by Stephen Kohn
• Employee rights under the whistleblower protection law “may not be waived by any agreement, policy, form, or condition of employment,” and mandatory arbitration agreements are void. Although the Consumer Financial Protection Act does not have a rewards provision, cases investigated by the Consumer Bureau may also implicate violations of securities laws. Employees raising concerns with the Bureau should carefully consider whether they should also file a rewards claim under the other provisions of the Dodd-Frank Act, or another qui tam law.
Consumer Product Safety
In 2008 the American public was shocked when millions of products were recalled for safety hazards, including lead-laden toys imported from China and toothpaste contaminated with toxic chemicals. In response, Congress enacted strong reforms of safety standards governing consumer product safety. Despite sustained opposition from the National Association of Manufacturers, Congress included strong whistleblower protections in the Consumer Products Safety Act of 2008.
The law was modeled after the Sarbanes-Oxley Act but incorporated significant improvements, including an explicit right to have a case heard by a jury and obtain compensatory damages. A claim must be filed within 180 days with the U.S. Department of Labor. The DOL investigates the claim and provides the employee with preliminary relief if the investigation confirms that a termination was retaliatory. Both the employee and employer can appeal the results of the investigation, and they are entitled to a full evidentiary hearing within the DOL and two levels of appeal. After exhausting administrative remedies, which occurs if the DOL does not issue a final order in 210 days from the filing of the complaint, the employee has the right to file his or her claim in U.S. District Court and have the case decided by a jury. Internal disclosures are fully protected, as are disclosures to regulatory or law enforcement officials.
Corruption in Federal Spending/Enhancement of Contractor Protection Act of 2016
One of the first major laws enacted under President Obama allocated hundreds of billions of dollars for federal spending on countless programs designed to “stimulate” the economy. With that much money at stake, the potential for abuse was evident. Congress recognized that whistleblowers were key to overseeing this enormous spending bill and enacted tough whistleblower protections. The law covered not only private contractors, but also state and local employees whose agencies would obtain billions in aid.
Under this law, employees must file their retaliation claims with a federal inspector general within 180 days of an adverse action. The inspector general is required to conduct an investigation—which could result in early findings in favor of the whistleblower and possible settlement. After exhausting this “administrative remedy,” the employee may file his or her lawsuit directly in federal court. A judge can then hear the case. Employees who prevail are entitled to reinstatement, back pay, compensation of damages, as well as attorney fee and costs. A “stimulus” retaliation claim does not preclude an employee from also seeking protection under other state or federal laws, including the False Claims Act. See Rule 6.
When the stimulus whistleblower bill was passed, a new push was immediately initiated to extend the scope of this law. Why should employees who expose fraud in stimulus spending be protected, while employees who expose fraud in other taxpayer sponsored programs lack protection? This glaring loophole was partially closed on January 3, 2013, when President Obama approved the Pilot Program for Enhancement of Contractor Protections. This “pilot program” was included as an amendment to the 2013 Defense Authorization Act, and established protections for employees who exposed waste, fraud, and corruption in most federal contracting. The law is similar to the Stimulus Act but only applies to federal contracts or grants approved after the “pilot program” takes effect.
In 2016 the Pilot Program was made permanent. In many cases the False Claims Act will offer federal contractors a better remedy; the 2016 Enhancement of Contractor Protection Act does offer employees tools that can be helpful in protecting one’s job. These include a broad definition of protected activity (including internal complaints), a pro-employee burden of proof, and the ability to have a claim investigated by the Office of Inspector General before having to decide whether or not to file a complaint in federal court. The law also provides for reinstatement, back pay, compensatory damages, and attorney fees and costs. Section (c)(7) of the law should prohibit mandatory arbitration of disputes. The Enhancement Act does not cover contractors performing work on behalf of the “intelligence community.” The False Claims Act contains no such exception.
Criminal Obstruction of Justice/RICO
In 2002 Congress amended the obstruction of justice laws and prohibited retaliation against whistleblowers. Enacted as part of the Sarbanes-Oxley Wall Street reform legislation, the amendment made it a criminal offense to fire any whistleblower who provided truthful information to any federal law enforcement agency regarding potential violations of federal law. The law was codified as 18 U.S.C. § 1513(e). Retaliation against whistleblowers was criminalized.
The law is very clear: “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 to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more then 10 years, or both.”
The law does not permit whistleblowers to sue for damages. Instead, as a criminal law it is the responsibility of the U.S. Attorney’s Office to file criminal charges against the retaliator. Whistleblowers who suffer damages as a result of a violation of this law may be entited to restitution under federal victim protection laws.
The federal obstruction statute also reaffirmed old Supreme Court precedent that upheld the right (and duty) of every citizen to report crimes to the police. More than 120 years ago, in In re Quarles and Butler, the Court held: “It is the duty and right . . . of every citizen . . . to communicate to the executive officers any information which he has of the commission of an offense against those laws; and such information, given by a private citizen, is privileged.”
In 2010, as part of the comprehensive Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress again took a stab at using the criminal obstruction laws to protect whistleblowers. This time they did not leave it up to U.S. attorneys to protect workers. Congress explicitly referenced § 1514(e) as one of the laws an employee could rely on to file a private antiretaliation lawsuit.
In the new antiretaliation law incorporated into section 21F of the Securities Exchange Act, Congress prohibited every “employer” from retaliating against any employee for providing information to federal law enforcement. The law explicitly references disclosures made under the obstruction of justice statute, “section 1513(e) of title 18, United States Code.” Under this law employees can file antiretaliation lawsuits directly in federal district court, and if they prevail they are entitled to reinstatement, double back pay, and attorney fees.
In 2011 the U.S. Court of Appeals for the Seventh Circuit considered whether retaliating against a whistleblower in violation of the Obstruction of Justice statute violated the Racketeer Influenced and Corrupt Organizations Act (better known as “Civil RICO”). Michael J. DeGuelle worked in the tax department of S.C. Johnson & Son, Inc. He was fired after reporting millions of dollars in alleged tax fraud schemes to the company and federal law enforcement agencies. Mr. DeGuelle sought protection under the RICO statute because he contacted federal cops and suffered more than two acts of retaliation. The Court ruled that whistleblowers who are retaliated against in violation of § 1514(e) can sue their employer under the Civil RICO statute, provided they meet the other qualifications under that act. The RICO statute provides very strong remedies for victims who suffer a harm caused by a RICO violation, including double damages. Civil RICO cases are filed directly in federal court and a jury trial is available. Although this holding
was only adopted by one appeals court, the logic of the ruling was very strong and other courts should follow this precedent.
Discrimination Laws
Every major employment discrimination law contains an antiretaliation provision. They prohibit retaliation against employees who oppose discriminatory practices or who blow the whistle on violations of equal employment opportunity laws, such as Title VII of the Civil Rights Act and the Age Discrimination Act.
Just as a whistleblower in the corporate area plays a key role in protecting shareholders from fraud, employees are also encouraged or expected to report incidents of race, sex, disability, national origin, and other forms of on-the-job discrimination to the proper authorities. These whistleblower-related disclosures are viewed by the courts as key for the proper functioning of civil rights laws.
The employment discrimination laws that include antiretaliation provisions include Titles VII and IX of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination Act, the Fair Labor Standards Act, the National Labor Relations Act, the Family and Medical Leave Act, the Employee Polygraph Protection Act, the Migrant and Seasonal Agricultural Workers Act, and the Employee Retirement Income Security Act.
Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 22, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. This two thousand–page law was heralded as the most important overhaul of the rules governing the U.S. economy since the Great Depression of the 1930s. Chairman of the Senate Banking Committee, Senator Christopher Dodd, explained why Congress enacted such sweeping regulatory reforms:
Over the past two years, America has faced the worst financial crisis since the Great Depression. Millions of Americans have lost their homes, their jobs, their savings and their faith in our economy. The American people have called on us to set clear rules of the road for the financial industry to prevent a repeat of the financial collapse that cost so many so dearly.
The reforms impacted the entire financial sector of the U.S. economy, changing rules governing everything from mortgages, consumer credit, financial products, bailouts, regulatory transparency, hedge funds, “over-the-counter derivatives,” and “asset-backed securities,” corporate governance, investor protections, enforcement procedures, the operations of the Federal Reserve System, and regulation of foreign exchange transactions.
As Congress debated the law, there was a strong consensus that whistleblower protection was essential for the enforcement of securities laws. Employees would be enlisted to help ensure that investors, consumers, mortgage holders, and taxpayers were not ripped off by sophisticated fraud in the sale of commodities, stocks, and bonds that underpin the American economy. The regulatory safety net designed to prevent fraud on Wall Street was broken. Employees with inside information were needed to “provide a vital early warning system to detect and expose fraud in the financial system.”
After months of blocked filibusters, compromises, and legislative horse-trading, the Dodd-Frank Act emerged as one of the most important milestones for protecting corporate whistleblowers ever enacted in the United States. The law did not contain just one whistleblower protection provision. There were eight separate sections creating or enhancing corporate whistleblower rights, including two new qui tam laws, new antiretaliation laws attached to the Securities and Commodity Exchange Acts, major reforms of the Sarbanes-Oxley whistleblower law, new whistleblower protections under federal consumer protection laws, an amendment to the False Claims Act antiretaliation law, and a statutory requirement that the Securities and Exchange Commission create a whistleblower protection office. These legislative milestones set the stage for the future of corporate whistleblower protection.
Perhaps the most important whistleblower protections contained in the Dodd-Frank Act created qui tam procedures for commodities and securities fraud. They were based on the whistleblower provisions of the FCA and the IRS code. Like these two laws, under the Dodd-Frank Act employees or “relators” can file fraud and misconduct charges against their employers (or other companies or “traders” in the financial services industry) and, if validated, obtain a significant financial reward. Like the FCA, the laws also prohibit retaliation against employees who file these claims. Additionally, like the IRS tax whistle-blower law, the SEC is required to establish a new whistleblower protection office dedicated to enforcing whistleblower rights.
The new qui tam laws also contained a new, unique feature that for the first time permits whistleblowers to file their claims completely anonymously. The whistleblower can file his or her claim through an attorney, and the government regulators do not even know the name of the employee. Only after the employee actually wins his or her case, and is entitled to a reward, would the government regulators actually learn the identity of the whistleblower. The ability of employees to file anonymous claims is a major breakthrough for whistleblower rights. The Dodd-Frank Act is the first whistleblower protection law that permits anonymous filings.
The qui tam–related whistleblower laws include the following:
• A qui tam whistleblower incentive law mandating the payment of rewards to whistleblowers who provide inside information on violations of the Security Exchange Act or “SEA.” Employees who disclose “original information” to the SEC regarding violations of the securities laws would be entitled to between 10 percent and 30 percent of any monetary sanctions obtained by the United States. These sanctions are not just limited to fines and penalties, but also include “disgorgement” penalties, which force companies to pay to the government the value of all of the benefits it obtained from its wrongful acts. Employees can file their reward claims confidentially, and if a claim is denied, the decision of the SEC can be appealed in court.
• A qui tam whistleblower incentive law mandating the payment of rewards to whistleblowers who provide inside information on violations of the Commodity Exchange Act or “CEA.” Employees who disclose “original information” to the Commodity Futures Trading Commission (CFTC) regarding violations of the commodities trading laws would be entitled to between 10 percent and 30 percent of any monetary sanctions obtained by the United States, including monies obtained as part of a disgorgement. Employees can file their reward claims confidentially, and if a claim is denied, the decision of the CFTC can be appealed in court.
• The qui tam provisions cover not only violations of the SEA and CEA, but also other laws enforced by these agencies, most notably the Foreign Corrupt Practices Act.
• New antiretaliation laws prohibiting discrimination against any person who files a qui tam claim under the CEA or SEA. These laws provide direct access to U.S. district court and provide for jury trials. The CEA antiretaliation law permits employees to obtain reinstatement, back pay, special damages, and attorney fees and costs. The law has a two-year statute of limitations and prohibits mandatory arbitration. The SEA antiretaliation law is similar, but it provides for double back pay and has a more liberal statute of limitations. Under the SEA, claims must be filed “three years after the date when facts material to the right of action are known or reasonably should have been known.” Because this date is not tied to the date of the adverse action, the law also requires that any employment claim be filed within ten years of the adverse employment action. Neither the CEA nor the SEA whistleblower law are “exclusive,” and employees can combine lawsuits under these two new laws with other state or federal protections, such as the Sarbanes-Oxley Act or the newly created whistleblower protections covering the Consumer Financial Protection Bureau.
• A requirement that the SEC establish a whistleblower protection office and implement formal rules ensuring that the rewards program is properly administered. It is critical that any employees who file securities or commodities qui tam claims carefully study the rules and regulations of the new SEC whistleblower protection office (and any counterpart established or implemented by the CFTC). Both of the new qui tam laws
require that all claims filed strictly comply with the regulations issued by these agencies. A whistleblower can be disqualified from obtaining a reward simply for failing to follow these regulations. Thus, before a claim is officially filed, any whistleblower must review these rules and file his or her claim accordingly. These requirements are set forth in Checklist 7.
In addition to the qui tam provisions, the Dodd-Frank Act also revamped and expanded other antiretaliation laws that apply to corporate America. The most important of these reforms were key enhancements to the 2002 Sarbanes-Oxley Act. The SOX was originally intended to be a “Cadillac” whistleblower protection law, but a series of terrible court rulings created massive confusion as to the scope of the law and effectively undermined its utility. Employee claims were regularly dismissed on narrow technicalities. For example, some courts ruled that the protections only applied to the actual “publicly traded” corporation and did not apply to a subsidiary of a publicly traded corporation. This holding, although not uniformly applied, devastated coverage under the SOX, as many “publicly traded” companies conducted the vast amount of their business through wholly owned subsidiaries.
Responding to these devastating court rulings, the SOX was amended and enhanced in the following manner:
• The right to a trial by jury was made explicit in the law;
• Subsidiaries of publicly held corporations were explicitly added to the type of employers covered under the SOX;
• The statute of limitations was lengthened from 90 days to 180 days;
• Mandatory arbitration was prohibited.
• Corporate rating organizations, such as Moody’s and Standard and Poor’s, were included in the definition of employers covered under the SOX.
