to recover a qui tam whistleblower award. | |||
=='''Proving NDAA Whistleblower Retaliation'''== | |||
The burden of proof and causation standard in NDAA whistleblower cases is very favorable to employees. The complainant prevails merely by demonstrating that the protected disclosure was a contributing factor in the personnel action, which can be met by showing knowledge and temporal proximity. | |||
=='''Remedies for Prevailing NDAA Whistleblowers'''== | |||
Remedies for prevailing whistleblowers in NDAA retaliation actions include reinstatement, back pay, uncapped compensatory damages (emotional distress damages) and attorney fees and costs. | |||
==''Procedures for Filing an NDAA Whistleblower Retaliation Claim''== | |||
An NDAA retaliation claim must be filed initially with the Office of Inspector of General of the agency that awarded the contract or grant about which the employee disclosed wrongdoing, and the statute of limitations is three years after the date of the reprisal. The OIG will investigate the complaint and make recommendations to the agency head. If the agency head fails to provide requested relief within 210 days, the whistleblower may bring an action in federal district court and try the case before a jury. | |||
=='''Taxpayer First Act'''== | |||
Yes, the Taxpayer First Act (TFA) protects tax whistleblowers against retaliation, including whistleblowers that have provided information to the IRS through the IRS whistleblower reward program. | |||
The purpose of the TFA IRS whistleblower protection law is to encourage whistleblowers with high-value inside information about tax noncompliance to come forward. | |||
See this helpful article in Accounting Today: Whistleblower protections for accountants and tax professionals bolstered by new law. | |||
Section 1405(b) of the TFA prohibits any “employer, officer, employee, contractor, subcontractor, or agent” of an employer from retaliating against a whistleblower. | |||
=='''Protected Whistleblowing Under the Taxpayer First Act'''== | |||
The TFA protects a broad range of disclosures about potential violations of IRS rules or tax fraud. It protects not only disclosures to the IRS, but also internal disclosures, including an employee’s disclosure to a supervisor or “any other person working for the employer who has the authority to investigate, discover, or terminate misconduct.” In particular, protected conduct includes: | |||
*any lawful act done by the employee– (A) to provide information, cause information to be provided, or otherwise assist in an investigation regarding underpayment of tax or any conduct which the employee reasonably believes constitutes a violation of the internal revenue laws or any provision of Federal law relating to tax fraud, when the information or assistance is provided to the Internal Revenue Service, the Secretary of the Treasury, the Treasury Inspector General for Tax Administration, the Comptroller General of the United States, the Department of Justice, the United States Congress, a person with supervisory authority over the employee, or any other person working for the employer who has the authority to investigate, discover, or terminate misconduct, or | |||
*(B) to testify, participate in, or otherwise assist in any administrative or judicial action taken by the Internal Revenue Service relating to an alleged underpayment of tax or any violation of the internal revenue laws or any provision of Federal law relating to tax fraud. | |||
TFA whistleblower protection is not limited to disclosures of actual tax fraud. Instead, DOL and federal court precedent construing similar whistleblower protection laws protect a whistleblower’s reasonable but mistaken belief that the conduct complained of constituted a violation of relevant law. The whistleblower, however, must demonstrate that they had an objectively reasonable belief, which is assessed based on the knowledge available to a reasonable person in the circumstances with the employee’s training and experience. | |||
=='''Prohibited Retaliation Against Tax Fraud Whistleblowers'''== | |||
The TFA prohibits a wide range of retaliatory personnel actions, including discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower in the terms and conditions of employment. | |||
The catch-all category of retaliation (“in any other manner” discriminating against a whistleblower) includes non-tangible employment actions, such as “outing” a whistleblower in a manner that forces the whistleblower to suffer alienation and isolation from work colleagues. See Menendez v. Halliburton, Inc., ARB Nos. 09-002, -003, ALJ No. 2007- SOX- 5 (ARB Sept 13, 2011). An employment action can constitute actionable retaliation if it “would deter a reasonable employee from engaging in protected activity.” Id. at 20. | |||
=='''Burden of Proof in a TFA Whistleblower Retaliation Case'''== | |||
Section 1405(b) of the TFA applies the causation standard and burden-shifting framework set forth in the AIR21 Whistleblower Protection Law. Under that framework, the whistleblower prevails by proving that their protected whistleblowing was a contributing factor in the unfavorable personnel action taken by their employer. | |||
The DOL ARB has emphasized that the standard is low and “broad and forgiving”; protected activity need only play some role, and even an “[in]significant” or “[in]substantial” role suffices. Palmer v. Canadian Nat’l R.R., ARB No. 16-035, ALJ No. 2014-FRS-154, at 53 (ARB Sept. 30, 2016)(emphasis in original). Examples of circumstantial evidence that can establish “contributing factor” causation include: | |||
*temporal proximity; | |||
*the falsity of an employer’s explanation for the adverse action taken; | |||
*inconsistent application of an employer’s policies; | |||
*an employer’s shifting explanations for its actions; | |||
*animus or antagonism toward the whistleblower’s protected activity; and | |||
*a change in the employer’s attitude toward the whistleblower after they engage in protected activity. | |||
Once the whistleblower proves that their protected conduct was a contributing factor in the adverse action, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same adverse action in the absence of the whistleblower engaging in protected conduct. | |||
=='''Remedies in a Tax Fraud Whistleblower Retaliation Case'''== | |||
A prevailing TFA whistleblower is entitled to make-whole relief, which includes: | |||
*reinstatement; | |||
*double back pay with interest; | |||
*uncapped “special damages,” which courts have construed as encompassing damages for emotional distress and reputational harm; and | |||
*attorney fees, litigation costs, and expert witness fees. | |||
These remedies are substantially similar to the relief authorized in the anti-retaliation provision of the False Claims Act. Neither statute authorizes an award of punitive damages, but double back pay and uncapped special damages can be a potent remedy. | |||