presents employee whistleblower claims under sox ...media.straffordpub.com/products/employee... ·...

presents

Employee Whistleblower Claims Under SOX: Preparing for New OSHA Enforcement

presents

Preparing for New OSHA Enforcement Avoiding and Defending Worker Retaliation Claims

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features:Diana L. Hoover, Partner, Hoover Kernell, Houston

Steve Kardell, Partner, Clouse Dunn Khoshbin, DallasC t L A d M B Chi

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Courtney L. Anderson, Mayer Brown, Chicago

Tuesday, June 8, 2010

The conference begins at:The conference begins at:1 pm Eastern12 pm Central

11 am Mountain10 am Pacific10 am Pacific

You can access the audio portion of the conference on the telephone or by using your computer's speakers.Please refer to the dial in/ log in instructions emailed to registrations.

For CLE purposes, please let us know how many people are listening at your location by y

• closing the notification box • and typing in the chat box your• and typing in the chat box your

company name and the number of attendeesattendees.

• Then click the blue icon beside the box to sendto send.

For live event only.y

• If the sound quality is not satisfactory• If the sound quality is not satisfactory and you are listening via your computer speakers please dial 1-866-873-1442speakers, please dial 1 866 873 1442 and enter your PIN when prompted. Otherwise, please send us a chat or e-, pmail [email protected] so we can address the problem.

• If you dialed in and have any difficulties during the call, press *0 for assistance.

Employee Whistleblower Claims Under SOX P i f N OSHA SOX: Preparing for New OSHA

EnforcementAvoiding and Defending Worker Retaliation ClaimsAvoiding and Defending Worker Retaliation Claims

J 8 2010June 8, 2010

Diana L. Hoover Steve Kardell Courtney L. AndersonHoover Kernell LLP Clouse Dunn Khoshbin LLP Mayer BrownH t T D ll T Chi Illi iHouston, Texas Dallas, Texas Chicago, Illinois713.655.7707 214.220.3888 [email protected] [email protected] [email protected]

4

Covered Companies

•A company is covered by section 806 of the Sarbanes‐Oxley Act of 2002 (the Act) if it has a class of securities registered ( ) gunder Section 12 of the Securities Exchange Act, or is required to file reports under Section 15(d) of that Act.

•The company’s contractors, subcontractors, or agents may also be covered.

5

Protected Activity

• provided information,

If an employer is covered under the Act, it may not discharge or in any manner retaliate against an employee because the employee:

p ,

• caused information to be provided, or

• assisted in an investigation by: a federal regulatory or law enforcement agency; a member or committee of Congress or an internal investigation by the companya member or committee of Congress, or an internal investigation by the company

relating to an alleged violation of mail fraud, wire fraud, bank fraud, securities fraud, or violating SEC rules or regulations or federal laws relating to fraud against shareholders Nor may an employer may discharge or in any manner retaliate againstshareholders. Nor may an employer may discharge or in any manner retaliate against an employee because he or she filed, caused to be filed, participated in or assisted in a proceeding under one of these laws or regulations.

6

Retaliatory Job Actions

A covered employer violates the Act if an employee’s protected activity was a contributing factor in the employer’s decision to take unfavorable employment action against the employee. Those adverse actions include:

• Discharge or layoff• Blacklisting• Demoting

• Denial of overtime or promotion• Denial of overtime or promotion• Disciplining

• Denial of benefits• Failure to hire or rehire

• Intimidation• Reassignment affecting prospects for promotion

• Reduction in pay or hours

7

Remedies•Back pay with interest

•Front pay•Compensatory damages

•Reinstatement•Reinstatement•Expert witness fees•Special damages

•Restoration of benefits•Attorney's fees and costs

•Injunctive relief•Sanctions (in limited instances)

Although the Act does not provide for punitive damages, the Tennessee Commerce case illustrates that where highly‐paid executives are involved, compensatory awards can be i ifi t d th fi i l i t t l b i ifi tsignificant and the financial impact to employers can be significant.

8

Recent Legal DevelopmentsGAO 2009 Report on Whistleblower Protection Program

http://www.gao.gov/new.items/d09106.pdf

•Whistleblowers received a favorable outcome in about 21 % of complaints closed in fiscal year 2007, according to OSHA’s data.

•Out of more than 1,800 complaints that were closed, roughly 66% were dismissed by OSHA and 14% were withdrawn by the whistleblower.

•When OSHA dismissed complaints, information from five regions suggests that it was often b th il bl id did t h th t th l h d i l t d th hi tl blbecause the available evidence did not show that the employer had violated the whistleblower provisions.

•Of the 21% of the complaints resulting in dispositions favorable to the whistleblower, 95% were settled.

•Of the remaining 5%, or 19 complaints, 12 were sent to the Solicitor’s Office for litigation. None of these complaints were actually litigated.

•In the remaining 7 complaints, OSHA sent Secretary’s findings and orders to the whistleblower g p , y gand the employer describing the corrective action that the employer needed to take.

9

Recent Legal Developments

Tennessee Commerce Bank; Preliminary Order

•Former CFO, George Fort, alleged he was fired in May 2008 after raising concerns about internal controls and insider trading with the bank’s audit committee and the FDIC.

•OHSA investigated the complaint and ordered the bank to reinstate Fort to his previous position and to pay him more than $1 million in back wages, interest, attorneys’ fees, and compensatory damages.

•The DOL publicized its preliminary order in press releases.

http://www.whistleblowers.org/storage/whistleblowers/documents/blogdocs/fortsigned%20secretarys%20findings%20and%20order%20fort%20v%20tncc2.pdf

10

Recent Legal DevelopmentsT C B k S b P diTennessee Commerce Bank; Subsequent Proceedings

•The bank appealed the investigator’s preliminary order and refused to reinstate Fort. The Secretary of Labor filed an enforcement action seeking immediate reinstatement.

•The District Court for the Middle District of Tennessee issued a preliminary injunction in Fort’s favor.

•On May 25, 2010, the Sixth Circuit granted the bank’s motion for a stay of the district court’s preliminary injunction.

•“We find that the defendants’ motion for a stay raises a substantial question as to the authority of the district court to issue the preliminary injunction…A balancing of the harms supports the issuance of the stay.”

Cf. Bechtel v. Competitive Techs., Inc., 448 F.3d 469 (2d Cir. 2006)

11

Recent Legal DevelopmentsE‐Smart Technologies•Employee questioned accuracy of several statements made in SEC filings

•Job duties removed and paychecks delayed

•OSHA ordered:

•company to pay back wages and damages totaling $600,000

•reinstatement

•post notices in workplace about whistleblower protection•post notices in workplace about whistleblower protection

•e‐Smart “has filed an Objection to the Order the Company received on February 26, 2010 from the Occupational Safety and Health Administration (OSHA) related to a Complaint filed by a Complainant against the Company (“Respondent”). In brief, Complainant alleged that Respondent constructively discharged him in retaliation for Complainant’s complaints regarding Respondent’s draft 10K public filing. e‐Smart objected in entirety and categorically to the Order contained in the Letter and requested an immediate hearing on this matter before an Administrative Law Judge. Moreover, e‐Smart has requested attorneys’ fees incurred in connection with the entirety of this matter and as proved at hearing.”

12

Recent Legal DevelopmentsL FMR LLC CA 08 10466 DPW (D M M 31 2010) Z Fid liLawson v. FMR LLC, CA 08‐10466‐DPW (D. Ma. Mar. 31, 2010); Zang v. Fidelity Management & Research Co., CA 08‐10758‐DPW (Mar. 31, 2010).

• Memorandum and Order denying motions to dismiss in two cases alleging unlawfulMemorandum and Order denying motions to dismiss in two cases alleging unlawful retaliation against employees of non‐public companies who complained of improper business activities

•Comprehensive analysis of:Comprehensive analysis of:

•Preclusive effect of filing litigation while complaint is on appeal to the ARB

•Status as covered employees when employed by a non‐public subsidiary of a bli l d dpublicly‐traded company

•Protected activities and reasonable belief

13

Best Practices to Avoid and Defend SOXBest Practices to Avoid and Defend SOX

Whistleblower Claims

Internal Complaint Procedures

A. Section 301 of SOX expressly requires the audit committees of publicly traded companies to implement mechanisms for the receipt, investigation, and tracking of anonymous employee complaints.

• Many companies use a hotline or helpline to receive reports of suspected violations, which can then be investigated.

• Complaints may also come in via calls to managers or human resources, or letters or emails to upper management.

•The different methods by which employees may report suspected misconduct should be well publicized

14



Internal Complaint ProceduresB. Helplines

•What employees are told about the helpline is important—reporting of issues that•What employees are told about the helpline is important—reporting of issues that could result in costly retaliation claims should be encouraged.

•Whether a helpline can be administered internally or requires the use of an outside vendor depends on the company’s particular needs.

•Internal helplines: may help save costs, and give a company more control over the critical initial reporting process

•Outsourced helplines: have greater capacity to staff the lines with around‐the‐clock coverage, in various languages, and are more likely to be perceived as confidential and anonymous.

•Helpline policies need to address: the organization and prioritization of reports, and the initial intake team that will be notified of the reportthe initial intake team that will be notified of the report

15




C. Investigation of Complaints

•Investigative teams are typically organized ad hoc based on the nature of the report, but should have no interest in the outcome of the investigation.

•Company personnel may be valuable investigators because they may have the necessary expertise and experience.

•Comprehensive training for employees who will be involved in whistleblower investigations is crucial

•Both attendance and substance of such training should be documented.

•Outside counsel or investigators may be necessary if internal resources are not adequate or appropriate to investigate whistleblower complaints.

16




C. Investigation of Complaints (continued)

•Confidentiality

•All involved in the investigation should be instructed to take extreme care to•All involved in the investigation should be instructed to take extreme care to maintain confidentiality

•Companies should also develop policies regarding when investigations will be reported to the Board of Directors.

17



Internal Complaint ProceduresD. Documentation of Investigations

• Documentation of the course of the investigation can help defeat later claims the• Documentation of the course of the investigation can help defeat later claims the employer did not take the complaint seriously

•SOX also provides penalties for companies that cannot produce accurate and complete documentation during a SOX‐related court action.

E. Geographic Considerations

•Multinational companies•Multinational companies

•Outsourcing helpline services may help overcome potential language barriers

•Cultural considerations are also important

•Local laws may also affect investigations

18


Whistleblower Claimsi d i li i l iPreventing and Managing Retaliation Claims

A. To the extent possible, do not disclose the whistleblower’s identity to his reporting chain

• Those managers should be shielded to the extent possible from the investigation.g p g

• Documentation of these efforts help to show the company’s good‐faith efforts to prevent any retaliatory conduct.

B. If the employee’s supervisors or other managers become aware of complaint:

• They should be instructed not to engage in any conduct that might be perceived as explicit or implicit retaliationp p

• HR should monitor the situation to ensure that the employee is not inadvertently or inappropriately demoted or disciplined.

• Consider separating the employee from his or her manager if the employee has p g p y g p yaccused the manager of wrongdoing.

19



Preventing and Managing Retaliation Claims

C. Employees need to be made aware that every effort will be made to keep reports anonymous and retaliation will not be tolerated.

• This should be communicated directly to an informant if his or her identity is known, and documented accordingly.

• Since some employees may choose to report anonymously, the company should also notify all employees, in writing, that anyone who retaliates, harasses, or discriminates against another employee for raising concerns will be subject to disciplinary action, up to and including termination.

20


Whistleblower Claimsi d i li i l iPreventing and Managing Retaliation Claims

D. Disciplining whistleblowers:

• If discipline is necessary, the company’s standard policies and procedures need to be followed

• Any disciplinary action should be comparable to discipline given to other employees in similar circumstances.

• The disciplinary decision should be carefully communicated to the employee so as to avoid a perception of retaliation. p p

• Documentation is crucial—

• Confirming that the disciplinary process was followed, and the decision was appropriately communicated to the employee

• Timely performance appraisals and contemporaneous documentation of performance deficiencies should be maintained

• Documentation any positive employment decisions or actions is also important

• Any reports of conduct that might be interpreted as retaliatory should be immediately• Any reports of conduct that might be interpreted as retaliatory should be immediately investigated and appropriate remedial measures taken

21



Defending a SOX Whistleblower Claim

A. When faced with defending a SOX claim, issues to consider include: (1) statute of limitations, (2) whether you’re a covered employer, (3) whether the employee’s activity was protected, and (4) whether the allegedly protected activity caused the adverse actionprotected, and (4) whether the allegedly protected activity caused the adverse action

B. Statute of Limitations

• Time favors the employer—claimants have only 90 day period to file claims

C i i l i i h h l b f h l i• Critical question is when the employee become aware of the employment action at issue and did they file their complaint on a timely basis? (See, e.g. Levi v. Anheuser Busch Companies, Inc., ARB Nos. 06‐102, 07‐020, 08‐006, ALJ Nos., 2006‐SOX‐27 and 108, 2007‐SOX‐55 (ARB Apr. 30, 2008); Corbett v. Energy East Corp., ARB No. 07‐044, ALJ N 2006 SOX 65 USDOL/OALJ R 4 (ARB D 31 2008))ALJ No. 2006‐SOX‐65, USDOL/OALJ Reporter at 4 (ARB Dec. 31, 2008))

22



Defending a SOX Whistleblower ClaimC. Covered employer

• If not a publicly‐traded company carefully consider whether the claimant has alleged a claim• If not a publicly‐traded company, carefully consider whether the claimant has alleged a claim against a covered employer

• Coverage of non‐publicly traded subsidiaries will depend on agency and the role that the publicly‐traded parent plays in the employment relationship. (See Walters v. Deutsche Bank AG, 2008‐SOX‐70 (ALJ Mar 23 2009); Johnson v Siemens Building Technologies ARB No 08‐032 ALJ No 2005‐70 (ALJ Mar. 23, 2009); Johnson v. Siemens Building Technologies, ARB No. 08 032, ALJ No. 2005SOX‐15 (ARB Apr. 15, 2010))

• Complaint does not have to name publicly‐traded company “so long as the complainant names at least one respondent who is covered under the Act as an officer, employee, contractor, subcontractor, or agent' of such a company." (See Andrews v. ING North America Insurance Corp.,subcontractor, or agent of such a company. (See Andrews v. ING North America Insurance Corp., ARB No. 06‐071, ALJ Nos. 2005‐SOX‐50 and 51 (ARB Aug. 29, 2008))

• Foreign employees generally are not covered, although a federal district court has held that the SOX whistleblower protections applied to a U.S. employee working overseas for a U.S. subsidiary of a foreign‐based corporation (See O’Mahony v. Accenture, Ltd., 537 F. Supp. 2d 506 (S.D.N.Y. g p ( y , , pp (2008))

23



Defending a SOX Whistleblower ClaimD. Protected Activity

• What exactly did the employee report? y p y p

• Fraud against the shareholders or securities violation (See e.g. Platone v. United States Dep’t of Labor, 548 F.3d 322 (4th Cir. 2008))

• “definitively and specifically” (See e.g. Van Asdale v.International Game Technology, No. 07‐16597 (9th Cir Aug 13 2009))16597 (9th Cir. Aug. 13, 2009))

• Complaint to employer v. OSHA complaint

• Reasonable belief

• Objective and subjective belief required (See e g Day v Staples Inc 2009 U S App LEXIS• Objective and subjective belief required (See e.g. Day v. Staples, Inc., 2009 U.S. App. LEXIS 2266 (1st Cir. Feb. 9, 2009))

• Belief regarding an existing violation required and potential violation insufficient (See e.g. Livingston v. Wyeth, Inc., 520 F.3d 344 (4th Cir. 2008); Walton v. Nova Information Systems, 2008 WL 1751525 (E.D. Tenn. 2008); Godfrey v. Union Pacific Railroad Co., 2008‐SOX‐5 (A.L.J.2008 WL 1751525 (E.D. Tenn. 2008); Godfrey v. Union Pacific Railroad Co., 2008 SOX 5 (A.L.J. April 30, 2008)).

24



Defending a SOX Whistleblower ClaimD. Causation

• The protected activity must be a contributing factor in the adverse action (See Harp• The protected activity must be a contributing factor in the adverse action. (See Harp v. Charter Communications, Inc., No. 07‐1445 (7th Cir. Mar. 16, 2009))

• If the adverse action would have been taken for other reasons, namely a reduction in force or a performance issue, an essential element is missing from the employee’s prima facie case. (See Robinson v. Morgan Stanley, ARB No. 07‐070, ALJ No. 2005‐SOX‐44 (ARB Jan. 10, 2010))

• Where a significant intervening event (e.g. violation of company policy warranting discipline) occurs after an employee blows the whistle causation fails (See Fraser vdiscipline) occurs after an employee blows the whistle, causation fails. (See Fraser v. Fiduciary Trust Co., Int'l, No. 1:04‐cv‐06958 (S.D.N.Y. Aug. 25, 2009) (case below 2003‐SOX‐28))

• A well‐managed termination processes, a business rationale, and supporting documentation are vital to these arguments.

25

presents employee whistleblower claims under sox ...media.straffordpub.com/products/employee... ·...

Documents