Whistleblower Archives - Page 3 of 4

SEC Charges Another Company for Anti-Whistleblower Provision in Severance Agreements

The SEC announced on Wednesday that BlueLinx Holdings Inc. has agreed to pay a $265,000 penalty for including a provision in its severance agreements that required outgoing employees to waive their rights to monetary recovery if they filed a charge or complaint with the SEC or other federal agencies. Press Rel. No. 2016-157. According to the SEC’s order, approximately 160 BlueLinx employees have signed severance agreements that contained the provision since it was added to all of BlueLinx’s severance agreements in or about June 2013.

The provision violates Rule 21F-17 of the Exchange Act, which became effective on August 12, 2011, and prohibits any action to impede an individual from communicating with the SEC about a possible securities law violation. The purpose of the adoption of Rule 21F-17 was “to encourage whistleblowers to report possible violations of the securities laws by providing financial incentives, prohibiting employment-related retaliation, and providing various confidentiality guarantees.” See In the Matter of BlueLinx Holdings Inc., Release No. 78528. Because the severance agreement required employees leaving the company to waive potential whistleblower awards or risk losing payments and other benefits under the agreement, it ran afoul of Rule 21F-17.

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Bad News for Whistleblowers: New Jersey Supreme Court Rules Theft of Confidential Documents for Self-Help in Employment Lawsuit Can Result in Jail Time

Does an employee have an unfettered right to take confidential documents from her employer to use in her discrimination and retaliation lawsuit against the employer? Not in New Jersey. The New Jersey Supreme Court recently ruled in State v. Ivonne Saavedra that the theft of a company’s confidential documents for self-help in an employment lawsuit can result in jail time.

Florham Park partner Lynne Anderson recently published an article in Law360 discussing the decision and its ramifications for employers and would-be whistleblowers.

Read “Woe To The NJ Whistleblower Who Whisks Away Documents” here.

Whistleblower and Retaliation Claims Compliance, Risk and Prevention

Whistleblower and Retaliation claims continue to rise and general counsel of companies large and small are increasingly budgeting for the prevention and defense of these claims. The multitude of regulations governing industries including pharma, life sciences healthcare, insurance and financial services, present employees with numerous opportunities, sometimes even incentives, to threaten and file whistleblower and retaliation claims. Launch the brief video below to hear how Labor and Employment Group partners Tom Barton and Lynne Anderson are helping employers achieve a culture of compliance to minimize risk, as well as the Labor & Employment group’s proven track record of success in helping employers handle and defend against these claims.

New Jersey’s Whistleblower Law Is Not An End Run Around Labor Law Preemption

New Jersey’s Appellate Division has rejected two Atlantic City nightclub workers’ attempts to artfully plead their way around preemption under the National Labor Relations Act (NLRA) and the Labor Management Relations Act (LMRA) by alleging a whistleblower claim under New Jersey’s Conscientious Employee Protection Act (CEPA). The case was brought by two “Tipped Floor Euros,” i.e., alcoholic beverage servers, who alleged retaliation and constructive discharge following their complaints regarding tip-pooling, wage payments and being forced to perform duties prohibited by the collective bargaining agreement (CBA). The case is O’Donnell v. Nightlife, et al. (April 17, 2014).

In rejecting the plaintiffs’ CEPA claims, the Appellate Division took a narrow view of the whistleblower statute, citing the standard that the conduct complained of must “pose a threat of public harm, not merely private harm or harm only to the aggrieved employee.” [Opinion, p. 11, available here, citing Mehlman v. Mobil Oil Corp., 153 N.J. 163, 188 (1988)] The Appellate Court agreed with the trial court that most of the plaintiffs’ complaints alleged violations of the CBA, not violations of law, and accordingly, not violations of CEPA.

The Appellate Division also took a broad view of preemption under the NLRA and LMRA. The Court gave credit to plaintiffs’ attempts to “artfully phrase” the language in the complaint – alleging that failure to pay the share of the nightly tip pool constituted “fraud” and failure to pay full minimum wage for non-tipped work constituted a “violation of [New Jersey] wage and hour laws.” However, the Appellate Division ultimately ruled that such state causes of action are presumptively preempted under NLRA and LMRA and were appropriately dismissed as preempted because they each ultimately asserted violations of the CBA or claims that required interpretation of the CBA.

Accordingly, based on this precedent, a unionized employee’s remedy lies not under CEPA but through the union grievance procedure and the relief available under Sections 7 and 8 of the NLRA.

Supreme Court Expands Scope of Sarbanes-Oxley Whistleblower Protections

Editor’s Note: The following post appears in the latest issue of the California HR Newsletter.

Supreme Court Expands Scope of Sarbanes-Oxley Whistleblower Protections

The Issue: My company is not publicly traded, but provides services to companies that are. Do Sarbanes-Oxley whistleblower protections extend to our employees?

The Solution: Yes.

Analysis: Enacted in the wake of the Enron and Worldcom scandals, the Sarbanes-Oxley Act imposes increased reporting standards on publicly-traded companies and the outside accountants, consultants, and lawyers supporting them. Section 1514A prohibits public companies, or their contractors or agents, from using adverse employment action, threat, or harassment to retaliate against “an employee” who blows the whistle (internally or externally) on perceived violations of the Act, SEC regulation, or any other federal law relating to shareholder fraud. Though civil remedies are largely coextensive with California’s employee anti-retaliation provisions, federal claims brought under section 1514A are exempt from arbitration and entail potential criminal penalties, including up to ten years of jail time for the responsible decision-makers.

In Lawson v. FMR LLC, decided in early March, the Supreme Court significantly expanded the scope of section 1514A’s protection, extending it to employees of service providers to public companies. The plaintiffs in Lawson were accountants formerly employed by FMR, a private contractor that prepares SEC filings for publicly traded mutual funds. They were allegedly terminated for raising concerns to their superiors regarding accounting and reporting methodologies used by FMR. FMR argued that the case should be dismissed because section 1514A, titled “Whistleblower protection for employees of publicly traded companies,” regulates private contractors only to the extent they are used to retaliate against public company employees, and does not shield a private contractor’s own employees.

The Supreme Court disagreed. Reversing the First Circuit, the Court held that, “based on the text of 1514A, the mischief to which Congress was responding, and earlier legislation Congress drew upon, . . . the provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.” Though this expansive interpretation could generate a wide range of potential plaintiffs (a fact duly noted in the dissent), the Court indicated that professional service providers, such as the accountant plaintiffs in Lawson, are the intended and most likely beneficiaries.

Accordingly, private companies providing professional services to publicly traded clients should ensure they have appropriate procedures in place for responding to employee questions or complaints that may be regarded as “whistleblowing.” Failure to do so may expose them to federal remedies above and beyond those already imposed by California law.

Whistleblowing May Not Be Limited to Claims About Employer Wrongdoing in New Jersey

The New Jersey Conscientious Employee Protection Act (“CEPA”) was designed to protect whistleblowing employees who have the courage to stand up to illegal or wrongful conduct by their employer. As the courts have consistently held, the initial focus in a typical CEPA case is on the whistleblower’s prima facie case burden to establish that he/she had an objectively reasonable basis to believe that the employer did something wrong by either violating a law or engaging in conduct incompatible with a clear mandate of public policy.

In an unreported opinion issued in March 2013, however, the United States District Court for the District of New Jersey found that CEPA can be implicated even where there is no claim or contention that the employer did anything wrong. In Stapleton v. DSW, Inc. (2013 U.S. Dist. LEXIS 38502), the plaintiff employee believed that a store customer was mistreating her young child by, among other things, not changing her dirty diaper, and decided to “blow the whistle” on the customer by turning her in to the New Jersey Division of Child Protection and Permanency (the “Division”) out of concern for the child’s health and wellbeing. The plaintiff employee gave the customer’s name and address to the Division after obtaining that information from the customer’s transaction with the store. In doing so, the plaintiff violated the company’s perfectly lawful policy prohibiting the unauthorized disclosure of confidential customer information. When the employer learned of what had happened, it discharged the plaintiff for violating its non-disclosure policy, and she filed suit under CEPA.

Not surprisingly, the company moved to dismiss the lawsuit on the grounds that the plaintiff was not a protected “whistleblower” because she did not allege that the company had done anything wrong or illegal. Indeed, the plaintiff had blown the whistle on the customer, not the company. This is where it gets interesting. In denying the company’s motion, the District Court noted that CEPA not only protects employees who object to illegal activity, but also those who refuse to follow a policy or practice which they reasonably believe is incompatible with a clear mandate of public policy. Unlike most CEPA cases, the court in Stapleton focused on the conduct of the employee – not the employer – and concluded that she was protected under CEPA by virtue of the fact that she acted pursuant to the public policy that encourages individuals to report child abuse. In this circumstance, the court determined that the company’s policy prohibiting the disclosure of the customer’s identity was incompatible with the State’s clear mandate to protect the health and welfare of children, and that the plaintiff was therefore engaged in protected “whistleblowing” under CEPA when she refused to “participate in” or follow that policy in order to help the Division identify the customer.

While the court’s CEPA analysis is subject to debate – there was no allegation that the employer had engaged in wrongful or illegal conduct – the plaintiff would appear to have a claim for wrongful discharge in violation of public policy where the New Jersey Child Protection Law provides immunity to employees reporting child abuse, and the New Jersey courts have held that employer policies on confidentiality must yield to matters of child safety. Nevertheless, this opinion should serve as a caution to employers and counsel alike that the courts often take an expansive view of the protections provided under CEPA.