LaborSphere, Author at Laborsphere

The Birth of Dodd-Frank Whistleblower Actions

In what many are calling the first Dodd-Frank retaliation suit to survive a Rule 12(b)(6) motion to dismiss, the United States District Court for the District of Connecticut issued a ruling permitting a terminated Human Resources manager’s retaliation claim to proceed. In Kramer v. Trans-Lux Corp. (to read the full opinion click here), the plaintiff’s Dodd-Frank retaliation claim is based on his termination allegedly caused by his written complaints – one to the company’s CEO, another to the Board’s audit committee and, finally, a complaint to the SEC – that the company was violating its pension plan.

Much of the argument in the case hinged on whether Kramer’s method of reporting to the SEC – sending a letter to the SEC via regular mail – was sufficient to trigger Dodd-Frank’s anti-retaliation provisions. Specifically, the defendant employer insisted that a “whistleblower” under Dodd-Frank’s statutory definitions must report violations to the SEC through the Commission’s website or by mailing or faxing a Form TCR (Tip, Complaint or Referral). The court rejected this construction, finding that such an interpretation would defeat a key goal of the Dodd-Frank Act to “improve the accountability and transparency of the financial system” and create “new incentives and protections for whistleblowers.” Like two other federal courts in Maryland and New York, the federal court in Connecticut specifically noted that the term “whistleblower” should be given broader construction in the retaliation provision of the statute than in other portions.

This decision opens the door for more whistleblower lawsuits under Dodd-Frank – an option that is appealing to many potential plaintiffs. Notably, a Dodd-Frank retaliation claim offers different remedies than a Sarbanes-Oxley claim. Further, Dodd-Frank offers a significantly longer statute of limitations. Yet another bonus: Dodd-Frank claims can be brought directly in federal court whereas Sarbanes-Oxley claims must be brought through a U.S. Department of Labor administrative process.

For more background on Dodd-Frank retaliation claims click here to read “Dodd-Frank: Picking Up Where SOX Fell Short”, authored by Lynne Anne Anderson and Meredith R. Murphy in the New Jersey Labor and Employment Law Quarterly, Vol. 33, No. 4 – May 2012.

New FCRA Background Check Forms Required January 1, 2013

Effective January 1, 2013, employers must revise Summary of Rights forms they provide to prospective and current employees as required under the Fair Credit Reporting Act (“FCRA”).

The FCRA is a federal law which applies whenever a covered employer seeks information from a “consumer reporting agency” regarding an individual’s credit, character, general reputation, personal characteristics, or mode of living. A “consumer reporting agency” is defined quite broadly under the FCRA, resulting in an employer being subject to the FCRA simply by using a third-party vendor to conduct background checks on any of its applicants/employees.

Pursuant to the FCRA, an employer is required to provide a disclosure and obtain written authorization from any applicant/employee prior to conducting a background check. Should the employer seek to take an “adverse action” against the applicant/employee based on the background check — which, for purposes of the FCRA is defined as a denial of employment or any other decision that adversely impacts the applicant/employee (i.e., failure to hire, transfer, termination) — the employer must first provide the applicant/employee a copy of the background check and a Summary of Your Rights under the FCRA (“Summary of Rights”) form under the FCRA. It is this Summary of Rights form that employers must revise prior to January 1, 2013.

With President Obama’s signing of the Consumer Protection Act of 2010 (signed into law on July 21, 2010) enforcement powers over the FCRA were transferred from the Federal Trade Commission (FTC) to a newly created Consumer Financial Protection Bureau (CFPB). The CFPB has since issued regulations requiring employers to revise their Summary of Rights forms effective January 1. 2013 to reflect that information about consumers rights under the FCRA can now be obtained from the CFPB instead of the FTC.

Other notice provisions under the FCRA remain the same. After taking adverse action against an applicant/employee based on a background check, the employer must provide the applicant/employee with notice of the adverse action, as well as the name, address and toll-free telephone number of the third-party vendor that conducted the background check, and a written statement that the third-party vendor did not make the decision to take the adverse action and is unable to provide the applicant/employee with specific reasons as to why the adverse action was taken. The employer must also provide the applicant/employee with notice of his/her rights to obtain a free copy of the consumer report within sixty days and to dispute the accuracy or completeness of any information contained in the report.

Further, while the FTC no longer will have primary statutory authority to issue interpretive guidance under the FCRA, the agency on July 20, 2011 issued a Staff Report entitled “Forty Years of Experience with the Fair Credit Reporting Act: An FTC Staff Report and Summary of Interpretations” which compiles and updates the agency’s prior guidance under the FCRA and provides a section-by-section summary of the agency’s interpretations of the Act. The FTC also has withdrawn its 1990 Commentary on the FCRA, which the agency admits had become obsolete as a result of statutory amendments expanding the FCRA in the intervening years. A copy of the FTC’s new Staff Report can be found on the FTC’s website at http://www.ftc.gov/os/2011/07/110720fcrareport.pdf. The copy of the new Summary of Rights form which employers are required to use effective January 1, 2013 can be downloaded from the CFPB’s website at http://ecfr.gpoaccess.gov/graphics/pdfs/er21dell.019.pdf.

NLRB Announces its First Formal Ruling on the Legality of Social Media Policies

In line with the series of guidelines issued by the Acting General Counsel over the past year, the NLRB has announced its first formal ruling on social media policies, finding that the social media policy of Costco Wholesale Corp. is unlawful because it broadly prohibits online comments “that damage the Company, defame any individual or damage any person’s reputation, or violate the policies” in the employer’s handbook. 358 NLRB No. 106. The case represents the first ruling by the Board on the legality of social media policies, and follows the Acting General Counsel’s admonition that overbroad policy statements will be held unlawful.

The Board observed in its opinion that in the absence of a disclaimer notifying employees that the rule is not intended to restrict the right to engage in protected concerted activities, the broad prohibition on comments that might “damage the Company” is overbroad and unlawful because “employees would reasonably conclude that the rule requires them to refrain from engaging in” communications that are critical of the company or its supervisors despite the fact that the policy does not appear to address or prohibit critical comments about the company. In this respect, the opinion appears to reflect the Board’s approach that policy statements will be judged not by what they purport to prohibit, but by whether employees could reasonably construe them as restricting their right to communicate about terms and conditions of employment. The Board observed that context matters, however, suggesting that employers might avoid liability by inserting appropriate disclaimers in their social media policies or by tying the prohibition to specific examples of egregious conduct such as the use of profane language, abusive or unlawful statements, or comments reflecting sexual or racial harassment.

The Costco opinion highlights the fact that overbroad social media policy restrictions on negative comments will be found to be unlawful by the Board, and that imposing discipline for making such comments might expose employers to unfair labor practice charges – even for non-union workforces – and the potential for wrongful termination claims. As referenced above, some of this risk can be managed by avoiding using overly broad restrictions, by carefully wording your policy to specifically notify employees that their protected rights are not encompassed by the policy restrictions, and by including examples of prohibited activity to provide context to the restrictions imposed. As have the prior guideline memoranda from the Acting General Counsel, this ruling provides a reminder that all businesses should reevaluate both the language and impact of their internet/social media policies with an eye towards these potential areas of risk.

California Joins Other States in Implementing Laws Governing Employer Access to Employee’s and Applicant’s Social Media Accounts

California is poised to be on the front lines of implementing laws governing when and if employers can require applicants or employees to divulge their social media passwords and grant employer access as part of the hiring process or in the course of the employment relationship. Last week, the California Senate voted 28-5 in favor of Assembly Bill 1844, which would prohibit employers from forcing employees and prospective workers to turn over usernames and passwords for their social media accounts and also would ban employers from discharging, disciplining or threatening to retaliate against employees or job applicants who did not comply with such requests. Of note, the Senate’s proposed amendments clarify that employers may request personal social media information when related to an investigation involving alleged workplace misconduct or violations of the law. The Senate also amended the bill to specify that the State’s labor commissioner is not required to investigate or determine any violations of the bill. The proposed bill next moves to the Assembly for a vote.

This proposed California bill comes on the heels of multiple memoranda issued by the National Labor Relations Board analyzing various implications of social media in the workplace and specifically opining on what employers can and cannot review and regulate in the context of employee (and applicant) rights. There currently are hundreds of cases pending before the National Labor Relations Board concerning social media issues — and the Board has made it abundantly clear that its jurisdiction to protect employee rights is not limited to organized (“unionized”) workplaces.

Maryland passed the first state law prohibiting employers from requiring disclosure of social media information which goes into effect October 1, 2012. Illinois also passed a similar law on August 1, 2012 (see our prior coverage here) which takes effect on January 1, 2013. Massachusetts, New Jersey and New York are also currently considering similar legislation.

Is Relief on the Horizon for California Employers Attempting to Enforce Arbitration Agreements as Class Waivers?

In California, a hotbed of wage and hour class and collective action filings, a recent appellate court opinion provides some long-awaited good news for employers attempting to enforce arbitration agreements as class waivers. In Reyes v. Liberman Broadcasting, Inc., plaintiff Jesus Reyes worked for Liberman Broadcasting, Inc. from April to September 2009. Pre-hire, Reyes executed an arbitration agreement. In May 2010, he filed a class action alleging wage and hour violations on behalf of a putative class of security officers. When it initially answered the Complaint, Liberman failed to raise the issue of arbitration. In July 2011, Liberman filed a motion to compel Reyes to arbitrate his wage and hour claims as an individual (versus holding a role as a class representative). The court denied the motion, finding that Liberman had waived its rights via the delay. This led Liberman to appeal, resulting in a decision further interpreting the U.S. Supreme Court’s April 2011 decision in AT&T Mobility v. Concepcion, which held that the Federal Arbitration Act preempts state laws that invalidate class action arbitration waivers. To date, courts have to date [delete] been split on whether Concepcion overruled the California case of Gentry v. Superior Court, which required class arbitration under certain circumstances. However, last Friday, the appellate court, in Reyes, reversed the lower court’s denial of Liberman’s motion to compel arbitration. In so ruling, the Second District Court of Appeal held, “an arbitration agreement silent on the issue of class arbitration may have the same effect as an express class waiver.” (The Second District Court of Appeal declined to decide whether the Gentry case remains good law following the Concepcion ruling, holding instead that Reyes failed to show that the Gentry factors made the arbitration agreement unenforceable.)

The Court of Appeal also held that although Liberman did not mention the arbitration agreement in its answer and had previously engaged in discovery in the case, the company did not waive its right to compel arbitration. In so holding, the appellate court found that Liberman reasonably concluded it could not enforce the arbitration agreement before the Concepcion decision, given the fact that several California decisions pre-Concepcion appeared to require class arbitration in similar contexts. The Court of Appeal opined, the “risk [of compelled class arbitration] diminished substantially when Concepcion changed the legal landscape, and Liberman promptly informed Reyes of its intent to arbitrate one month after the [Concepcion] decision and filed its motion to compel a month later.” Accordingly, the opinion stated, “Liberman did not act inconsistently with a right to arbitrate by not moving to compel until after Concepcion.”

The body of law on enforcing arbitration agreements as class waivers is still developing post-Concepcion, but perhaps Reyes v. Liberman Broadcasting, Inc. indicates that there is some relief on the horizon.