Global Taxes

US whistleblower developments for multinational employers

Friday 7 October 2022

Gregory C Keating
Epstein Becker Green, Boston, Massachusetts
gkeating@ebglaw.com

Francesco A DeLuca
Epstein Becker Green, Boston, Massachusetts
fdeluca@ebglaw.com

Introduction

There is no one-size-fits-all approach to whistleblower liability exposure in the United States, principally for two reasons. First, jurisdiction matters. Where employees engage in protected activity or suffer an adverse action may determine whether they have a viable whistleblower claim for retaliation. Second, the priorities of the presidential administration can drastically alter the whistleblower landscape. By way of example, after a four-year hiatus, President Biden’s Securities and Exchange Commission (SEC) has returned to aggressive enforcement of prohibitions on impeding whistleblower complaints, striking down relatively common personnel policies and contractual provisions and fining employers for maintaining them. This article discusses these developments and their impact on multinational employers operating in the US.

Recent developments

Two recent circuit splits demonstrate the importance of jurisdiction in whistleblower cases

Each year, the US Supreme Court hears only one to two per cent of the cases parties ask it to review.[1] Consequently, the 12 US Courts of Appeals, each of which covers a geographic region known as a ‘circuit’, are the ‘final word’ on most issues of federal law.[2] The resulting patchwork of case law requires companies to know the law of the circuits where they operate and determine which circuit’s law applies to a given situation. As two recent developments demonstrate, making that determination can be critical to avoiding a potential retaliation claim.

Earlier in 2022, the Supreme Court refused to resolve a disagreement among two circuits as to the scope of the False Claims Act’s (FCA) antiretaliation provision. The FCA protects ‘any employee, contractor, or agent’ against retaliation for bringing a private suit (known as a qui tam action) to enforce the FCA or otherwise attempting to prevent an FCA violation.[3] In 2018, the Tenth Circuit decided Potts v Center for Excellence in Higher Education, 908 F 3d 610 (10th Cir 2018), and held that this provision did not extend to an employer’s post-employment actions against a former employee. In 2021, however, the Sixth Circuit issued a contrary opinion in United States ex rel Felten v William Beaumont Hospital, 993 F 3d 428 (6th Cir 2021), finding that the FCA banned retaliation against former employees. Although the employer in Felten asked the Supreme Court to bring nationwide uniformity to this area of the law, the Court denied that request and left the circuit split intact.

More recently, the Second Circuit created a circuit split regarding the elements of a Sarbanes-Oxley Act (SOX) whistleblower retaliation claim. SOX bans employers from taking adverse actions against employees because they reported or assisted in an investigation into mail, wire, bank, or securities fraud; a violation of SEC rules or regulations; or a violation of any ‘[f]ederal law relating to fraud against shareholders.’[4] To establish a causal link between their protected activity and adverse action, employees need only demonstrate that their protected activity was a ‘contributing factor’ in the employer’s decision to take an adverse action against them.[5]

Courts have defined a ‘contributing factor’ as ‘any factor which alone or in combination with other factors, tends to affect the outcome of the decision.’ [6] Because this is a low bar for employees to satisfy, two federal appellate courts – namely, the Ninth Circuit in Coppinger-Martin v Solis, 627 F 3d 745 (9th Cir 2010), and the Fifth Circuit in Halliburton, Inc v Administrative Review Board, 771 F 3d 254 (5th Cir 2014) – rejected the argument that employees must expressly demonstrate that their employer’s motive for disciplining them was their whistleblowing activity. However, the Second Circuit disagreed with these cases in 2022 Murray v UBS Securities, LLC, – F 4th –, Nos 20-4202 & 21-56 (2d Cir 2022), when it held that SOX whistleblowers must show that their employer subjected them to adverse action with a ‘retaliatory intent’. Unless the Supreme Court decides this issue, this circuit split (which other circuits may join) will remain intact.

The SEC has reinstituted aggressive scrutiny of employment policies and agreements for potential impediments to whistleblowing activity

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC enacted Rule 21F-17 to ban companies from ‘tak[ing] any action to impede an individual from communicating directly with the [SEC] staff about a possible securities law violation.’[7] Under the Obama administration, the SEC aggressively enforced Rule 21F-17, penalising employers for maintaining non-disparagement clauses, confidentiality agreements, and waivers of an employee’s right to collect a bounty award from the SEC,[8] and for even attempting to unmask a whistleblower.[9] During the Trump administration, however, the SEC did not bring a single Rule 21F-17 enforcement action in the employment context. Since President Biden took office, the pendulum has swung back toward aggressive Rule 21F-17 enforcement.

In June 2022, the SEC fined The Brinks Company for including a provision that banned employees from disclosing business or financial information to third parties in its non-compete agreements.[10] Notably, the SEC found that including the Defend Trade Secrets Act’s notice of immunity for disclosing trade secrets and confidential information to regulators was insufficient to comply with Rule 21F-17 because the notice did not specifically refer to the SEC by name.

Considerations for multinational employers

Both of these trends create significant litigation and compliance risk for companies operating in the US. However, multinationals can take steps now to mitigate risk and reduce potential exposure.

First, multinationals operating in the US should familiarise themselves with the law of every circuit in which they operate. On issues that the relevant circuit has not squarely addressed, multinationals should work with counsel to determine how a particular circuit would likely rule. For example, the decisions in Coppinger-Martin, Halliburton and Murray may extend beyond SOX since at least 13 other federal whistleblower laws incorporate contributing-factor standard.[11] Likewise, the Potts and Felten cases may influence how courts address post-employment actions under at least nine other federal whistleblower laws that define ‘adverse action’ similarly to the FAC.[12] Having an understanding of how the relevant circuit has ruled or may rule will help multinationals ensure that their US policies comply with applicable law and assess litigation risk.

Second, with Rule 21F-17 enforcement in full swing, now is an optimal time to review personnel policies, restrictive covenants, and severance agreements to ensure that they do not contain any language that might impede employees from engaging in whistleblower activity. As recent enforcement initiatives show, taking these steps is important to avoiding penalties even if there is no evidence that the relevant language has actually prevented an employee from making a complaint, the company has not enforced the operative provision, or the company maintains a policy broadly exempting disclosures to regulators from any limitation on communications with outside parties.

Working with experienced counsel to review employment policies and practices can help multinationals stay on top of these and other developing whistleblower issues.

 

[1]Administrative Office of the US Courts, About the US Court of Appeals, https://www.uscourts.gov/about-federal-courts/court-role-and-structure/about-us-courts-appeals, accessed 18 August 2022.

[2] Ibid.

[3] 31 U S C s 3730(h)(1).

[4] 18 U S C s 1514A(a)(1).

[5] 29 C F R s 1980.104(e)(1)(iv).

[6] Klopfenstein v PCC Flow Techs. Holdings, Inc, No 04-149, 2006 WL 3246904, at *13 (US Dept of Labor, Admin. Rev Bd 31 May 2006), quoting Marano v Dep’t of Justice, 2 F 3d 1137, 1140 (Fed Cir 1993).

[7] 17 C F R s 240.21F-17(a).

[8] In re KBR, Inc, Exchange Act Release No 74619 (1 April 2015); In re BlueLinx Holdings, Inc, Exchange Act Release No 78528 (10 August 2016); In re NeuStar, Inc, Exchange Act Release No 79593 (19 December 2016).

[9] In re Homestreet, Inc, Exchange Act Release No 79844 (19 January 2017).

[10] In re Brinks Co, Exchange Act Release No 95138 (22 June 2022).

[11] See 49 U S C s 60129(b)(2)(B)(i); 49 U S C s 42121(b)(2)(B)(i); 15 U S C s 2087(b)(2)(B)(i); 49 U S C s 30171(b)(2)(B)(i); 21 U S C s 399d(b)(2)(C)(i); 12 U S C s 5567(c)(3)(A); 42 U S C s 5851(b)(3)(A); 6 U S C s 1142(c)(2)(B)(i); 29 C.F.R. § 1984.104(e)(2)(iv); 29 C.F.R. § 1986.104(e)(2)(iv); 29 C.F.R. § 1982.104(e)(2)(iv); 29 C F R s 1989.104(e)(2)(iv); 29 C F R s 1978.104(e)(2)(iv).

[12] See 42 U S C s 1320b-25(d)(1); 31 U S C s 5323(g)(1); 7 U S C s 26(h)(1)(A); 18 U S C s 1031(h)(1); 26 U S C s 7623(d)(1); 15 U S C s 78u-6(h)(1)(A); 18 U S C s 1514A(a); 29 U S C s 3244(f).