Wednesday, July 12, 2017

Per Se Violations Do Not Require Any Showing Of Causation

On June 13, 2017, the DC Bar’s Labor and Employment Section presented a panel discussion on Causation Standards in Employment Law. As one of the panelists, I prepared a paper and presented recent developments in per se violations, whistleblower laws, and state statutes and tort claims.

Causation standards matter. These standards determine how easy or difficult it will be for a party to prove its case. In the typical employment discrimination case, the person claiming discrimination has to prove that their protected characteristic (race, color, gender, national origin, religion or disability, for example), was what caused, or motivated, their adverse treatment.

Some claims, however, require no proof of causation whatsoever. These are called “per se” violations because the conduct itself is unlawful – regardless of the true motivation. In federal sector discrimination cases, the EEOC has held that any statements or conduct that discourage employees from reporting discrimination per se violate the law.

For example, in Williams v. Department of the Army, a supervisor told his subordinate “that it would not be in Complainant's best interest to file an EEO complaint.” Even if the supervisor was saying this to provide a helpful warning to the employee, it is still unlawful because it could discourage participation in the EEO complaint process. EEOC has called such comments, “a flagrant attempt to dissuade Complainant from engaging in the EEO process by suggesting or threatening that he [or she] could suffer unpleasant consequences if he [or she] pursued his EEO claims.” The Commission has found that even if a complainant successfully initiates the EEO process in spite of such threats or suggestions, the complainant is still aggrieved.

The National Labor Relations Act (NLRA), 29 U.S.C. § 157, guarantees an employee’s right to share information with co-workers. It does this by saying, “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection . . ..” These are called the “Section 7” rights and employees who exercise these rights are engaging in Section 7 activity.

The NLRA’s prohibited practices are in 29 U.S.C. § 158(a):
It shall be an unfair labor practice for an employer

(1) to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 157 of this title; [...]

(3) by discrimination . . . to encourage or discourage membership in any labor organization[.]
The National Labor Relations Board (NLRB) investigates and adjudicates claims of violations of this law. On March 18, 2015, the NLRB General Counsel issued a memo explaining how the Board may find that employment policies, typically those found in employee handbooks, can be per se violations of the law.

The most obvious way such a policy would violate Section 8(a)(1) is by explicitly restricting protected concerted activity; by banning union activity, for example. Even if a policy does not explicitly prohibit Section 7 activity, however, it will still be found unlawful if:
  1. employees would reasonably construe the employer’s rule to prohibit Section 7 activity;
  2. the rule was promulgated in response to union or other Section 7 activity; or
  3. the rule was actually applied to restrict the exercise of Section 7 rights.
Employees have a “Section 7” right to discuss wages, hours, and other terms and conditions of employment with fellow employees, as well as with nonemployees, such as union representatives. Thus, an employer's confidentiality policy that either specifically prohibits employee discussions of the terms and conditions of employment—such as wages, hours, or workplace complaints—or that employees would reasonably understand to prohibit such discussions, violates the Act. Similarly, a confidentiality rule that broadly encompasses "employee" or "personnel" information, without further clarification, could reasonably be construed by employees to restrict Section 7-protected communications. Examples of unlawful policies include:
  • Do not discuss “customer or employee information” outside of work, including “phone numbers [and] addresses.”
  • “You must not disclose proprietary or confidential information about [the Employer, or] other associates (if the proprietary or confidential information relating to [the Employer's] associates was obtained in violation of law or lawful Company policy).”
  • “Never publish or disclose [the Employer's] or another's confidential or other proprietary information.”
  • “Never publish or report on conversations that are meant to be private or internal to [the Employer].”
  • Prohibiting employees from “[d]isclosing ... details about the [Employer].”
  • “Sharing of [overheard conversations at the work site] with your coworkers, the public, or anyone outside is strictly prohibited.”
  • “[I]f something is not public information, you must not share it.”
Similarly, if a whistleblower law protects employees who copy documents they are permitted to access, who disclose them to law enforcement authorities, or who otherwise raise concerns about compliance with the law or public safety, then employer policies cannot restrict or discourage these activities. The Department of Labor has held that copying and disclosing employer documents about illegal activities are protected even if these actions violate an employer’s confidentiality policy. Courts have protected employees' collection and submission of documents for use in evidence, as well as employees' investigations of suspicions of illegality, even “before they have put all the pieces of the puzzle together.

The Securities and Exchange Commission (SEC) has started imposing fines on companies that use confidentiality policies or agreements to deter employees or former employees from making disclosures to the SEC, or even from making whistleblower award claims.
  • SEC v. KBR, April 1, 2015 (KBR paid $130,000 for its violation of Rule 21F-17, which was enacted under the Dodd-Frank Act. KBR had “required witnesses in certain internal investigations interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department.”)
  • SEC v. HealthNet, August 2016 (HealthNet paid $340,000 for including in a settlement agreement a provision that the employee waived any SEC whistleblower award).
On August 23, 2016, OSHA issued a policy against approving settlements that restrain protected activities or discourage employees from collecting lawful awards.

Employers must be mindful of these legal boundaries when they prepare their policy manuals or draft settlement or severance agreements. Employees can exercise their rights more freely when they realize what is protected “per se.”




By Richard Renner.


This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.

Friday, July 7, 2017

New Guidelines for Security Clearance Decisions

On June 8, 2017, Security Executive Agent Directive 4 (SEAD 4), National Security Adjudicative Guidelines, went into effect. These are the standards used across the federal government to decide whether a person – federal employee, member of the military, or government contractor – may be granted or retain his or her security clearance. These same Guidelines are extended here to serve as standards to determine eligibility for a person to hold a sensitive position, whether or not the occupant of the position has access to classified information. (On its second page, SEAD 4 defines a sensitive position as, “[a]ny position within or in support of an agency in which the occupant could bring about, by virtue of the nature of the position, a material adverse effect on the national security regardless of whether the occupant has access to classified information, and regardless of whether the occupant is an employee, military service member, or contractor.”)

SEAD 4, which updates Adjudicative Guidelines from October 2006, has four parts: the Directive itself and three appendices. The Directive, little more than three pages in length, contains sparse language defining terms, explaining the three appendices, and outlining responsibility for making and recording security clearance decisions. The substance of the document lies in its appendices. Appendix A contains the 13 actual Guidelines, which cover:
  • A: Allegiance to the United States
  • B: Foreign Influence
  • C: Foreign Preference
  • D: Sexual Behavior
  • E: Personal Conduct
  • F: Financial Considerations
  • G: Alcohol Consumption
  • H: Drug Involvement and Substance Misuse
  • I: Psychological Conditions
  • J: Criminal Conduct
  • K: Handling Protected Information
  • L: Outside Activities
  • M: Use of Information Technology
They are the “common criteria” used by all executive agencies to make a security eligibility determination for any covered individual. Changes are evident in most of the thirteen guidelines, but for the most part the changes are minor.

For example, under Guideline D, “sexual behavior” now includes “conduct occurring in person or via audio, visual, electronic, or written transmission,” in recognition of the possibilities afforded by social media and other electronic capabilities. Significant changes include, under Guideline C, a willingness to allow holders of dual citizenship to maintain a clearance given the right predicates. Under Guideline F, concerns raised by a failure to pay taxes may now be mitigated if “the individual has made arrangements with the appropriate tax authority to file or pay the amount owed and is in compliance with those arrangements.” Guideline I has added a specific list of behaviors that might cast doubt on a person’s judgment, stability, reliability, or trustworthiness and added two other sections as well. The first makes “voluntary or involuntary inpatient hospitalization” a condition that could raise a security concern. The second addition lists “pathological gambling or associated behaviors” as raising concerns. Guideline J appears to be much altered, but the changes are largely the result of removing Bond Amendment guidance to Appendix B, which is discussed below. However, the new Guideline J now goes beyond the Bond Amendment to make not just “discharge under dishonorable conditions” concerning, but any discharge other than “Honorable.” Guideline M now allows in mitigation evidence that the violation “was inadvertent, promptly reported, there is no evidence of compromise, and it does not suggest a pattern.”

Appendix B contains the Bond Amendment Guidance, gathered here in one place and gaining clarity thereby. The Bond Amendment came into effect in 2008 and prohibits all Federal Government Agencies from granting or renewing a security clearance for any covered person who is an unlawful user of a controlled substance or is an addict. For special access programs specifically, SAP’s, Restricted Data, and SCI, the Bond Amendment makes disqualifying (1) conviction of a felony; (2) dishonorable discharge from the military; (3) determination of mental incompetence. These three disqualifying factors may, however, be waived, in a meritorious case.

Finally, for the first time, authorized exceptions to the Guidelines are outlined in Appendix C. Four categories are provided that allow a security clearance to be granted despite concerning information under the Adjudicative Guidelines or discrepancies in the investigation. The addition of appendices B (Bond Amendment Guidance) and C (exceptions) adds significant clarity to the processing of security clearances. Changes within the Appendices will be discussed in future blogs.


Written by Mary Kuntz.



This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.

Tuesday, June 27, 2017

MSPB Recognizes Authority to Reimburse Tax Consequences of Back Pay Award

It is no secret that EEOC complaints filed by federal employees can take years before they reach a final decision. In such cases, it is not unusual for an award of back pay to encompass five, six, or even more years. In a recent blog, we observed that the EEOC has required agencies to reimburse an employee the difference between the taxes paid in the year the back pay award was received and the total taxes that would have been paid had the pay been received in the earlier years. This difference is called the tax consequence. The EEOC holds that to require the employee to pay the excess taxes detracts from “make whole relief,” and it has recently held that to avoid leaving the employee responsible for taxes on the tax consequence, agencies must “gross up” the payment of the tax consequence to account for future taxes.

The Merit Systems Protection Board, however, has not adopted the EEOC’s approach to these situations. Rather, starting in Wilson v. U. S. Postal Service, the Board has consistently held that it lacks authority to order a remedy for the tax consequences of a back pay award. Until now.

On June 13, 2017, MSPB Administrative Judge Pamela Jackson issued a decision granting the request for the reimbursement of the tax consequences resulting from a back pay award. In Smith v. Dep’t of Transportation, the Appellant, who was represented by KCNF Partner Elaine Fitch, had been suspended for 30 days in 2005 (and was denied a promotion the next year because of the suspension) and he filed a mixed case appeal. (A mixed case appeal includes an allegation of discrimination and/or reprisal.) The Board’s decision adopting the EEOC’s finding of reprisal was in 2012, and the parties finally agreed that the back pay (plus interest) amounted to $93,115, which was paid in 2016. Smith retained an accountant, who concluded that the lump sum resulted in an additional tax liability to Smith of $10,941. Smith requested that amount, plus the $3,700 fee charged by the accountant. The Agency opposed the request, arguing that the Administrative Judge lacked the authority to overrule the Board’s decision in Wilson.

Judge Jackson, however, held that the award of tax consequences was appropriate. First, Judge Jackson noted that the Board’s Wilson decision was issued three years before Congress authorized compensatory damages in Title VII discrimination cases. Thus, in 1988, there was no authority to award tax consequences. Second, the EEOC held in 2001 that an award of tax consequences was consistent with the purpose of compensatory damages, i.e., to compensate the prevailing employee for the injuries caused by the discrimination. And finally, because the Board defers to the EEOC’s interpretation of the discrimination laws, the Board would defer to the EEOC’s decisions requiring reimbursement of tax consequences given the opportunity to do so.

The decision in Smith opens the door to eliminating the anomalous situation in which an employee prevails on a mixed case but part of an ensuing back pay award is erased by the tax consequence of a lump sum payment. If the full Board adopts Judge Jackson’s reasoning, the gap between the relief available from the Board and the EEOC will be closed.


By George Chuzi.


This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.

Wednesday, June 21, 2017

“Follow the Rules Act” Becomes Law

On June 15, 2017, President Trump signed the “Follow the Rules Act,” H.R. 657 ("the Act"), after it passed both the House and Senate unanimously. The Act amends the Whistleblower Protect Act ("WPA"), 5 U.S.C. § 2302(b)(9)(D), to protect federal employees when they are, “refusing to obey an order that would require the individual to violate a law, rule, or regulation[.]” The Act added the last three words: “rule or regulation.”

Through this law, Congress makes clear that it has always intended that federal employees would be protected from retaliation when they refuse to violate a rule or regulation. The House Committee Report No. 115-67 stated, “the provision was an explicit rejection of the general policy for federal employees to ‘obey first, grieve later.’”

The new Act was necessary because the Federal Circuit in Rainey v. Merit Sys. Protection Bd. focused on the word “law” and held that § 2302(b)(9)(D) only protects federal employees when they are refusing to violate a law passed by Congress.

To justify this limited view of the WPA’s protections, the Federal Circuit relied on the Supreme Court’s 2015 decision in Department of Homeland Security v. MacLean, 135 S. Ct. 913 (2015). There, the Supreme Court was considering the provision in § 2302(b)(8)(A), which protects a disclosure about a violation of a law, rule or regulation, fraud, waste, abuse, or a danger to public health and safety:
if such disclosure is not specifically prohibited by law and if such information is not specifically required by Executive order to be kept secret in the interest of national defense or the conduct of foreign affairs[.]
Federal Air Marshal Robert “Bob” MacLean had disclosed a 2003 plan by TSA to shut down travel by the air marshals to save money. MacLean leaked the plan to MSNBC, and TSA found the money to restore air marshal travel within 24 hours. Two years later, TSA figured out that MacLean had been the whistleblower and fired him for it. MacLean argued that because he only violated a TSA regulation prohibiting disclosures, and not any law passed by Congress, his disclosure was protected.

Notably, Sections 2302(b)(8)(B) and (b)(9)(C) of the WPA protect disclosures to the Office of Special Counsel and any Inspector General, regardless of whether the information disclosed is classified or not.

The Supreme Court agreed with MacLean, and explained its reasoning in part as follows:
a broad interpretation of the word “law” could defeat the purpose of the whistleblower statute. If “law” included agency rules and regulations, then an agency could insulate itself from the scope of Section 2302(b)(8)(A) merely by promulgating a regulation that “specifically prohibited” whistleblowing. But Congress passed the whistleblower statute precisely because it did not trust agencies to regulate whistleblowers within their ranks. Thus, it is unlikely that Congress meant to include rules and regulations within the word “law.”
If the Federal Circuit in Rainey had focused on this text of the Supreme Court’s decision in MacLean, then it would quickly see that the term “law” in Section 2302(b)(9)(D) has a broader meaning than it does in Section 2302(b)(8)(A) because the two uses of the word serve different purposes. In Section 2302(b)(9)(D), Congress used the word “law” to protect federal employees when they take a stand against an illegal order. As it is improper for agency officials to order staff to violate regulations, those regulations should be considered “law” for purposes of protecting the employees under Section 2302(b)(9)(D).

Instead, the Federal Circuit focused on the distinction between “law” and “law, rule or regulation” as those terms are used in Section (b)(8)(A) to decide on the meaning of “law” in Section (b)(9)(D). Because they are different words, the court reasoned, they must have different meanings. The outcome today shows that courts should be more focused on the remedial purpose of the law, rather than the particular words used.

Dr. Timothy Rainey was a Supervisory Foreign Affairs Officer in the State Department’s Bureau of African Affairs. In 2013, he was serving as a contracting officer representative (“COR”) for the Africa Contingency Operations Training and Assistance program. He had refused to follow his supervisor’s order to tell a contractor to rehire a terminated subcontractor. Dr. Rainey argued that carrying out the order would have required him to violate Federal Acquisition Regulation (“FAR”) section 1.602-2(d), 48 C.F.R. § 1.602-2(d), by improperly interfering with personnel decisions of a prime contractor and requiring the prime contractor to operate in conflict with the terms of the contract. On October 13, 2013, Dr. Rainey’s supervisor relieved him of his duties as the COR.

Dr. Rainey originally convinced the MSPB’s Administrative Judge ("AJ") that he had a valid claim under the WPA. However, after the AJ conducted a hearing in the case, the Supreme Court issued its decision in MacLean. The AJ relied on MacLean and dismissed the case. The MSPB and Federal Circuit affirmed. Last December, the Supreme Court denied Dr. Rainey’s request to hear the case.

Significantly, because Congress intended today’s new law to be a clarification of what it always meant in 5 U.S.C. § 2302(b)(9)(D), the MSPB is likely to hold that it has retroactive effect, and should be applied to all pending cases. The House Committee Report helpfully declares the purpose of H.R. 657 as follows:
H.R. 657, the Follow the Rules Act, clarifies that the prohibition against certain personnel actions includes personnel actions taken against any employee or applicant for employment for refusing to obey an order that would violate a rule or regulation.
The MSPB previously held in Day v. Department of Homeland Security that the 2012 Whistleblower Protection Enhancement Act amendments to the scope of protection were clarifying, and therefore have retroactive effect. I co-wrote an amicus brief in Day.

The bottom line is that the Federal Circuit’s holding in Rainey is now legislatively overruled. Indeed, Congress has made clear that § 2302(b)(9)(D) has always protected refusals to violate rules or regulations. Whistleblowers who have cases pending now on this issue need to inform their judges about this new law, and the application of the MSPB’s holding on retroactivity in Day. Together, these points should make clear that such whistleblowers have always had protection under the WPA. 

By Richard R. Renner.


This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.


Monday, June 12, 2017

Senate Passes Bill Limiting Civil Service Protections at VA

On June 6, 2017, the U.S. Senate passed a bill by voice vote (which means there was no roll call taken and no record of who supported the legislation). While the bill purports to protect war veterans, instead it actually limits the rights of dedicated federal civil servants without ensuring better treatment for the vets. On its face, the Department of Veterans Affairs Accountability and Whistleblower Protection Act of 2017 looks like a progressive piece of legislation. For example, it creates a central office, the Office of Accountability and Whistleblower Protection, to which whistleblowers within the Department of Veterans Affairs (“VA”) may make protected disclosures about waste and mismanagement without fear of retribution. But, upon a closer look, this bill actually shaves away civil service protections that are an integral part of federal employment.

Currently, under 5 U.S.C. § 7513, the VA (together with most other federal agencies) has to provide most of its employees with 30-days’ notice and a chance to respond if it proposes to remove, demote, or suspend them for more than 14 days. The new bill cuts in half the time in which the employee may consult with an attorney and prepare a well-reasoned response from 15 to 7 days. If an employee is removed under current laws, he or she usually has 30 days to file an appeal with Merit Systems Protection Board (“MSPB”). This bill limits the appeal deadline to 10 days for most VA employees. Further, the MSPB Administrative Judge (“AJ”) assigned to the appeal is required to issue a decision within 180 days – regardless of any stalling tactics used by the agency’s attorneys. If the AJ fails to do so, the MSPB must submit a report on the matter to Congressional committees.

Within this expedited review period, the agency’s burden of proof drops from the current preponderance of the evidence standard to the substantial evidence standard, which is much easier for an agency to prove. (In brief, the difference is between “the employee probably did it” – preponderance – and “the employee may have done it” – substantial evidence.) Under current law, if the AJ determines that the agency has met this standard, but he or she believes that the discipline was too harsh given the facts of the case, he or she may mitigate the penalty by imposing a less severe form of discipline (i.e., demotion instead of removal); under the new bill, the AJ would not have that discretion – if he or she finds that the agency has met its burden, he or she may not mitigate the penalty. Additionally, if the VA wishes to remove an employee for performance issues, as opposed to misconduct, under this bill the agency would no longer be required to first put that employee on a Performance Improvement Plan in order to give him a chance to better his job performance.

Reports indicate that the House is likely to pass this legislation and the President is eager to sign it. Some commentators have argued that mismanagement and waste within the VA puts the country’s veterans at risk and radical changes are needed to set the agency right. However, others are concerned that this legislation is not about protecting the veterans but rather a way for small-government politicians to eventually push through wide-sweeping civil service reforms and drastically reduce the size of the federal government.

If you are an employee of the VA or any other federal agency and are facing proposed discipline, you may contact our firm to set up a consultation to discuss your legal rights.


Written by Sarah Martin.

This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.

Monday, June 5, 2017

Burakiewicz, Holland, and DePriest Join KCNF

Kalijarvi, Chuzi, Newman & Fitch, P.C., is pleased to announce that attorney Heidi R. Burakiewicz has joined the firm as a Partner, Stephanie Bryant Holland has joined the firm as Of Counsel, and Robert DePriest has joined the firm as an Associate.

Burakiewicz, Holland, and DePriest have an established practice representing federal employees and their unions in overtime pay, wage and hour violations, free speech and association rights, discrimination, harassment, retaliation, and Privacy Act claims.

Burakiewicz is lead counsel in Martin et al. v. U.S., a collective action on behalf of over 25,000 federal employees in the U.S. Court of Federal Claims. In a July 2014 ruling, the Court determined that the government violated the Fair Labor Standards Act (“FLSA”) by failing to pay the essential employees whom it required to work during the October 2013 shutdown on their regularly scheduled pay dates. In a February 2017 ruling, the court ruled that the government is liable for liquidated damages to the essential employees because it did not act in good faith.

Burakiewicz is also lead counsel in White et al. v. Sessions, a class action on behalf of over 500 female employees of the Federal Bureau of Prisons in Coleman, Florida, alleging that the government failed to take steps to prevent inmates from egregiously sexually harassing them. The case settled in December 2016 for $20 million dollars and a long list of negotiated changes designed to eradicate the sexual harassment. The judge described the outcome as “impressive by any standard” in the January 17, 2017 decision preliminarily approving the settlement.

Biographies of Burakiewicz, Holland, and DePriest are available here.

“We are so pleased to have Heidi R. Burakiewicz, Stephanie Bryant Holland, and Robert DePriest join us,” said Elaine Fitch, Managing Partner of KCNF. “Their practice is a national leader in ground-breaking federal sector compliance with wage and hour and other employment protections.”

Written by Richard Renner.


This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.

Friday, May 19, 2017

Ninth Circuit Holds that Dodd-Frank Offers Broad Protection for Whistleblowers

On March 8, 2017, a three-judge panel of the Court of Appeals for the Ninth Circuit ruled in favor of Paul Somers, a former Vice President of Digital Realty Trust. Mr. Somers was fired after disclosing what he viewed to be several serious securities law violations. What distinguished Mr. Somers from many of his fellow Dodd-Frank whistleblowers—and indeed, what could make this an issue for the Supremes—was that Digital Realty Trust fired him before he had the opportunity to transmit this information to the Securities and Exchange Commission (SEC), which is tasked under Dodd-Frank to investigate and prosecute such violations. This, Digital Realty Trust attempted to argue, precluded Mr. Somers from the whistleblower retaliation provisions under Section 21F of the Exchange Act, entitled “Securities Whistleblower Incentives and Protection.”

The Ninth Circuit disagreed. It ruled that Dodd-Frank’s anti-retaliation provision “unambiguously” protected employees who made only internal disclosures. The two-judge majority referred to the legislative history of the Sarbanes-Oxley Act, a law Congress enacted in the aftermath of the 2002 Enron collapse to safeguard investors and to restore public confidence in financial markets. Sarbanes-Oxley, or SOX, plays a key role in Section 21F of the Exchange Act, which states:
No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower—

(i) in providing information to the Commission in accordance with this section;

(ii) in initiating, testifying in, or assisting in any investigation or judicial or

administrative action of the Commission based upon or related to such information; or

(iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), this chapter, including section 78j-1(m) of this title, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

While Subsections (i) and (ii) clearly only protect disclosures that are made to officials, Subsection (iii) potentially allows for far broader protections. Indeed, the SEC itself interprets Subsection (iii) as providing anti-retaliation protection to internal disclosures:

Finally, our interpretation best comports with our overall goals in implementing the whistleblower program. Specifically, by providing employment retaliation protections for individuals who report internally first to a supervisor, compliance official, or other person working for the company that has authority to investigate, discover, or terminate misconduct, our interpretive rule avoids a two-tiered structure of employment retaliation protection that might discourage some individuals from first reporting internally in appropriate circumstances and, thus, jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting.

The Ninth Circuit’s interpretation deepens the pre-existing circuit split between the Second Circuit and the Fifth Circuit. Where the Second Circuit similarly favored broad protections for employee whistleblowers in Berman v. Neo@Ogilvy LLC, the Fifth Circuit took a much narrower view. In Asadi v. G.E. Energy, LLC, the Fifth Circuit ruled that Khaled Asadi, who served as G.E. Energy’s Iraq Country Executive, could not be considered a “whistleblower” when he reported up his chain of command about practices that he believed violated the Foreign Corrupt Practices Act. The Fifth Circuit hinged its analysis on 15 U.S.C. § 78u–6, which defines “whistleblower” as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” According to the Fifth Circuit, this definition of a whistleblower was “clear,” “unambiguous,” and simply did not protect internal disclosures.

All three courts overlooked a line of cases that have held that reports to company officials are a normal way for workers to commence disclosures that later lead to the government. As such, they deserve the same legal protections as direct disclosures to the government. In Phillips v. Interior Board of Mine Operations Appeals, the D.C. Circuit held that coal miners are protected for making safety complaints to their supervisors. In Kasten v. Saint Gobain Performance Plastics Corp., the Supreme Court held that an oral report to a supervisor about a wage violation is protected under the phrase “filed any complaint.”

Somers v. Digital Realty Trust is still an important victory for whistleblower rights. A narrow interpretation of Dodd-Frank gives employers a perverse incentive to quickly terminate employees after internal disclosures are made, but before they have an opportunity to make a disclosure to the SEC (even though the whistleblowers would still have 180 days to file a SOX retaliation complaint to OSHA). Not only does a narrow interpretation result in serious gaps in legal protection for whistleblowers, but it also completely vitiates the very purpose of federal statutes designed to root out waste, fraud, and abuse.



Written by Nina Ren.



This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.