Whistleblower Protection Blog : Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

The NWC strongly supports the rights of employees to work with their supervisors and compliance departments to ensure safety or expose fraud, and has vigorously condemned legal rulings that have stripped protection for these activities.  In fact, the NWC requests that the SEC make all those publicly traded corporations and their subsidiaries regulated under the Securities and Exchange Act and/or the Dodd-Frank Act, accountable to one uniform standard for compliance programs. This ensures shareholders, investors, and taxpayers receive the same level of protection in detecting and preventing corporate fraud.

The law firm of Baker Donelson is requesting that a series of provisions be implemented to prevent “abusive and frivolous whistleblower claims.” The fear of frivolous complaints is unwarranted and not supported by the facts. For example, the Sarbanes-Oxley whistleblower law contains a provision, sanctioning those whistleblowers that file a frivolous or abusive complaint. In more than 1,000 cases over eight years, the Department of Labor only lists five employer requests for sanctions and every request for sanctions was ultimately denied.

Lastly, the NWC is highly opposed to Baker Donelson’s proposal to have the SEC place restrictions on attorneys representing whistleblowers. Such restrictions are completely contrary to the requirement that the Dodd-Frank whistleblower rules be “user-friendly,” and would make it almost impossible for corporate whistleblowers to find an attorney willing to represent them in Dodd-Frank cases.

The SEC is holding a public meeting tomorrow at 10:00 am to consider whether to propose rule to implement the whistleblower provisions of the Dodd-Frank Act. We hope that the SEC has not been swayed by the Corporate Lobby and that the proposed rules uphold the Congressional intent to protect whistleblowers.

Read the NWC Letter to SEC opposing corporate lobby position

Baker Donelson letter representing corporate lobby position

Arent Fox letter representing corporate lobby position

The amicus brief was filed on behalf of the National Whistleblowers Center (NWC) and the Government Accountability Project (GAP). GAP attorneys Kasey Dunton-Dermont and Tom Devine assisted with the brief.

The SOX provision at issue is 18 U.S.C. §1514A(b)(1)(B).  It provides that if the Department of Labor (DOL) does not issue a final order within 180 days, then the complainant can file a de novo civil action in U.S. district court.  

Between 1999 and 2005, David Stone became a quick climber of the corporate ladder at Instrumentation Laboratory Company (IL).  Promoted twice, we went from a Sales Representative to Director of National Accounts.  In this national management position, Stone learned that IL had not been paying required administrative fees to Group Purchasing Organizations (GPOs). Combined with internal control problems, this meant that IL was misrepresenting its financial condition to investors. Stone reported these problems to corporate officials who promptly began retaliating.  First they gave Stone a bad performance appraisal.  Then, in March 2006, they fired him.

Stone filed a SOX whistleblower complaint with DOL's Occupational Safety and Health Administration (OSHA) which (as it does in most cases) found no merit in the complaint.  Stone appealed to an administrative law judge (ALJ) who dismissed the case without allowing Stone to have discovery or a hearing.  It is no wonder then that Stone decided to leave the DOL process and file in federal court.

The federal judge, however, also did not want to hear the case.  Citing a decision from Louisiana, and a comment by the Secretary of Labor, the judge said that allowing Stone to have a trial after the ALJ had issued a recommended decision was an "absurd result."  Ignoring the plain language of SOX, the judge ordered that the case go back to DOL for a final decision.  Stone appealed.

In our amicus brief, NWC and GAP argue that the plain and clear language of SOX controls, and it was an error for the judge to refuse to hear Stone's case.  The brief notes that the Fourth Circuit reached the same conclusion for discrimination cases under Title VII, holding that de novo review “makes clear” that the trial in district court “proceeds as if no earlier proceedings had been completed at all.” Laber v. Harvey, 438 F.3d 404, 421 (4th Cir. 2006). Other courts have also followed SOX the way it is written, allowing de novo litigation. JDS Uniphase Corp. v. Jennings, 473 F.Supp.2d 705, 710 (E.D. Va. 2007); Collins v. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365, 1374 (N.D. Ga. 2004).

The brief argues that legislative history need not be considered when the statute's language is clear. Nevertheless, the history of SOX supports what the language says.  Senator Patrick Leahy stated “Only if there is not a final decision within 180 days of the complaint (and such delay is not shown to be due to the bad faith of the claimant) may he or she bring a de novo case in federal court with a jury trial available.” Legislative History of Title VIII of HR 2673, the Sarbanes-Oxley Act of 2002, Section 806, 148 Cong. Rec. S7418, S7420 (July 26, 2002).  Congress clearly knew what it was saying.  In fact, Congress has said it six more times in the whistleblower laws it has passed since enacting SOX in 2002:  Energy Reorganization Act, 42 USC 5851(b)(4); Surface Transportation Assistance Act, 49 USC 31105(c); National Transit Systems Security Act of 2007, 6 USC 1142(c)(7); Federal Rail Safety Act, 49 USC 20109(d)(3); Defense Authorization Act, 10 USC 2409(c)(2); and Consumer Product Safety Improvement Act, 49 USC 2087(b)(4).

The brief concludes that it is not “absurd” to follow the law as Congress wrote it.  A decision is expected by the end of 2009.  Click here to download the Brief of Amici Curiae.

In 2004, Aetna hired Guyden to be its Director of Internal Audit. Guyden promptly recognized that her department was “ineffective, demoralized, and without independence or objectivity.” She believed that Aetna was in violation of 17 C.F.R. § 229.308(a)(3), a SOX rule that requires corporate officers to certify that the company's internal controls are “effective.” She reported her concern to senior management, and asked for additional resources for her department. Within a few months, she had worked the issue through Aetna's CFO and CEO. A week after meeting the CEO, Guyden received a reduced performance evaluation. She succeeded in getting the company to hire an outside auditor, but management withheld the report from the company's Audit Committee. Ten days before the next Audit Committee meeting, Aetna fired Guyden and barred her from the Audit Committee meeting.

Guyden filed a written complaint with OSHA within 90 days of her discharge, claiming that Aetna's discharge of her violated SOX's employee protection, 18 U.S.C. § 1514A. After OSHA failed to rule on her complaint within 180 days, Guyden filed a federal lawsuit against Aetna and asked for a jury trial.

Aetna moved to dismiss the complaint and compel arbitration based on an arbitration agreement that Guyden had signed. Aetna's form application for employment said that if Guyden were “offered employment [at Aetna], a condition of the offer and [her] acceptance [was] that [she] agree[d] to use Aetna’s mandatory/binding arbitration program rather than the courts to resolve employment-related legal disputes.” Guyden also signed other documents providing for mandatory arbitration of any claims she might later have against Aetna.

Aetna's arbitration agreement limited each side to just one deposition, plus depositions of any expert witnesses, unless the arbitrator found additional depositions were necessary. It required both sides to keep the entire process, and the final decision, confidential. It also required that the arbitrator issue only a "brief summary" of the arbitrator's opinion.

Guyden argued that mandatory arbitration is contrary to the public policy of SOX's employee protection, and that this particular arbitration agreement would prevent her from vindicating her statutory rights. The federal district court disagreed and dismissed Guyden's case.

The court of appeals held that the Federal Arbitration Act (“FAA”) encourages arbitration, and that the Supreme Court has enforced arbitration agreements that cover statutory rights. The court said that for the whistleblower provision, SOX's primary purpose, "is to provide a private remedy for the aggrieved employee, not to publicize alleged corporate misconduct." The court also noticed that both Houses of Congress rejected versions of SOX that would have prohibited mandatory arbitration of whistleblower claims.

Helpfully, the court also held that a whistleblower need not show that the corporate defendant committed fraud to prevail in her retaliation claim under § 1514A. The statute only requires the employee to prove that she “reasonably believe[d]” that the defendant’s conduct violated federal law. 18 U.S.C. § 1514A(a)(1). The court, however, held that Guyden's concerns about the confidentiality clause, “rest on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants” and consequently are “far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes.” Quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30 (1991). The court did so even though it assumed that public litigation of SOX whistleblower claims would create a positive incentive for potential whistleblowers to come forward.

The National Employment Lawyers Association (NELA) has prepared a fact sheet on mandatory arbitration of employment claims. It is available at:
http://www.nela.org/NELA/index.cfm?event=showPage&pg=mandarbitration

The NELA fact sheet explains how arbitration agreements are written by company lawyers in a way that favors the company. Costs for the employee can be high. Since arbitrators know that their future business depends on a company's approval, employees often feel that they are biased in favor of the company. And the public never gets to learn about corporate misconduct exposed during the arbitration process.

That is why civil rights groups support the Arbitration Fairness Act, H.R. 3010 and S. 1782. These groups include NELA, the Lawyers’ Committee for Civil Rights Under Law and the Leadership Conference on Civil Rights. Testimony in support of this bill is at:
http://edlabor.house.gov/testimony/2008-02-12-MichaelForeman.pdf

Rep Hank Johnson sponsored the bill. It has 103 co-sponsors and was favorably reported by the House Judiciary Committee, Commercial and Administrative Law Subcommittee on July 15, 2008.
 

Unfortunately (yet predictably), since 2002, the Administration has refused to protect corporate whistleblowers in a manner consistent with SOX. Law professor Richard Moberly's disheartening research indicates that only 3.6% of  SOX whistleblowers have been able to obtain relief through the administrative (Department of Labor) process. The problem lies, partly, in the Administration's attempts to thwart whistleblowers by creating a loophole in the law.

A recent Wall Street Journal article  details how the Department of Labor has adopted an overly narrow interpretation of the SOX. The DOL has taken the absurd position that if you are employed by a subsidiary of publicly traded company, then you are not protected by the whistleblower provisions of SOX. I believe that this is an untenable position, and so do a couple of prominent members of the Senate Judiciary Committee. 


Senators Grassley and Leahy, who were principal sponsors of SOX and are longtime champions of whistleblowers, have begun to take action on this issue. They have sent a sternly worded letter to Secretary of Labor Elaine Chao demanding answers on the Administration's position, which is highly inconsistent with the broad language found in the SOX legislation.

For further information on this issue, please view this letter, written to Senator Arlen Specter by Pittsburgh attorney Jason Archinaco. This letter details the problems with the DOL's misguided policy, and includes attachments, such as the above referenced letter authored by Senators Grassley and Leahy.

Mr. Archinaco is a member of our Attorney Referral Service who represented UBS whistleblower Timothy Flynn.