SEC and NELI Increase Reach for Whistleblower Laws

Contact the experienced employment law attorneys at Maya Murphy, P.C. today at (203) 221-3100 or JMaya@Mayalaw.com.

Last week, the National Employment Law Institute held its 40th Annual Employment Law Update in Washington DC. Mark J. Oberti, partner at Houston-based Oberti Sullivan LLP, spoke about the expansion of retaliation and whistle-blower claims, flagging several hot topics for practitioners to watch.

Beware the Improperly Motivated Supervisor

In 2011, the U.S. Supreme Court held in Staub v. Proctor Hosp., 562 U.S. 411, 417, 111 FEP Cases 993, 2011 BL 51397, at *4 (2011), that employers may be held liable under the “cat’s paw” theory of liability for a supervisor’s discriminatory animus if it was determined to be a “motivating factor” in the employer’s decision to take adverse action against an employee.

The Court’s decision in Univ. of Texas Sw. Med. Ctr. v. Nassar, 133 S. Ct. 2517, 2528, 118 FEP Cases 1504, 2013 BL 167359, at *9 (2013), however, held that Title VII retaliation claims must be proved using “but-for” causation.

So what happens to cat’s paw claims under Title VII? Oberti noted that the federal circuits to specifically address the issue after Nassar have found that the cat’s paw theory can apply in Title VII retaliation cases, but the biased supervisor’s animus must be a “but-for” cause of the employer’s decision, rather than being merely a motivating factor.

The takeaway, according to Oberti, is that where an employee has engaged in protected activity under Title VII, a company may be liable if the direct supervisor had discriminatory animus that colored any investigation or adverse employment decision.

For this reason, he suggested that employers use a third party investigator and rely on their recommendations to avoid the appearance that the company merely rubber-stamped a supervisor’s potentially improper motivations for any adverse employment decision.

Defendants also need to clearly articulate that the higher “but-for” Nassar standard—not Staub’s lower “motivating factor” standard—applies in Title VII cat’s paw cases.

Cracks Forming in the Manager Rule

Another key development Oberti addressed is the circuit split developing over the “manager rule.” Most courts hold that for human resource managers—and often other managers as well—to engage in protected activities under Title VII and similar laws, they must meet a heightened standard by stepping beyond their normal role to clearly establish their participation in protected activities.

Last year, however, the Second and Fourth Circuits rejected use of the manager rule in Title VII retaliation cases.

In December, the Ninth Circuit took a middle ground approach in an FLSA retaliation case, indicating that an employee’s status as a manager was merely one relevant factor in determining whether “fair notice” of an assertion of protected rights was provided to the employer.

Oberti also noted that the Administrative Review Board has expressly rejected application of the manager rule in Sarbanes-Oxley retaliation claims.

Dodd the Bounty Hunter

Since its inception in 2011, the SEC’s whistle-blower program has reviewed over 14,000 tips and has paid out more than $85 million to over 30 whistle-blowers under the bounty hunter provisions of the Dodd-Frank Act. The SEC has also actively pursued enforcement actions under the DFA’s anti-retaliation provisions.

Oberti warned employers that a number of jurisdictions, including the Second Circuit, have interpreted the anti-retaliation protections of the DFA—along with benefits like its longer statute of limitations and higher damages provisions—expansively to cover disclosures made under Sarbanes Oxley and other laws, rules and regulations subject to the Commission’s jurisdiction. These protections also have been interpreted by both the SEC and numerous courts as extending to disclosures reported internally without any SEC reporting prerequisite.

Oberti noted, however, that this position isn’t uniform where the Fifth Circuit and many lower courts have disagreed and held that DFA whistle-blower protections extend solely to misconduct reported directly to the Commission.

Compliance Roles Excluded From Protection? Not So fast …

Oberti also noted that despite Final Rules generally excluding employees performing audit or compliance functions from DFA whistle-blower status, an exception has permitted the SEC to make several large bounty awards to such individuals where they waited at least 120 days to contact the SEC after first reporting the violations internally.

Confidentiality Agreements No Shield Against Dodd-Frank

The SEC has fired a warning shot to companies using language in their confidentiality agreements which may restrict the rights of whistle-blowers under the act. For this reason, Oberti recommended that companies review their policies and consider implementing a “carve-out” for whistleblowing under the act to avoid unnecessary charges and penalties.

SOX Complaints: A post-Parexel Sea Change

Oberti also discussed a complete shift in the landscape of Sarbanes-Oxley complaints to strongly favor complainants following the seminal 2011 Administrative Review Board decision Sylvester v. Parexel Int’l LLC, which rejected the previous “definitive and specific” standard for protected activity under § 806. Oberti noted that the Second, Third, Sixth, Eighth and Tenth circuits have all extended either Chevron or Skidmore deference to the Parexel decision, effectively extending the ARB’s pro-complainant momentum into the federal courts.

Several other recent developments related to SOX retaliation claims were also addressed:

In 2014, a split ARB panel clarified §806’s distinct burdens of proof and held that the determination of whether a claimant met their initial burden of proving protected activity as a contributing factor in an adverse personnel action must be based solely on evidence submitted by the claimant. Only after the claimant meets his or her burden and demonstrates “contributing factor” causation may the respondent’s affirmative defense evidence then be considered under the higher “clear and convincing” burden of proof. This holding was affirmed in 2015 by the ARB, sitting en banc.

Last year, both the Fourth and Fifth Circuits held that SOX retaliation claims raised in federal court have an administrative exhaustion requirement with OSHA, similar to the EEOC rule in Title VII cases.

Oberti also drew attendees’ attention to a recent trend in the ARB and the Fourth, Fifth and Tenth Circuits holding that SOX retaliation claimants may receive damages for mental anguish or emotional distress.

If you feel you have been mistreated by your employer or in your place of employment and would like to explore your employment law options, contact the experienced employment law attorneys today at 203-221-3100, or by email at JMaya@mayalaw.com. We have the experience and knowledge you need at this critical juncture. We serve clients in both New York and Connecticut including New Canaan, Bridgeport, White Plains, and Darien.

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Source: Jesse Butler, You Don't Need a Weatherman: NELI Update On Retaliation and Whistle-Blowing Claims, Bloomberg BNA, Aug. 5, 2016, at http://www.bna.com/dont-need-weatherman-b73014445921/