Workforce Bulletin

By Allen B. Roberts, Douglas Weiner

The U.S. District Court for the District of Massachusetts held in Lawson v. FMR LLC (pdf) that SOX coverage can apply not only to employees of publicly traded companies, but to employees of private management services firms as well.

The typical business model in the financial services industry is that public mutual fund companies generally have no employees of their own, but are managed by private investment advisors. The public company’s investment assets are thus managed by employees of a private employer.

Plaintiffs, employees of a private investment advisor to a public mutual fund, alleged they had engaged in activity protected by SOX, for which they suffered retaliation. The employer moved to dismiss the lawsuit, arguing plaintiffs were not covered by the Section 806 whistleblower protections because they were not employees of a publicly traded company. The defendants noted the very title of the whistleblower section of SOX is “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud.” The plaintiffs countered that Congress intended to extend coverage to private employees in cases such as the plaintiffs.

The Lawson court, the first federal court to decide the issue, agreed with the putative whistleblowers and held that SOX covers employees of private firms providing contract services to the public company.

Like several other statutes, the Sarbanes-Oxley Act (“SOX”) requires whistleblowers to initiate their complaints by an administrative filing with the Department of Labor’s Occupational Safety and Health Administration. But when a preferred outcome in that designated arena appears unlikely, a whistleblower may be allowed to abandon the administrative process before a final order issues and seek a new opportunity in court.  Faced with the prospect of another round of de novo litigation, employers may turn increasingly to pre-dispute arbitration agreements as an alternative to litigating in court.

As exemplified by Stone v. Instrumentation Laboratory Co.(4th Cir. 2009) (pdf), filing an administrative complaint and participating in the administrative process, as required by SOX, do not foreclose access to a federal court before the issuance of a final administrative order. The court explained that the preclusion doctrine, intended to avoid duplicative litigation, does not bar de novo consideration by a federal district court if a lawsuit is filed at least 180 days after the administrative filing and before the Department of Labor has issued a final decision, even where administrative proceedings have progressed to Administrative Review Board consideration of an administrative law judge’s dismissal of a complaint. 

By Allen B. Roberts, Douglas Weiner

While most attention in the legislative and political process leading to enactment of the Patient Protection and Affordable Care Act (“PPACA”) focused on the significant impact on the delivery of health care, employers need to be aware, also, of amendments to the Fair Labor Standards Act ("FLSA"). The FLSA amendments impose certain employer responsibilities in providing health care benefits, confer whistleblower protections and authorize the U.S. Department of Labor ("DOL") to undertake increased enforcement related to health care.

While other features of the FLSA amendments are addressed in our client alert, "Health Care Reform Legislation Amends the Fair Labor Standards Act to Give the U.S. Department of Labor Increased Enforcement Authority over Health Care," here is a summary of whistleblower protections:

By: Allen B. Roberts, Victoria M. Sloan

Employers who thought they were free of exposure if no complaint was filed within the statute of limitations applicable in Sarbanes-Oxley ("SOX") and other whistleblower claims administered by the Secretary of Labor need to recalibrate their risk based on a recent decision allowing equitable estoppel.

In Hyman v. KD Resources, an employee missed the 90-day SOX statute of limitations by filing his complaint 160 days after he was discharged. Two newly appointed members of the Administrative Review Board (“ARB”) allowed the complaint to survive and remanded it to the Administrative Law Judge who had dismissed it as untimely.

By Stuart M. Gerson

Suits in the name of the United States under the Federal False Claims Act (“FCA”) brought by private individuals known as qui tam relators are among the most common forms of whistleblower actions in the federal system. The Supreme Court rendered its much-anticipated decision in Graham County Soil and Water Conservation District, et al. v. United States ex rel. Wilson (pdf), imposing a significant limitation on the ability of these relators to satisfy an important jurisdictional bar.

The FCA authorizes both the Attorney General and private qui tam relators to bring actions against persons who make or facilitate fraudulent claims for payment from the United States. However, in the absence of the government, a relator will be barred from proceeding on his own if the action is based upon the public disclosure of allegations or transactions in, inter alia, "a congressional, administrative, or Government Accounting Office ("GAO") report, hearing, audit, or investigation." 31 U. S. C. §3730(e)(4)(A). The Graham County case involved federal contracts and funding for the repair of flood damage. The relator, Wilson, a local government employee, alerted both federal and county and state officials to irregularities in performance. Both the county and the state issued reports making findings about these potential irregularities and Wilson thereupon filed a qui tam action against the county conservation districts administering the contracts. The District Court dismissed for lack of jurisdiction because it held that the allegations publicly disclosed in the county and state reports constituted "administrative" reports under the FCA's public disclosure bar. The Fourth Circuit reversed, holding that only federal administrative reports may trigger the public disclosure bar.