Menendez Redux: Halliburton Whistleblower Finally Gets Retaliation Award

April 15, 2013

The U.S. Department of Labor’s Administrative Review Board (ARB) revisited a long-running case, once again ruling against Halliburton, the oilfield services giant, for retaliating against a whistleblower who reported accounting irregularities to the U.S. Securities and Exchange Commission (SEC).

The ARB awarded financial executive Anthony Menendez $30,000 in damages, plus costs and lawyers’ fees.

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Third Circuit Supports Broader Access to Whistleblower Protection in Sarbanes-Oxley Cases

March 20, 2013

A federal appeals court made it easier for whistleblowers to claim protection under the Sarbanes-Oxley Act (SOX), adding dramatic weight to the U.S. Department of Labor’s landmark ruling that such employees can be protected even if they fail to cite the exact rules their employer may have broken.

Instead, workers may simply show that they had a “reasonable belief” that their company acted fraudulently — or was about to do so — and that they were punished for raising a SOX-related issue. If such a complaint is plausibly and properly made, the U.S. Court of Appeals for the Third Circuit held in Wiest v. Lynch, judges may not dismiss it without further proceedings.

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Department of Labor Orders Ohio Company to Reinstate and Pay Whistleblower $270,000

September 21, 2012

Dana Holdings Corp., an Ohio based company that supplies driveline, sealing and thermal management technologies for passenger, commercial and off-highway vehicles, has been ordered by the U.S. Department of Labor to reinstate a financial analyst and pay him $274,922.47 in compensatory damages in order to settle a whistleblower lawsuit filed under the Sarbanes-Oxley Act of 2002.

The employee alleges that he was terminated in February 2009 in retaliation for raising concerns regarding inaccuracies in the company’s customer information assessment system database, which could in turn lead to inaccuracies in the company’s annual financial reports.

Nick Walters, the Department of Labor’s Occupational Safety and Health Administration’s (OSHA) regional administrator in Chicago, stated:

“The Sarbanes-Oxley Act provides protection to workers who report alleged violations of federal laws relating to fraud against shareholders… This case clearly shows the department’s commitment to ensuring that individuals are provided the protections and relief afforded by the law, and sends a message that retaliatory actions will not be tolerated.”

In addition to reinstating the former financial analyst and paying him compensatory damages, Dana Holdings must expunge all adverse references related to the discharge from the employee’s personnel record and must train all employees and post a notice regarding the Sarbanes-Oxley Act’s whistleblower provision.

The Employment Law Group® law firm has an extensive nationwide whistleblower practice  representing employees who have been victims of retaliation.

Law360 Quotes R. Scott Oswald, Managing Principal of The Employment Law Group® on Recent Pro-Whistleblower Decision from the Department of Labor’s Administrative Review Board (ARB)

May 08, 2012

R. Scott Oswald, managing principal of The Employment Law Group® law firm was recently interviewed by Law360 on a recent Department of Labor Administrative Review Board (ARB) decision establishing a lighter burden of proof for whistleblowers under the Sarbanes-Oxley Act (SOX).

The decision, Zinn v. American Commercial Lines Inc., ARB No. 10-029, ALJ No. 2009-SOX-25 (ARB Mar. 28, 2012), involved an in-house attorney, Angela Zinn, who blew the whistle on allegedly unsafe maritime transport practices while employed by the shipping company American Commercial Lines Inc.  The ARB’s decision held that whistleblowers need not establish that their employer’s allegedly legitimate reason for taking action against them was pretextual.

According to Oswald, who represents employees and whistleblowers, “management-side lawyers have fought to graft this tougher burden-shifting standard onto SOX cases, but the decision demonstrates that the DOL is not having it.”

In the decision the ARB “rejected emphatically the notion that an employee has a burden to demonstrate that the employer’s proffered reason is pretextual,” Oswald noted.

Regarding the effect of the ARB’s decision, Oswald stated: “I think this makes it clear that there will be fewer and fewer of these kinds of cases that can and should be adjudicated before an evidentiary hearing.”

According to the rationale underlying the ARB’s recent decision, DOL Administrative Law Judges should now let cases proceed “unless the employer meets its burden to show through clear and convincing evidence that the same adverse action would have been taken regardless of the alleged protected activity at issue, and that,” according to Oswald, “[was] what Congress intended.”

The article, entitled “DOL Ruling Makes SOX Whistleblower Cases Harder To Beat”, appeared in the May 1, 2012 edition of the web-based legal news service, Law360.

The Employment Law Group® law firm is a leader in the field of whistleblower law and has an extensive nationwide whistleblower practice representing employees who have exposed illegal activity by their employer.

Sarbanes-Oxley Compliance Journal Publishes Article by The Employment Law Group® Managing Principal, R. Scott Oswald

April 30, 2012

According to The Employment Law Group® law firm’s managing principal, R. Scott Oswald, “2011 marked a sea change for whistleblowers at the Department of Labor’s Administrative Review Board (ARB).”  The Sarbanes-Oxley Compliance Journal recently published an article by Mr. Oswald which discusses the impact of recent ARB decisions on whistleblower protection and describes why “2011 was an important year for whistleblowers.”

In the article, Oswald highlighted 2011’s significant developments in whistleblower law, noting that “the ARB changed the standard of proving protected activity, embraced the concept of corporate knowledge, established the most generous standard for an adverse action in employment law, and established the fact that most Sarbanes-Oxley cases should proceed to an evidentiary hearing.”

Specifically, Oswald discussed the significance of the following 2011 ARB decisions:

• In Sylvester v. Parexel International LLC, ARB No. 07-123, ALJ Nos. 2007-SOX-039, 042 (May 25, 2011), the ARB affirmed that whistleblowers are protected under SOX even when mistaken and held that an employer’s disclosure of the whistleblower’s identity constitutes an adverse employment action, and, finally, found that whistleblowers can establish causation by showing that their whistleblowing activity was merely a contributing factor in the employer’s decision to take the adverse employment action.
• In Funke v. Federal Express Corporation, ARB No. 09-004, ALJ No. 2007-SOX 043 (ARB July 8, 2011), the ARB expanded whistleblower protections by confirming that an employee’s disclosure that a FedEx customer was using FedEx services to engage in mail fraud was protected activity under SOX, as was the whistleblower’s reporting of the customer’s conduct to local law enforcement.
• In Vannoy v. Celanese, ARB No. 09-118, ALJ No. 2008-SOX-064 (ARB September 28, 2011) the ARB “relieved whistleblowers from the heavy burden of proving their claims without using any of the employer’s confidential information,” whereas previously, Oswald noted, “whistleblowers could be subject to serious penalties for doing so.”
• In Menendez v. Halliburton, ARB Nos. 09-002, 09-003, ALJ No. 2007-SOX-005 (ARB September 13, 2011) the “ARB affirmed that whistleblowers are protected under SOX even when they are mistaken about the nature of their complaints” and held that an employer’s disclosure of the whistleblower’s identity constitutes an adverse employment action.
• In Johnson v. Siemens Bldg. Techs, Inc., ARB No. 08-032, ALJ No. 2005-SOX-015 (ARB March 31, 2011) the ARB “declared that whistleblowers may seek SOX’s protections from non-publically traded subsidiaries of publically traded companies.”
• Finally, in Villanueva v. Core Laboratories, ARB No. 09-108, ALJ No. 2009-SOX-006 (ARB December 22, 2011) the ARB “found that SOX can protect disclosures of violations of United States law by foreign whistleblowers who work for foreign branches or subsidiaries of United States companies”.  In the article, Mr. Oswald noted that, “as a result” of this decision, “even complaints to foreign compliance offices should be taken seriously and investigated when the violation claimed refers to U.S. law” because “foreign offices or subsidiaries can still violate U.S.s securities laws and resolutions.”

In addition to ARB decisions expanding whistleblower protections, 2011 also saw “the Consumer Financial Protection Bureau extend whistleblower protections to new industries pursuant to the Dodd Frank Act of 2010 – most recently payday lenders, student loan companies and mortgage finance companies”.

With this expansion of whistleblower protection, according to Oswald, “the ARB’s influence over the scope and contours of whistleblower protection, articulated in its precedents in 2011, will be felt for years to come by employers in areas of the US economy that may have had few, if any, whistleblower protections before.”

The article, entitled “More Protection for Whistleblowers”, was published in the April 25, 2012 edition of the Sarbanes-Oxley Compliance Journal and was also syndicated in Compliance Daily, as well as Governance, Risk Management & Compliance Daily.

The Employment Law Group® law firm is a leader in the field of whistleblower law and has an extensive nationwide whistleblower practice representing employees who have exposed illegal activity by their employer.

Managing Principal of The Employment Law Group®, R. Scott Oswald, Discusses the Importance of “Robust and Responsive Internal Compliance Programs” with Workforce Management Magazine

April 11, 2012

R. Scott Oswald, managing principal of The Employment Law Group®, was recently interviewed and quoted by Workforce Management Magazine on the subject of expanded whistleblower protection under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In 2010, Dodd-Frank amended the Sarbanes-Oxley Act (SOX) and expanded whistleblower protections to include “nationally recognized statistical rating organizations” which include credit rating agencies.  Additionally, the new laws provide various financial incentives for whistleblowers who report fraud and provide protection for whistleblowers against employer retaliation.

Commenting on these expanded protections for whistleblowers, Mr. Oswald told Workforce Management Magazine, that it is necessary for employers to have a “robust and responsive internal compliance program” to ensure that employers do not violate the laws designed to protect workers who report fraudulent or illegal practices.

Additionally, Mr. Oswald notes that “employees don’t want to become whistleblowers,” rather they typically “have families to support and careers to maintain” but come forward in order to protect themselves from retaliation by their employers.

The article, “Whistling While You Work”, appeared in the April 1, 2012 edition of Workforce Management Magazine.

The Employment Law Group® law firm has a nationwide whistleblower practice representing employees who have been the victims of retaliation.

R. Scott Oswald, Managing Principal of The Employment Law Group®, Publishes Article in The Washington Post on Recent Expansions of Employee Rights

April 11, 2012

R. Scott Oswald, managing principal of The Employment Law Group® recently published an article in The Washington Post discussing new expansions of employee rights in the areas of whistleblower protection and wage and hour law.

In the piece, Mr. Oswald discussed recent developments in employee protection law that, if ignored, could result in penalties and other sanctions for employers, including: the miscategorization of workers as independent contractors; expansions in the protection afforded by whistleblower laws; and new wage and overtime protection for home healthcare workers.

On the subject of employee misclassification, Mr. Oswald wrote that:

 “in this tough economy, employers may be tempted to miscategorize an employee as an independent contractor in order to skirt requirements to pay unemployment insurance, Social Security, workers compensation and other employee benefits.”

However, employers could face stiff penalties for misclassifying workers, according to Oswald.  Specifically, in Maryland, employers found to be in violation of the law can be liable to pay both restitution to the misclassified worker and a $1,000 civil penalty.  Other states’ protections provide even more protection to employees, for example, according to a recently enacted law in California, employers can be subject to a fine of up to $15,000 for each violation and even up to $20,000 if the employer is found to have engaged in a “pattern or practice of these violations”.

Mr. Oswald also discussed new federal protections for whistleblowers under the Dodd-Frank Act which “has created a national whistleblower standard that applies not only to employees at publicly traded corporations but also to corporations that are regulated by the Consumer Financial Protection Bureau (CFPB).”  Among the industries now affected by the new whistleblower protections include, according to Oswald, “payday lenders, private education lenders, and mortgage finance companies.”

Also highlighted in the article were recent regulatory changes by the Department of Labor which will assist in “reigning in wage abuses in certain industries not traditionally covered by protections, including the home healthcare industry.”   As a result, more home healthcare workers will soon be protected by federal minimum wage and overtime laws, whereas currently there are nearly 30 states that do not offer such workers minimum wage or overtime protections.

As a result of these new laws and regulations, Mr. Oswald commented that “employers must be more careful in how they pay their workers and must be more rigorous in their human resources compliance.”

The Employment Law Group® law firm has a nationwide whistleblower practice representing employees who have been the victims of retaliation, as well as and extensive wage and hour practice representing employees whose rights have been violated, including nonpayment of wages and denial of overtime pay.

Department of Labor Administrative Review Board Decision Limits Sarbanes-Oxley Retaliation Protections for Foreign Whistleblowers

February 07, 2012

On December 22, 2011, the Department of Labor’s Administrative Review Board (ARB) issued a 3-2 en banc decision that limits the application of the Sarbanes-Oxley Act (SOX) outside of the United States.

The case, Villanueva v. Core Laboratories, ARB No. 09-108, ALJ No. 2009-SOX-006 (ARB December 22, 2011), centered around a whistleblower complaint filed by Colombian citizen William Villanueva. Mr. Villanueva was the CEO of Saybolt Colombia, a subsidiary of Core Laboratories NV, a Dutch company which maintains an office in Houston, Texas and whose securities are publically traded on the New York Stock Exchange.

In 2008 Villanueva alleged that he was the victim of adverse employment actions, including termination from his job, after he warned executives in Houston that other executives were engaging in illegal tax schemes. After Villanueva refused to sign a fraudulent tax return, Core Laboratories purportedly terminated him.

Villanueva then filed a complaint with the Occupational Safety and Health Administration (OSHA) alleging that the Saybolt had violated SOX by retaliating against him and that SOX should protected him as a whistleblower since Core Laboratories is based in the U.S. OSHA dismissed Villanueva’s complaint, after which Villanueva requested a hearing with an Administrative Law Judge (ALJ).

The ALJ dismissed Villanueva’s complaint for a lack of subject matter jurisdiction, reasoning that while the case had domestic components, the principal part of the case was extraterritorial and that SOX did not apply extraterritorially.

On August 6, 2009, Villanueva appealed the ALJ dismissal to the ARB arguing that because executives working at the Core Laboratories headquartered in the U.S. had engaged in fraudulent practices and retaliation, the case did not require extraterritorial application of SOX.

The ARB affirmed the ALJ’s dismissal of the lawsuit, ruling that SOX applies only to disclosures relating to U.S. laws and that the fraud Villanueva alleged involved only Colombian laws with no stated violation or impact on U.S. securities or laws. Additionally, the ARB wrote that the fact that Villanueva reported the alleged misconduct to Core Laboratories executives in Houston does not change the foreign nature of the alleged fraud.

The primary result of the Villanueva decision – and one that has surprised many commentators – is that the ARB rejected the “cause” or “decision-maker” test which had previously been used in favor of an “effects” test. The effects test looks to the effect of the conduct at issue and whether it implicates U.S. law, rather than the origin of the conduct, as the relevant factor for determining whether SOX applies internationally.

Because the ARB’s focus in Villanueva was that the whistleblower had only complained of violations of foreign laws, the ARB required the whistleblower to prove an actual violation of law in order to have a viable whistleblower retaliation claim under SOX.  This conflicts with the ARB’s recent decision in Sylvester v. Parexel Int’l, ARB No. 07-123, ALJ No. 2007-SOX-039 (ARB May 25, 2011), in which the ARB held that a complainant need not prove or identify the law believed to have been violated in order in order to constitute protected activity under SOX.

Judge E. Cooper Brown, Deputy Chief Administrative Appeals Judge, dissented from the majority’s decision in Villanueva, writing that the primary focus of SOX is not the underlying fraud, or even the location of the protected conduct, but rather the retaliation against an employee for blowing the whistle on potential fraud. The majority’s view, according to Judge Brown, was inconsistent with Congress’ intent in passing the Dodd-Frank Act’s strengthening amendments to SOX. According to Judge Brown:

“To construe the legal presumption against extraterritoriality as a bar to claims such as that presented by Villanueva constitutes, in my estimation, a legally indefensible restriction on the protection that Congress intended Section 806 to afford to covered employees.”

Additionally, Judge Brown wrote that the majority’s decision in Villanueva ignores the public policies underlying the original intent behind SOX, the recent amendments broadening SOX, the new causes of action under Dodd-Frank, and the ARB’s own recent decision in Sylvester.

Villanueva’s attorneys intend to file a petition for review of the ARB’s decision with the U.S. Court of Appeals for the Fifth Circuit by the filing deadline on February 17, 2012.

As a result of the ARB’s decision, compliance professionals would now need to investigate and take seriously any complaints that relate to or implicate U.S. laws or have an effect within the U.S. Additionally, foreign offices or subsidiaries can still violate U.S. securities law and regulations, as long as an alleged violation refers to U.S. law.

The Employment Law Group® law firm is a leader in the field of whistleblower law and, together with the National Whistleblower Center and the National Employment Lawyers Association, filed an amicus brief in the Villanueva case.

Capital Insider interviews Attorney Adam Augustine Carter about What Employees Should Know for 2012

January 10, 2012

Morris Jones of Capital Insider interviewed The Employment Law Group® law firm attorney Adam Augustine Carter on the recent changes in whistleblower and employment law that will affect employees in 2012.

The points Mr. Carter makes are that:

1. There are almost 2 million home health aides and in-home care providers working in our country. Now with new regulations these workers will get overtime and minimum wage protections.
2. There are now in effect regulations that implement the amendments to the Americans With Disabilities Act (ADAAA) that broaden the definition of who is covered as having a disability and the key change is that an impairment does not need to prevent or severely or significantly restrict a major life activity to be considered to be “substantially limiting” the activity.
3. Revisions to the Sarbanes-Oxley whistleblower regulations clarify and improve the procedures for handling Sarbanes-Oxley whistleblower complaints and implement statutory changes enacted into law as part of the 2010 Dodd-Frank Wall Street Reforms.
4. The Department of Labor’s Administrative Review Board has changed the landscape in 2011 for whistleblowers under Sarbanes-Oxley and the new Dodd Frank amendments to make these laws more powerful for whistleblower claims to succeed and for whistleblowers to be protected so that they don’t have to choose between their job and doing the right thing.

Related articles

• TELG Principal Quoted in Law360 Regarding New Sarbanes-Oxley Whistleblower Regulations (employmentlawgroupblog.com)
• TELG Principal Attorney Adam Augustine Carter Quoted in Bloomberg Article (executivecounselblog.com)
• U.S. DOL ARB Ends Landmark Year Holding Summary Decision Improper Unless Employer Proves Sarbanes-Oxley Act Does Not Apply (employmentlawgroupblog.com)

7th Circuit Reinstates RICO Whistleblower Lawsuit, Applies Broad Relationship Standard

December 30, 2011

The United States Court of Appeals for the Seventh Circuit reversed a lower court decision dismissing whistleblower Michael DeGuelle’s lawsuit against his former employer, S.C. Johnson & Son, Inc. (SCJ) and members of management.  The Court recounted the facts alleged by DeGuelle that gave rise to the lawsuit:

[While working in SCJ’s tax department,]DeGuelle discovered that SCJ improperly received over $5 million in foreign tax credits.  In January of 2001, DeGuelle reported his findings to [Daniel Wenzel, SCJ’s Global Tax Counsel,] and asked how these errors should be remedied.  Wenzel responded that they should wait and “[t]his is why I go to church on Sundays.”  Wenzel reported DeGuelle’s findings to Robert Randleman, Vice President and Corporate Tax Counsel, but not to the IRS.  Instead Wenzel directed DeGuelle to alter or destroy records so that the errors would not be detected.  Subsequently, altered reports were submitted to the IRS. . . .

In 2002, Wenzel instructed DeGuelle and a fellow employee to structure a transaction so that SCJ could claim a tax deduction by exploiting tax accounting rules.  Wenzel told DeGuelle and his fellow employee to fabricate a business purpose for the transaction and then destroy associated business records in case “the IRS examines this transaction in the future.” DeGuelle believes SCJ received a benefit in excess of $2 million in the form of reduced tax liability as a result of this structured transaction. Further, Wenzel received a significant discretionary bonus for his role.

In February of 2005, Wenzel directed DeGuelle to fraudulently alter an income statement, which would result in approximately $3.7 million in financial benefits for SCJ.  DeGuelle refused to alter the statement.  He discussed his concerns with Donald Pappenfuss, a supervisor within the tax department, who instructed DeGuelle to alter the form pursuant to Wenzel’s instructions.  Wenzel approved the altered income statement and submitted it to the IRS by mail.

. . .

In March of 2008, Wenzel told DeGuelle to bring any concerns about issues in the tax department to appropriate department personnel instead of taking such concerns to accounting or human resources.  Wenzel was loud and physically aggressive toward DeGuelle during this meeting.  Wenzel also made disparaging comments about DeGuelle in front of other SCJ employees.  That same month, DeGuelle received a negative six-month performance review even though such mid-year reviews were not routine, and despite the fact that DeGuelle received an Officer’s Award in recognition of his superior job performance in January of that year.

. . .

On September 23, 2008, Wenzel and DeGuelle had another verbal altercation and DeGuelle received a negative “needs improvement” performance review from Wenzel.  DeGuelle contacted [Kristen Camilli, Director of human Resources,] and alleged that his review was retaliation for his whistleblowing activities.  Camilli informed DeGuelle on October 10, 2008, that the negative review would be investigated.

. . .

On December 18, 2008, DeGuelle met with [another manager, Gayle Kosterman,] and Camilli.  They informed DeGuelle that the negative review was retaliatory in nature and it would be revoked. . . .  Kosterman directed DeGuelle to drop his complaints of tax fraud, but DeGuelle stated he would file a whistleblower complaint with the Department of Labor.  Later that day, Kosterman and Camilli contacted DeGuelle by telephone and. . . offered to make a partial payment of DeGuelle’s attorney’s fees if DeGuelle agreed to sign a release of claims and confidentiality agreement.

. . .

DeGuelle continued to contact federal agencies about SCJ’s tax fraud.

. . .

On March 19, 2009, DeGuelle provided SCJ counsel with a five-page memorandum detailing his concerns about tax fraud within the company. . . . Kosterman met with DeGuelle and offered him the opportunity to resign with one year of salary and benefits if he signed a confidentiality agreement and released all claims.  Again, DeGuelle refused SCJ’s offer.

DeGuelle was subsequently terminated by SCJ.  DeGuelle’s complaint alleges that Wenzel, Randleman, and Pappenfuss engaged in tax fraud in order to receive significantly higher discretionary bonuses, and that management retaliated against him for disclosing the fraud to the government – a violation of the Racketeer Influence and Corrupt Organizations Act (RICO).

Sec. 1962(c) of RICO makes it unlawful for an employee of an enterprise engaged in interstate commerce “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s racketeering activity . . . .”  Violations of RICO can include mail fraud, tax fraud, the destruction of records, and whistleblower retaliation.

The district court erroneously determined that the alleged tax fraud and alleged retaliation were patently unrelated for purposes of RICO, because the schemes “involved different actors, motives, and victims.”  The Seventh reversed the district court and agreed with DeGuelle’s argument that the Sarbanes-Oxley Act’s addition of Sec. 1513(e) as a RICO predicate act allows his claim to proceed.  Under RICO, violations of Sec. 1513 constitute “racketeering activity.”  Congress enacted the Sarbanes-Oxley Act or SOX to address growing concerns about the reliability and accuracy of disclosures made by publically-traded corporations.

Applying a relatively broad relationship standard, the Seventh Circuit stated:

When an employer retaliates against an employee, there is always an underlying motivation.  In this case, for example, the motivation was to retaliate against DeGuelle for disclosing the tax scheme.

. . .

We believe the district court erred in finding that the retaliatory actions taken against DeGuelle were unrelated to the ongoing tax fraud scheme.

The case is DeGuelle v. Camilli.

Related articles

• Tax Court Protects Identity of IRS Whistleblower (employmentlawgroupblog.com)
• U.S. DOL ARB Ends Landmark Year Holding Summary Decision Improper Unless Employer Proves Sarbanes-Oxley Act Does Not Apply (employmentlawgroupblog.com)
• OSHA Sues Whole Foods for Terminating Whistleblower (employmentlawgroupblog.com)