Monday, November 28, 2016

So, You’ve Decided to Hire a Lawyer: Attorney - Client Privilege

Welcome to the first post in KCNF’s new blog series, “So, You’ve Decided to Hire a Lawyer.”  Every few weeks, one of our attorneys will highlight an aspect of the attorney-client relationship and litigation process to help non-lawyers understand what can happen when they retain a lawyer. We start the series with an explanation of the cornerstone of your relationship with your lawyer: the attorney-client privilege.

When you hire an attorney, in most situations, she has to keep anything you tell her – and she tells you – confidential.  There are exceptions, of course – she may discuss your case with her law firm’s partners, she can call the police if you threaten to hurt yourself or plan to commit a crime in the future, and, if you sue her for malpractice, she can testify about your conversations and how that affected her representation of you.  Also, if you have retained an attorney to represent you in litigation, your attorney is expected to disclose the information that will help advance that litigation. The attorney can write the complaint or motion, or present information in settlement negotiations, to help achieve the goal of the representation.  Otherwise, unless you give your express permission, your attorney must take everything you tell her to her grave.  This solemn understanding is referred to as the attorney-client privilege and it is codified in every jurisdiction’s rules of professional responsibility.

As with any privilege, it can be pierced. The client holds the privilege, which means the client is the only one who can waive it.  A client can intentionally waive the privilege by telling his lawyer to share something, or unintentionally, by being careless and talking about his case with his lawyer in the presence of others.

If a judge decides that the attorney-client privilege has been waived because a third party knows of the contents of a communication, then the other side gets to learn what the opposing attorney and client discussed.  Depending on the information disclosed, these unintended disclosures can ruin a case and make any chance of prevailing very hard.

The worst case scenario, for example, might occur if a plaintiff emails her lawyer with some information about her case she just learned, and copies her adult son on the email.  In the email, she reveals a fact very harmful to her case.  Later, in litigation, the defendant discovers this email and that the son was a recipient.  The defendant argues to the judge that the plaintiff waived attorney-client privilege by intentionally letting a third party – her son – be privy to the conversation with counsel.  The judge agrees and orders the plaintiff to give the email to the defendant.  When the defendant gets the email, he sees that it contains a direct admission from the plaintiff of a fact harmful to her case.  He then tells the plaintiff that he knows how weak her case is and settlement becomes much less likely.

In order to avoid unintended disclosures, try to obtain as much privacy as possible when you speak with your lawyer on the phone and only exchange emails with your lawyer on a private account which only you can access. This means you should not call your lawyer on speakerphone from a coffee shop to ask him questions about your upcoming deposition and you should not email him from your work account.  Nor should you conference in your friends or family members on calls with your lawyer.  Your neighbor’s husband may have seen a lot of EEO cases during his twenty years in a corporate human resources department, but sharing the case theory you and your lawyer developed breaks the privilege (although the “work product” privilege is not waived by sharing the information with persons other than the opposing side).  You may have relied on close friends and relatives to be sounding boards in past times of trouble, but now that’s your lawyer’s job.  You have hired a professional to advise you – too many cooks in the kitchen can create a mess.  The attorney-client privilege is the most vital part of the professional relationship and it is both the attorney’s duty and the client’s responsibility to protect the confidentiality of their communications.

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.

This blog was written by Sarah Martin.

Monday, November 14, 2016

The Deference Owed to an MSPB Administrative Judge’s Credibility Determinations

On October 4, 2016, in Purifoy v. Department of Veterans Affairs, the U.S. Court of Appeals for the Federal Circuit reaffirmed the level of deference owed by the Board when it reviews an administrative judge’s (AJ) credibility determinations. Significantly, the court held that an AJ’s credibility determinations extend beyond direct statements made regarding a witness’s demeanor to those credibility determinations that rely on demeanor by necessary implication.

Agencies taking an adverse action against an employee must prove that the charged conduct actually occurred, that it affected the efficiency of the service, and that the penalty imposed was reasonable in light of the relevant factors set forth in Douglas v. Department of the Navy. The Douglas factors are a non-exhaustive set of considerations that the Merit Systems Protection Board (“MSPB”) (first the AJ and the MSPB on review) must independently assess to determine whether the imposed penalty is reasonable.

In Purifoy, the employee (Mr. Purifoy) missed two days of work as a housekeeping aid in a VA medical center without authorization. Later the same week, he sought treatment for substance abuse from the VA facility where he worked. Although Mr. Purifoy informed his VA supervisor that he would miss work, he did not fill out leave paperwork. Moreover, he did not inform his parole officer that he would miss upcoming supervision visits. Thus, after Mr. Purifoy missed these visits, his parole officer issued a warrant for his arrest. As an alternative to revocation of his parole, Mr. Purifoy agreed to enter substance abuse treatment at the Milwaukee Secure Detention Facility (MSDF). Although he entered the program, Mr. Purifoy was terminated after an altercation with another inmate. Mr. Purifoy remained an inmate at MSDF for 38 more days. Following his release, Mr. Purifoy returned to work, but was removed shortly thereafter as a result of his unauthorized absences (two-day absence and six-month absence due to his incarceration at MSDF).

After a one-day hearing, at which Mr. Purifoy testified and, litigating the case pro-se, cross-examined the government’s four witnesses, the AJ sustained the agency’s first charge against Mr. Purifoy—the two-day absence—but only sustained in part the second charge—his absence while at MSDF. Specifically, with regard to the second charge, the AJ found that Mr. Purifoy’s absence was only unexcused for the 38 days following termination of his treatment program. In light of the mitigating factors set out in Douglas, the AJ determined removal to be an unreasonable penalty and reduced it to a 40-day suspension. In examining the Douglas factors, the AJ made the following assessments:
1. Mr. Purifoy’s duties “did not involve supervision or fiduciary duties, or place him in a prominent public role”;
2. His “work performance was rated as excellent and worthy of a performance award”;
3. He “was not on clear notice that his absence would result in severe discipline”;
4. His “potential for rehabilitation was high.” 
The Agency appealed the AJ’s decision to the MSPB. On review, the Board reversed the AJ’s reinstatement of the employee with a 40-day suspension, finding that “the penalty of removal was appropriate even if the second charge was proven only in part.” In analyzing the proper penalty, however, the Board analyzed some, but not all, of the Douglas factors. Specifically, the Board made the following assessments:
1. The Board disagreed with the AJ about the seriousness of the charge;
2. Mr. Purifoy’s absence weighed against mitigation despite his lack of prior discipline;
3. His “third-level supervisor sufficiently notified him that his absence would result in severe discipline”;
4. The agency’s “chosen penalty, which is entitled to deference, is also consistent with the table of penalties;”
5. Seeking treatment for a disabling condition “was not sufficiently mitigating as [Mr. Purifoy] was not fully pursuing rehabilitation for his problem.” 
The Board, however, found no reason to disturb the AJ’s findings “concerning [Mr. Purifoy’s] brief, but good work history.”

On appeal, the Federal Circuit vacated the Board’s decision because it failed to consider two relevant Douglas factors. Specifically, the Board (1) did not consider the adequacy and effectiveness of alternative sanctions to deter similar misconduct in the future and (2) erred in its analysis of the potential for the employee’s rehabilitation.

Although the Board need not consider all the Douglas factors, it must consider the relevant ones. Here, the Board was obligated to consider whether the AJ’s mitigated 40-day suspension would adequately punish Mr. Purifoy’s unexcused absences and deter similar conduct in the future. Regarding Mr. Purifoy’s potential for rehabilitation, the court held that the Board “erred by substituting its own finding for the AJ’s opposite one without adequate rationale.”

Significantly, Board case law
requires deference not only when an AJ’s credibility determinations explicitly rely on demeanor but also when they do so by necessary implication. Even if demeanor is not explicitly discussed, assessing a witness’s credibility involves consideration of various factors, including a witness’s demeanor. 
Applied in this case, the Board held that the “AJ’s findings about Mr. Purifoy’s propensity for rehabilitation are necessarily intertwined with issues of credibility and an analysis of his demeanor at trial, and they deserved deference from the Board.” The AJ made this determination after hearing Mr. Purifoy testify under oath that he attends Alcoholics Anonymous meetings three days a week and has not suffered a relapse since his removal. The AJ also observed Mr. Purifoy and his condition when he cross-examined witnesses, including his parole officer, his supervisor, and the VA Medical Center Director. Thus, the AJ concluded that Mr. Purifoy “cares about his job and had a good potential for rehabilitation.”

As recognized by the U.S. Supreme Court in Universal Camera v. National Labor Relations Board, “evidence supporting a conclusion may be less substantial when an impartial, experienced [administrative judge] who has observed the witnesses and lived with the case has drawn conclusions different from the Board’s . . .” Thus, the Board may not substitute its judgment for that of the AJ, where the AJ adjudicated the case and weighed all factors within their proper context.

Moreover, although the court found no legal error in the Board’s analysis of the nature and seriousness of Mr. Purifoy’s offense and whether Mr. Purifoy was on notice that his conduct could result in discipline, the court “encouraged the Board to revisit its analysis of these factors alongside all other relevant Douglas factors on remand.” This encouragement stresses the importance the court places on an AJ’s credibility determinations. In fact, six months before the court decided Purifoy, the court noted in Clipse v. Department of Homeland Security that an AJ’s credibility determinations “are virtually unreviewable on appeal.” Unless “inherently improbable or discredited by undisputed fact,” an appellate court cannot set aside an AJ’s credibility determinations. Purifoy reaffirms this principle.

This post was written by Aaron Herreras.

Wednesday, November 2, 2016

Trick or Treat: The Fourth Circuit Hands Down a Not-So-Sweet Halloween Decision in Sharif v. United Airlines, Inc.

Last year, KCNF partner Richard Renner blogged about Sharif v. United Airlines, Inc., a case that was on appeal to the United States Court of Appeals for the Fourth Circuit regarding Mr. Masoud Sharif’s allegation that United Airlines unlawfully retaliated against him in violation of the Family and Medical Leave Act (“FMLA”). This week, the Fourth Circuit decided that the “undisputed facts” compelled a finding for United Airlines.

Mr. Sharif was employed by United Airlines as a Service Director at the Dulles Airport in Virginia. From March 16 to April 4, 2014, Mr. Sharif and his wife—also a United Airlines employee—went on vacation in South Africa and Italy, during which he was able to request time off or find coverage for all but one single day—March 30, 2014, a date on which he had been assigned the customer service shift.

Mr. Sharif asked for FMLA leave on March 30, 2014, based on his previously diagnosed anxiety disorder, for which United Airlines had allowed him intermittent leave for panic attacks. (Mr. Sharif developed anxiety after the Iranian government imprisoned and tortured him in 1981.) However, the United Airlines Employee Resource Center noticed that the FMLA request fell in the midst of Mr. Sharif’s and his wife’s planned vacation time, and subsequently initiated an investigation into the request. The Fourth Circuit accepted United Airline’s version of the events, finding that Mr. Sharif was appropriately interviewed as part of the investigation and that he gave a “series of inconsistent answers” that ranged from failing to recall being scheduled for work or requesting FMLA leave at all to his later explanation that he had made multiple attempts to return for his shift, and as a result of his lack of success, experienced a legitimate panic attack. Following the interview, United Airlines suspended Mr. Sharif without pay and ultimately proposed to remove him for “fraudulent taking [of] FMLA leave” and “dishonest representations.” On June 9, 2014, Mr. Sharif chose to retire rather than be terminated.

On its face, the Fourth Circuit’s decision appears driven by legally sound principles: namely, an employee cannot commit fraud and expect to be protected by a statute’s anti-retaliation provisions. However, employees and their advocates have much to fear from how the Court arrived at its decision. The Metropolitan Washington Employment Lawyers Association and the National Employment Lawyers Association submitted an amicus brief in support of Mr. Sharif that addressed the significant factual disputes between the parties and raised the question of whether an employer may rely on an honest—even if mistaken—belief that an employee was the malfeasor as a defense to accusations of retaliation. Although the Fourth Circuit saw “no reason to address the ‘honest belief rule[,]’” it is apparent from the Court’s reliance on the foregoing “facts”—which were heavily disputed—that the Court nevertheless adopted United Airline’s belief that Mr. Sharif acted fraudulently.

For example, Mr. Sharif explained that he had every intention of returning for his shift, but due to a confluence of world events, was unable to secure timely flights back, and was forced to fly to Italy to stay with a family member until he could return. Thus, Mr. Sharif introduced evidence that his panic attack on March 30 was a genuine manifestation of an existing medical condition, and a reasonable inference is that his use of FMLA was necessary and proper. Given the divergent narratives, both supported by proof, whether Mr. Sharif or United Airlines was telling the truth should have been determined by a jury of his peers. Nevertheless, the Court truncated the trial process by concluding that there existed no reasonable interpretation of events where Mr. Sharif could prevail. In doing so, the Fourth Circuit inappropriately decided in favor of facts that were advantageous to the employer when those decisions properly belonged to the jury.

Written by Nina Ren

Wednesday, October 26, 2016

Does Title VII cover sexual orientation discrimination claims? An update

In July 2015, this blog discussed the decision of the Equal Employment Opportunity Commission (“EEOC” or “Commission”) in Baldwin v. Department of Transportation, in which the Commission held for the first time that under certain circumstances, Title VII of the Civil Rights Act of 1964 ("Title VII") covers claims of sex discrimination on the basis of sexual orientation. Specifically, in Baldwin, the EEOC held that a person could demonstrate sex discrimination on the basis of orientation as a violation of Title VII if the treatment at issue: (1) would not have occurred but for the individual's sex; (2) was based on the sex of the person(s) the individual associates with; and/or (3) was premised on the fundamental sex stereotype, norm, or expectation that individuals should be attracted only to those of the opposite sex. Because Baldwin was the result of an administrative complaint brought by a federal employee, it is technically applicable only to federal government employers. The subject of this blog is to analyze the extent to which Baldwin has been adopted by federal courts. The short answer is: not yet.

The Courts of Appeals have been confronted with this issue, but seem slow to go beyond their legal precedent when it comes to defining what constitutes "sex" discrimination under Title VII. In May 2016, the Fourth Circuit issued its decision in Hinton v. Virginia Union University, in which it refused to defer to the EEOC's Baldwin decision, proclaiming that, "[it] is explicitly the law of the Fourth Circuit that Title VII does not protect against discrimination based on sexual orientation." The Fourth Circuit rejected Hinton's argument that Baldwin displaced the Fourth Circuit's earlier decision in Wrightson v. Pizza Hut, in which the Fourth Circuit held that "Title VII does not afford a cause of action for discrimination based upon sexual orientation." The Fourth Circuit stated that EEOC interpretations of Title VII are entitled to deference only to the extent that they "have the power to persuade." To determine the persuasive effect of Baldwin, the Fourth Circuit noted that it had cited Wrightson approvingly, even after Baldwin was issued, in Murray v. N. Carolina Department of Public Safety (a 2-page unpublished decision, in which the court cited Wrightson in dicta, and in a footnote). In Hinton, the Fourth Circuit also looked at district court decisions which had followed Baldwin, but dismissed those decisions as unpersuasive because those decisions did not follow the law of their respective circuits. The court did not explain how, under this standard of review, it could ever defer to an administrative decision if there were legal precedent to the contrary.

More fundamentally, the Fourth Circuit appears to have strained to rely on Wrightson, which in fact is consistent with Baldwin. In Wrightson, in which a heterosexual male claimed he was sexually harassed by his homosexual supervisor and homosexual co-workers, the Fourth Circuit specifically held that “a claim under Title VII for same-sex ‘hostile work environment’ harassment may lie where the perpetrator of the sexual harassment is homosexual.” Indeed, the court emphasized that Wrightson:
[D]oes not allege that he was discriminated against because he is heterosexual. He specifically alleges in his complaint that he was discriminated against 'because of his sex, male…' [This allegation] is more than adequate when coupled with his allegations that the harassers were homosexual and that other males (and no females) were the targets of the harassment. Of course, even had Wrightson alleged that he was discriminated against both because he was heterosexual and because he was male, he would still state a claim under Rule 12(b)(6). As the Supreme Court recognized in Price Waterhouse v. Hopkins, a Title VII cause of action lies even though the discrimination against the employee is not 'solely' because of the employee's sex, as long as the employee's sex was a cause of the discrimination." In Price Waterhouse, the Supreme Court stated that, "we know that the words 'because of' [in Title VII] do not mean 'solely because of'; we also know that Title VII meant to condemn even those decisions based on a mixture of legitimate and illegitimate considerations." 
In other words, in Wrightson, the Fourth Circuit anticipated the EEOC’s pronouncement in Baldwin that a claim of sex discrimination based on sexual orientation will lie under Title VII. Yet, it dismissed Hinton's sex orientation discrimination claim because Hinton failed to also allege that he was discriminated against on the basis of his sex, not just his sexual orientation. Wrightson and Hinton reflect the Fourth Circuit’s determination to address claims of sexual orientation discrimination only if they are tied to a claim of sex discrimination in violation of Title VII. For whatever reason, Hinton did not allege sex discrimination in his complaint, and he may not have asked either the district court or the appeals court for leave to amend the complaint to add such a claim. That choice appears to have led to the adverse decision. In Hinton, the court went on to conclude that the reprimands issued to Hinton did not constitute “adverse employment actions” sufficient to invoke Title VII. That the court undertook this adverse employment action analysis in light of the “evolving state of the law" concerning sexual orientation discrimination claims may be a harbinger of more enlightened decisions from the Fourth Circuit.

Recent events at the Seventh Circuit suggest it may be evolving more rapidly than the other federal circuit Courts of Appeal. On October 11, 2016, it granted a petition to rehear en banc its July 28, 2016 decision in Hively v. Ivy Tech Community College. (See our September 22, 2016 blog, "Seventh Circuit Upends EEOC Decision on LGBT Coverage.") In its July 2016 panel decision, the Seventh Circuit reluctantly held that due to its precedent, an adjunct professor's claims of sexual orientation discrimination were not cognizable under Title VII. However, throughout the 42-page opinion, the court painstakingly outlined the quagmire of conflicting decisions which courts have issued on this topic. Citing the Price Waterhouse decision, which makes it illegal to discriminate on the basis of sex stereotypes, the Seventh Circuit panel observed that, "[i]t seems illogical to entertain gender non-conformity claims under Title VII where the non-conformity involves styles of dress or manner of speaking, but not when the gender non-conformity involves the sine que non of gender stereotypes-with whom a person engages in sexual relationships." The panel concluded its opinion by inviting the full Seventh Circuit to take another look at its precedent: "Perhaps the writing is on the wall…But writing on the wall is not enough. Until the writing comes in the form of a Supreme Court opinion or new legislation, we must adhere to the writing of our prior precedent…."

On October 11, 2016, the Seventh Circuit granted Hively's petition for a rehearing en banc. Oral arguments are scheduled for November 30, 2016. In support of the petition, five members of Congress submitted an amici curiae brief. These five members of Congress are all co-sponsors of the Equality Act of 2015. The Equality Act of 2015 expressly adds "sexual orientation" and "gender identity" to Title VII, and it defines "sex" to include "sexual orientation and gender identity." The Equality Act was referred to the Subcommittee on the Constitution and Civil Justice on September 8, 2015, but has gone nowhere since. As in many other areas of the law, if Congress is unable to act due to ideological paralysis, it may be up to the courts to fill the void. Given the EEOC’s leadership on this issue, the judicial remedy may come sooner than later.

Written by Valerie A. Chastain

Monday, October 24, 2016

Dreadlocks and Title VII’s Definition of Race

Chastity Jones’ employment with the customer service company Catastrophe Management Solutions (CMS) ended before it began when she refused to remove her dreadlocks.   She charged discrimination based on race under Title VII, but the trial court dismissed the case under Fed.R.Civ.P. 12(b)(6).  Last month, the Eleventh Circuit affirmed that decision, issuing an opinion that broke no new ground as to grooming policies under Title VII, but which raised substantial questions as to when a grooming policy may implicate the protections of Title VII.

Grooming requirements, such as the one that CMS relied upon to reject Ms. Jones’ application, have generally been upheld as non-discriminatory under Title VII.   Title VII prohibits discrimination based on immutable characteristics such as race, color, sex and national origin.  However, as the Fifth Circuit explained over 40 years ago:

Equal employment opportunity may be secured only when employers are barred from discriminating against employees on the basis of immutable characteristics, such as race and national origin….But a hiring policy that distinguishes on some other ground, such as grooming codes or length of hair, is related more closely to the employer’s choice of how to run his business than to equality of employment opportunity…Hair length is not immutable and in the situation of employer vis a vis employee enjoys no constitutional protection.  If the employee objects to the grooming code he has the right to reject it by looking elsewhere for employment, or alternatively he may choose to subordinate his preference by accepting the code along with the job.

Willingham v Macon Tel. Pub. Co.  Relying on Willingham, the Eleventh Circuit in Catastrophe Management Solutions held that Ms. Jones’ dreadlocks, like hair-length, were not immutable and were not protected under Title VII.  

Before reaching this holding, however, the court paused to consider whether Ms. Jones’ dreadlocks might be considered as hair texture, because “[D]iscrimination on the basis of black hair texture (an immutable characteristic) is prohibited by Title VII, while adverse action on the basis of black hairstyle (a mutable characteristic) is not." The court cites in support two non-precedential cases.   The Seventh Circuit sitting en banc, recognized a claim for racial discrimination based on the plaintiff’s allegation that she was denied a promotion because she wore her hair in a “natural Afro.”   Jenkins v Blue Cross Mut. Hosp. Ins., Inc.  The court in Jenkins, however, does not discuss in any detail the distinction between hair texture and style.  The Eleventh Circuit also cited Rogers v. American Airlines, Inc., which considered the question of cornrows and noted that

Plaintiff may be correct that an employer’s policy prohibiting the “Afro/bush” style might offend Title VII and section 1981.  But if so, this chiefly would be because banning a natural hairstyle would implicate the policies underlying the prohibition of discrimination on the basis of immutable characteristics.

(Emphasis added.) Rogers, however, distinguished the corn-rows from a “natural hairstyle,” which it says would be protected under Title VII:

An all-braided hair style is an “easily changed characteristic,” and, even if socioculturally associated with a particular race or nationality, is not an impermissible basis for distinctions in the application of employment practices by an employer. 

Rogers also noted that multiple courts have upheld policies limiting male facial hair despite the fact that racially-linked differences made compliance with such policies more difficult for African Americans. 

In Catastrophe Management Solutions, the Eleventh Circuit raised the distinction between hair texture and hair style seemingly in order to consider whether dreadlocks were a “natural hairstyle” -- like the Afro in Rogers -- and so protected as a physically immutable marker of race. It observed, however, that the plaintiff “did not allege that dreadlocks themselves are an immutable characteristic of black persons," and concluded that the fact that “dreadlocks are a ‘natural outgrowth’ of the texture of black hair does not make them an immutable characteristic of race.” Accordingly, when CMS asked Ms. Jones to cut her dreadlocks, the court held, they did not intentionally discriminate against her based on race.

Without question, and as the court noted, “the distinction between immutable and mutable characteristics of race can sometimes be a fine (and difficult) [line].”  In the end the Eleventh Circuit returned a decision in Catastrophe Management Solutions that was consistent with previous rulings on Title VII and hair style.  Ms. Jones’ dreadlocks were mutable and, therefore, if she wanted to work at CMS she could choose “to subordinate [her]preference by accepting the [grooming] code along with the job.” Nevertheless, the court helpfully drew attention to a way forward for persons seeking Title VII protection for what are arguably “natural” hairstyles. 

This blog was written by Mary Kuntz.

Tuesday, October 18, 2016

OSHA issues a new policy on gag clauses in settlement agreements

The Department of Labor’s Occupational Safety and Health Administration (OSHA) recently issued a memorandum announcing its new policy against gag clauses in settlement agreements. OSHA’s memorandum restates the long-running policy against restraints on protected activity, but goes farther in assuring that whistleblowers preserve their right to receive awards that are intended to encourage them to report violations.

In the early years of the Department of Labor whistleblower protection program, nuclear power companies would offer substantial monetary settlements to whistleblowers in exchange for their agreements not to make any disclosures – including disclosures of nuclear safety problems -- to the Nuclear Regulatory Commission (NRC). After the 1979 Three Mile Island and 1986 Chernobyl incidents, the Department of Labor and the courts became more sensitive to the danger of “hush money” settlements. One court would not allow the Secretary of Labor to merely excise the gag clause from a settlement agreement. Macktal v. Secretary of Labor, 923 F.2d 1150, 1155-1156 (5th Cir. 1991). My December 31, 2013, blog post reviews the prior law on gag clauses in settlements.

In 1989, the NRC adopted its first policy to require licensees to maintain a culture of compliance. That policy has now evolved into the Safety Culture Policy Statement. It requires nuclear plants to actively encourage employees to report safety concerns and assure that they are timely and effectively remediated.  As a result, the number of whistleblower cases arising from the nuclear industry has declined significantly.

In 2010, the Dodd-Frank Act upped the stakes in corporate fraud whistleblower cases by creating a statutory right to an award for whistleblowers whose disclosures result in substantial SEC or CFTC recoveries. Congress was rightly concerned that the 2002 Sarbanes-Oxley Act had failed to prevent the 2008 mortgage fraud scandals that plunged us into the Great Recession. After Dodd-Frank, whistleblowers have received over $100 million in awards from the SEC for providing information that lead to over $500 million in recoveries by the SEC.

Some companies still have not adopted the culture of compliance and continue to look for ways to discourage employees from reporting known violations. Companies are now barred from adopting overly broad confidentiality policies or agreements that make employees think they cannot make reports to the government. Last year, the SEC fined KBR $130,000 for imposing such a gag clause on its employees.

In response, some companies began requiring departing employees to waive their right to any whistleblower award as a condition of receiving their severance. That requirement made clear that, rather than boosting compliance by encouraging employees to report misconduct, it exemplified a culture of suppression by discouraging employees from coming forward with information. It is also now illegal.

In August, 2016, the SEC fined Health Net $340,000 for including in a settlement agreement a provision that the employee waived any SEC whistleblower award. “Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the Commission,” said Antonia Chion, Associate Director of the SEC Enforcement Division.  “Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the Commission’s whistleblower program.” 

Seeking to extend this doctrine to the settlements reviewed by the Department of Labor, the Government Accountability Project petitioned for a new rule against approving Health Net-style settlements.  OSHA agreed and issued the memorandum to its regional offices. OSHA will now disapprove any settlement that:
  • Restricts protected activities, including reports of dangers to the government
  • Requires notice to the employer before making disclosures to the government (such a requirement has the effect of giving the crooks warning that the cops are in pursuit)
  • Makes the whistleblower promise that no disclosure has been made to the government (which undercuts the right to make a confidential disclosure to the government)
  • Waives any monetary award for whistleblowing
The policy also provides that OSHA will closely scrutinize liquidated damages provisions that are disproportionate or unaffordable. Where settlement agreements contain confidentiality clauses that apply “except as provided by law,” OSHA will propose the following clarification:

"Nothing in this Agreement is intended to or shall prevent, impede or interfere with complainant's non-waivable right, without prior notice to Respondent, to provide information to the government, participate in investigations, file a complaint, testify in proceedings regarding Respondent's past or future conduct, or engage in any future activities protected under the whistleblower statutes administered by OSHA, or to receive and fully retain a monetary award from a government-administered whistleblower award program for providing information directly to a government agency."

With this provision, employees will better understand their legal right to speak up, provide information about dangerous conditions and violations of the law, and apply for and receive whistleblower awards.

One of GAP’s attorneys issued this statement on the new policy:

De facto gag clauses undermine the operation and frustrate the intent of the whistleblower protection laws that DOL enforces by chilling or discouraging employees from disclosing to regulatory and enforcement agencies information about threats to public health and safety, financial fraud, consumer safety, food safety, nuclear safety, transportation safety, and other vital public concerns.

Employers have the opportunity to be proactive in assuring that their policies protect employees who raise compliance concerns, and that their personnel practices actually reward those who speak up. Particularly for employers regulated by the SEC, now is a good time to learn a lesson from the nuclear industry.

Tuesday, September 27, 2016

KCNF Partner Richard Renner Argues for Strong Whistleblower Protections

Last month, the Department of Labor’s Administrative Review Board (ARB) held a very rare event – it convened an en banc oral argument. The ARB hears appeals of cases arising under various worker protection laws. In most situations, three administrative appeals judges from the ARB decide a case on written briefs submitted by the employer and the worker’s attorneys. However, in the recent case of Palmer v. Canadian National Railway/Illinois Central Railroad Company, (ARB No. 16-035, ALJ No. 2014-FRS-154), the Chief Administrative Appeals Judge determined that the appeal should be decided en banc (meaning, all five judges on the ARB should decide the case) with supplemental briefing and oral argument. The ARB also invited simultaneous amicus briefs from interested third parties. KCNF Partner Richard Renner recognized the importance of the case and the questions presented on appeal and filed a brief in the matter.

Railway conductor Kenneth Palmer injured his arm while on the job. He reported the injury, per railway rules, even though his supervisor tried to talk him out of it. His supervisor then launched a formal investigation to see if Palmer violated any company rules when he got injured. His supervisor determined that a month before his injury, he had run through a switch. Even though other conductors had run through switches in the past without reprimand, and that it was undisputed that his mistake did not result in any damage or harm, the railway held a formal disciplinary hearing on the incident. In the days after the hearing, railway managers exchanged e-mails about Palmer and decided to terminate him. The e-mails revealed that company officials considered his injury report while making the decision to fire Palmer.

A trial was held in front of an administrative law judge (ALJ) who, after hearing the evidence presented by both sides, found that the railway terminated Palmer due to his reporting of his injury in contravention with a federal law called the Federal Railroad Safety Act (FRSA).

The railway appealed to the ARB and argued that the ALJ had applied the wrong burdens of proof. In a case under FRSA, an employee first needs to establish three elements: (i) that he or she engaged in a protected activity, like reporting an injury or safety concern; (ii) that he or she suffered an unfavorable personnel action, like termination; and (iii) that the protected activity was a ‘contributing factor’ to the unfavorable personnel action. 49 U.S.C. § 42121(b) (part of “AIR 21” which the FRSA incorporates). A contributing factor is any factor, either considered by itself or with other factors, that affects the outcome of the decision. Araujo v. N.J. Transit Rail Operations, Inc., 708 F.3d 152, 158 (3d Cir. 2013). An employee needs to prove these elements by a preponderance of the evidence, which means, in this situation, he must show that it is more likely than not that his report of injury was a contributing factor in the railway’s decision to terminate him.

After the employee shows this, the employer has the burden to prove by “clear and convincing evidence” that it would have taken the same unfavorable personnel action in the absence of the employee’s protected activity. 49 U.S.C. § 42121(b). The clear and convincing evidence standard is much harder to meet than the preponderance of the evidence standard. In short, the railway needed to show if Palmer never reported his injured arm, it was highly probable the railway would have still terminated him for the switch run-through.

The ARB asked the parties to file supplemental briefs addressing the extent to which an ALJ can consider an employer’s justification evidence – here, evidence regarding the switch run-through – in deciding the contributing factor element of an employee’s unlawful retaliation claim under the FRSA. The ARB also invited amicus curie, or “friend of the court” briefs from interested groups not directly associated with Palmer’s case.

When KCNF Partner Richard Renner heard about the case, he knew a reversal by the ARB would have far reaching and negative implications on whistleblowers’ rights. With this in mind, he filed a brief and received a timeslot to present his position at the oral argument. The KCNF brief notes how the text of the FRSA statute would permit the ARB to consider the employer’s evidence on causation at the contributing factor stage – but only if that evidence is clear and convincing. In other words, the ARB could permit an ALJ to consider the two stages in reverse order. However, the KCNF brief also noted that when the MSPB actually tried the same reversal of order in federal sector WPA cases, Congress amended the WPA to require the MSPB to consider the whistleblower’s evidence first. Other groups represented at the argument included three members of Congress, the U.S. Department of Labor, the railroad industry trade association, labor unions, and the National Employment Lawyers’ Association.

Only four of the five ARB judges are involved in deciding the case; the fifth judge recused himself due to a conflict of interest in the matter. The sitting judges peppered all the attorneys with difficult questions and did not make it clear to those in the courtroom which way they were leaning.

It is unclear when the ARB will issue its decision in this matter, but one thing is likely – the ARB’s holding will affect many more workplace whistleblowers than just Kenneth Palmer.

This blog was written by Sarah Martin.

(Photo of Richard Renner before the ARB.)