In recent months, a number of important new developments—judicial and otherwise—have expanded the rights of individuals, even those based overseas, to assert whistleblower rights under the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Report and Consumer Protection Act of 2010. Namely:
- In September, the SEC made its largest Dodd-Frank whistleblower bounty award ever—for $30 million—to a foreign national who submitted to the SEC from overseas evidence of his employer's alleged unlawful conduct, which occurred entirely overseas.
- In March, the Supreme Court issued its groundbreaking decision in Lawson v. FMR,1 expanding Sarbanes-Oxley's whistleblower protection beyond employees of publicly traded companies to employees of company officers and contractors.
- Sean McKessy, chief of the SEC Office of the Whistleblower, recently vowed to pursue the thousands of cases that have piled up in that agency.
- The Department of Labor, for its part, has announced it is seeking, in 2015, an additional $4 million and 27 full-time employees for its whistleblower program.
- And in September, Attorney General Eric Holder advocated an increase in the maximum number of permissible whistleblower awards, specifically to incentivize financial fraud whistleblowers.2
A Bit of History
Dodd-Frank and SOX provide private causes of action for whistleblowers who suffer retaliation. Both statutes require a plaintiff asserting a whistleblower claim to show that he engaged in protected activity, that he suffered an adverse employment action, and that the adverse action was causally connected to the protected activity.
There are significant differences between the Dodd-Frank and SOX anti-retaliation provisions. SOX requires an employee to file a complaint with the U.S. Department of Labor, but Dodd-Frank permits an employee to proceed directly to federal district court.
SOX requires an employee to file with the Labor Department within six months after the alleged retaliation, but the Dodd-Frank statute of limitations can be up to 10 years.
In 2006, the rule was that a protected communication under SOX must "definitively and specifically" relate to a violation or rule listed in Section 806 of Sarbanes-Oxley—mail fraud, wire fraud, bank fraud, securities fraud, any rule or regulation of the SEC, or any provision of federal law relating to fraud against shareholders.3
But in 2011, the Obama Department of Labor reversed this standard, holding, in Sylvester v. Parexel Int'l, that a SOX whistleblower plaintiff need not specifically allege that the defendant's conduct constitutes fraud against shareholders. Instead, a showing that the whistleblower "reasonably believed" the defendant's conduct violated any of the enumerated statutes is enough to permit the claims to survive.4
Perhaps most significantly, Dodd-Frank provides bounties for certain whistleblowers. Under Dodd-Frank's amendments to the Securities Exchange Act, whistleblowers who voluntarily provide original information to the SEC, which leads to an SEC enforcement action and recovery of more than $1 million, can collect a monetary award ranging between 10 and 30 percent of the monetary sanctions collected.
U.S. multinationals have breathed collective sighs of relief as federal courts, and even the Labor Department, have almost uniformly held that overseas whistleblowers have no remedy under SOX for claims of alleged wrongful conduct occurring outside the United States.5
Over this summer, the Second Circuit affirmed this point of view in Liu v. Siemens.6 The plaintiff was a resident of Taiwan employed by the Chinese subsidiary of a German company. He complained about allegedly corrupt activities that took place in China, North Korea, and Hong Kong, and the decision to fire him was made in China and/or Germany. Siemens' securities were publicly listed on the New York Stock Exchange, but the Second Circuit held that this did not provide a sufficient nexus to provide jurisdiction here.
Employers therefore may be on reasonably solid ground if they view as remote the risk of a successful whistleblower lawsuit under SOX or Dodd-Frank from an overseas employee.
But employers should not get too comfortable—on Sept. 22, 2014, the SEC awarded between $30 and $35 million to a foreign resident who provided information to that agency that led to successful enforcement action against an unidentified multinational company. In fact, the award could have been even higher, but, the SEC noted, the whistleblower unreasonably delayed bringing his or her concerns to the agency's attention.7
The SEC stated its view that there exists "a sufficient U.S. territorial nexus [to justify a bounty award under Dodd-Frank] whenever a claimant's information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the [SEC]."
In those circumstances, "it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas."
The SEC stated that Liu v. Siemens was not controlling—"the whistleblower [bounty] award provisions [of Dodd-Frank] have a different Congressional force than the anti-retaliation provisions, which are generally focused on preventing retaliatory employment actions and protecting the employment provisions."
Thus, there's the fine line: No cause of action for overseas whistleblowers who believe they are victims of retaliation; but if they bring their concerns to the SEC, which prosecutes and obtains an award, they can collect, regardless of whether their employer is located along the banks of the Hudson or the Yangtze.
In Lawson v. FMR, the Supreme Court ruled that SOX does not only protect public company employees from retaliation. Lawson extended SOX whistleblower rights to private company employees, so long as they work for an "officer, employee, contractor, subcontractor, or agent of [a public company]."
The plaintiffs in Lawson were employees of private companies that contract to advise or manage mutual funds, and they allegedly blew the whistle on fraud related to those funds. In holding that SOX protected the plaintiffs against retaliation by SOX despite the fact that they were not employed by a public company, the court noted that the fraud perpetrated by Enron succeeded in large part due to a "corporate code of silence" that discouraged employees of Enron's accounting firm—a private company—from reporting the misconduct.
The court therefore noted that protecting these private company employees from retaliation was consistent with Congress' intent, in enacting SOX, to "safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron."
Surely, though, this extension of whistleblower rights to private company employees to sue for retaliation must be limited to claims they make of wrongdoing connected with the subcontractor's or employee's work for the publicly traded company, yes? That is, the private company employees should not be able to sue for retaliation unless the wrongdoing of which they complain relates to the work that they performed for the public company?
Well, no. The court dismissed as "hypothetical" the dissent's concern, and that of various amici, that the majority opinion protects employees "who have no exposure to investor-related activities and thus could not possibly assist in detecting investor fraud."8
Justice Sonia Sotomayor's dissent states the issue plainly: "The Court's interpretation gives [SOX] a stunning reach." In a string of reductio ad absurdum hypotheticals, the dissent identifies scenarios that have no bearing on investor fraud, but which, according to the majority, would be protected by SOX:
"If, for example, a nanny is discharged after expressing a concern to his employer that the employer's teenage son may be participating in some Internet fraud, the nanny can bring a [whistleblower] suit."
"[A] construction worker could file a [whistleblower] lawsuit against her employer (that has a long-term contract with a public company) if the worker is demoted after reporting that another client has mailed the company a false invoice."
"A babysitter can bring a [retaliation] suit against his employer if his employer is a checkout clerk for the local Petsmart (a public company) but not if she is a checkout clerk for the local Petco (a private company)."
The good news is that post-Lawson, the courts seem to be adopting a more narrow view of the SOX whistleblower remedy.
In August, for example, in Nielsen v. Aecom Technology Corp.,9 the U.S. Court of Appeals for the Second Circuit held that the plaintiff's allegations of retaliation for complaining about fire safety standards did not reflect a reasonable belief that the employer carried out shareholder fraud, mail fraud, wire fraud, bank fraud, or securities fraud.
The Nielsen court took note of the ARB's statement in Sylvester v. Parexel, that "[i]t may well be that a complainant's complaint concerns such a trivial matter," in terms of its relationship to shareholder interests, 'that he or she did not engage in protected activity under [§1514A].' We conclude that this is such a case."10
The Second Circuit's comments in Nielsen suggest that there are indeed limits to the types of issues that are protected by SOX and that the Lawson dissent's concerns may be unfounded. The decision provides hope that courts will look at these issues in a way that takes account of the intent behind SOX and Dodd-Frank—as the Lawson court put it, "To safeguard investors in public companies and restore trust in the financial markets…."11
1. 134 S. Ct. 1158 (2014)
2. See I. Schuman & J. Lazazzero, "U.S. Attorney General Holder Calls for Increased Bounty Awards for Financial Whistleblowers", Littler Workplace Policy Update (Sept. 18, 2014, Littler Mendelson, P.C. publication), http://www.littler.com/workplace-policy-update/us-attorney-general-holder-calls-increased-bounty-awards-financial-whistlebl.
3. Platone v. FLYi, ARB No. 04-154, ALJ No. 2003-SOX-27 (Sept. 29, 2006),
4. ARB Case No. 07-123, ALJ Nos. 2007-SOX-039 and 2007-SOX-042 (DOL May 25, 2011).
5. See Villanueva v. Core Labs. NV, Saybolt de Colombia Limitada, ARB Case No. 09-108 (DOL Dec. 22, 2011); accord Carnero v. Boston Scientific Corp., 2004 U.S. Dist. LEXIS 17205 (D. Mass. Aug. 27, 2004), aff'd, 2006 U.S. App. LEXIS 135 (1st Cir. Jan. 5, 2006), cert. denied, 126 S. Ct. 2973 (2006). But seeO'Mahony v. Accenture, 537 F.Supp.2d 506 (S.D.N.Y. 2008.
6. 2014 U.S. App. LEXIS 15637 (2d Cir. 2014).
7. See Order Determining Whistleblower Award Claim, SEC Release No. 73174, File No. 2014-10 (Sept. 22, 2014).
8. Lawson, 134 S. Ct. at 1172 (citing to the Brief for Chamber of Commerce of the United States of America as Amicus Curiae and the Brief for Securities Industry and Financial Markets Association as Amicus Curiae 7-16.)
9. 762 F.3d 214 (2d Cir. 2014)
10. Sylvester v. Parexel Int'l, 2011 WL 2165854, at *19
11. Lawson at 1161.
Philip M. Berkowitz is a shareholder and U.S. co-chair of Littler’s International Law Practice Group. He is based in the firm’s New York City office. This article is reprinted with permission from the November 13, 2014 issue of the New York Law Journal. © ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.