By a 3-2 vote on a major case, the Department of Labor's Administrative Review Board (ARB) has limited the application of the Sarbanes-Oxley Act (SOX) whistleblower protection outside the boundaries of the United States. The case is Villanueva v. Core Laboratories, NV, ARB No. 09-108, ALJ No. 2009-SOX-6 (ARB Dec. 22, 2011) (en banc). The decision is particularly disappointing after the ARB had called for supplemental briefing. Stakeholders on both sides, including the National Whsitleblowers, submitted amicus briefs setting out the applicable caselaw, legislative history, and contextual effects of this important legal issue. Unlike prior decisions that summarily dismissed any extraterritorial application of SOX's whistleblower protection (such as the Canero and Ede), this time the ARB had full briefing of the relevant considerations and the majority still resists protecting whistleblowers from other countries.
Last August, I posted to this blog a description of the Villanueva case and the amicus brief submitted by NWC and the National Employment Lawyers Association (NELA). The brief argues that SOX should protect tax whistleblower William Villanueva, even though he worked for Core Lab's subsidiary in Columbia. Core Laboratories NV is a publicly traded company based in Houston, Texas. It provides services to the petroleum industry. For 16 years, William Villanueva worked as CEO of Saybolt Columbia, Core's subsidiary. On page 3, the ARB noted that "Saybolt Colombia does not register securities under Section 12 or file reports [with the SEC]." This fact became immaterial after the ARB's well-considered decision in Johnson v. Siemens Building Technologies, ARB No. 08-032, ALJ No. 2005-SOX-0151 (ARB March 31, 2011). In Johnson, the ARB held that SOX has always protected the employees of subsidiaries of publicly traded companies.
In 2008, Villanueva sent emails to corporate executives in Houston reporting how other company executives were engaged in tax transfer schemes that falsely transferred profits to low-tax Curacao, an island in the Caribbean Sea. He also reported that Core Labs accountants in Columbia were making false claims to evade the Columbian value added tax (VAT). After Villanueva refused to sign a false tax return, Core fired him.
Villanueva filed a complaint with the Department of Labor (DOL) claiming that he was fired in retaliation for raising his concerns. He claimed that his discharge violated the 2002 SOX law. An administrative law judge (ALJ) dismissed the case without a hearing on grounds that Villanueva worked outside the U.S. Villanueva appealed to the ARB. Earlier this Summer, the ARB asked for amicus briefs on the effect of the U.S. Supreme Court's decision in Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010).
On page 5, the Villanueva majority notes that the president of Saybolt Latin America (an intermediate Core subsidiary) fired Villanueva in a letter "written in Spanish[.]" While reading this phrase, I had the sense that the ARB majority was motivated not so much by the remedial purpose of SOX as by the administrative inconvenience of helping whistleblowers from different cultures. On page 29, Judge E. Cooper Brown noted the majority's concern, on page 10, about how its decisions could be enforced extraterritorially. Certainly I would agree that the Department of Labor (DOL) ALJs are overworked. To me, however, the solution should not be to limit DOL services to whistleblowers in this country, but rather to explain how the remedial purpose of SOX requires protection of whistleblowers throughout the world, and then ask Congress to authorize the hiring of the necessary ALJs and enforcement attorneys.
Earlier this week, I submitted comments to DOL's new rules for SOX cases that reflect the changes enacted in the Dodd-Frank Act. On pages 5-6, I urged the DOL to adopted a new rule that makes clear that SOX has the same extraterritorial reach as the SEC's enforcement authority. It makes no sense that U.S. securities law would require publicly traded companies to file reports that accurately reflect the state of the entire business -- including foreign operations -- and then deny protection to employees operating within those foreign operations who raise concerns about the propriety of company operations and reports. Hopefully, DOL leadership will see this wisdom and correct this policy in their final SOX regulations.
In the continuation of this blog entry, I discuss the majority opinion's reasoning and the insights of the two dissents. I also provide a tip for SOX practitioners with extraterritorial issues.Continue Reading...