Private Sector Whistleblower Rewards and Protections
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The document outlines the amendments to SEC whistleblower rules and protections under various federal laws, emphasizing the eligibility criteria for whistleblower awards, the claims review process, and the protections provided under the Sarbanes-Oxley Act, Taxpayer First Act, Consumer Financial Protection Act, and False Claims Act. It details the scope of protected conduct, causation standards for retaliation claims, and remedies available to whistleblowers. Additionally, it addresses the prohibition of 'gag clauses' that hinder lawful whistleblowing and the importance of compliance in federal contractor agreements.
![“OUTING” A
WHISTLEBLOWER
Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254,
259 (5th Cir. 2014)
• Merely “outing” a whistleblower is an adverse action
under SOX.
• “[The] targeted creation of an environment in which
the whistleblower is ostracized is . . . in effect, a
potential deprivation of opportunities for future
advancement.”
• Menendez resigned and did not suffer economic
loss.
• ALJ awarded special damages.](https://image.slidesharecdn.com/june152021dcbarcleonwhistleblowerclaims-210614001739/85/Private-Sector-Whistleblower-Rewards-and-Protections-13-320.jpg)
![FCA-PROTECTED CONDUCT
• Efforts to stop an FCA violation:
• The focus of the second prong is preventative—stopping “violations” – and it is met if the whistleblower
demonstrates that they took lawful measures to stop or avert what they reasonably believed would be a violation of
the FCA.
• The purpose of second prong is to untether protected efforts from the need to show that a FCA action is in the
offing.
• “[A] layperson should not be burdened with the ‘sometimes impossible task’ of correctly anticipating how a given
court will interpret a particular statute.” Singletary v. Howard Univ., No. 18-7158, 2019 WL 4554535 (D.C. Cir. Sept.
20, 2019).](https://image.slidesharecdn.com/june152021dcbarcleonwhistleblowerclaims-210614001739/85/Private-Sector-Whistleblower-Rewards-and-Protections-30-320.jpg)
Private Sector Whistleblower Rewards and Protections
- 1. HANDLING WHISTLEBLOWER CLAIMS SERIES 2021 - RIGHTS OF PRIVATE SECTOR EMPLOYEES Jason Zuckerman Zuckerman Law www.zuckermanlaw.com
- 3. SEC WHISTLEBLOWER RULE AMENDMENTS • Declined to adopt proposed rule limiting award amount in enforcement actions above $100 million • Authorizes awards based on deferred prosecution agreements and non- prosecution agreements entered into by DOJ
- 4. SEC WHISTLEBLOWER RULE AMENDMENTS • Rule 21F-4 Independent Analysis Standard • Whistleblower’s submission must provide evaluation, assessment, or insight beyond what would be reasonably apparent to SEC from publicly-available information • SEC considers whether information derived from sources not readily identified and accessed by a member of the public without specialized knowledge, unusual effort, or substantial cost • Could the SEC have inferred the information provided from the facts available in public sources?
- 5. SEC WHISTLEBLOWER RULE AMENDMENTS • Qualifying as “whistleblower” • Must report information about possible securities laws violations to the Commission “in writing” • To be eligible for an award, must submit information on Form TCR • To engage in protected conduct, must report to SEC before experiencing retaliation
- 6. SEC WHISTLEBLOWER RULE AMENDMENTS • Related action awards • Under the amended Rule 21F-3(b)(3), a law enforcement action will not qualify as a related action if the SEC determines that a law enforcement agency has a separate whistleblower reward program that more appropriately applies to the enforcement action. • SEC will not provide an award for a potential related action if another government entity has already granted the whistleblower an award.
- 7. SEC WHISTLEBLOWER RULE AMENDMENTS • Exchange Act Rule 21F-9 waives TCR requirement for a meritorious whistleblower who submits Form TCR: • within 30 days of first reporting violation to SEC; or • within 30 days of first obtaining actual or constructive notice about those requirements.
- 8. SEC WHISTLEBLOWER RULE AMENDMENTS • Claims Review Process • Rule 21F-8(e) bars applicants who include materially false, fictitious, or fraudulent statements in their whistleblower submission. • Rule 21F-18 affords the SEC summary disposition procedure for certain types of common denials, such as untimely applications, tips not provided on Form TCR, and applications where whistleblower’s information not provided to or used by staff working on investigation.
- 9. WHISTLEBLOWER PROTECTIONS UNDER THE SARBANES-OXLEY ACT AND OTHER FEDERAL PRIVATE SECTOR WHISTLEBLOWER PROTECTION LAWS
- 10. SOX-PROTECTED CONDUCT Section 806 of SOX protects a disclosure about any conduct that the whistleblower reasonably believes violates: • federal criminal prohibitions against securities fraud, bank fraud mail fraud, or wire fraud; • any rule or regulation of the SEC; or • any provision of federal law relating to fraud against shareholders. when the information or assistance is provided to or the investigation is conducted by: • a federal regulatory or law enforcement agency; • Congress; or • a person with supervisory authority over the employee.
- 11. SOX-PROTECTED CONDUCT • “Reasonable belief” standard: • Disclosure of potential violation protected. • Complainant need not allege shareholder fraud. • No magic words required (e.g., fraud or misrepresentation). • Complainant no longer needs to show that their disclosures “definitively and specifically” relate to the relevant laws. • Reasonable but mistaken belief protected.
- 12. SCOPE OF ADVERSE ACTIONS • DOL construes adverse actions broadly: • threat of retaliation; • “outing” a whistleblower; • constructive discharge; • harassment. • Most anti-retaliation laws employ the Burlington Northern materiality standard.
- 13. “OUTING” A WHISTLEBLOWER Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254, 259 (5th Cir. 2014) • Merely “outing” a whistleblower is an adverse action under SOX. • “[The] targeted creation of an environment in which the whistleblower is ostracized is . . . in effect, a potential deprivation of opportunities for future advancement.” • Menendez resigned and did not suffer economic loss. • ALJ awarded special damages.
- 14. SOX CONTRIBUTING FACTOR CAUSATION Palmer v. Canadian National Railway, ARB No. 16- 035, ALJ No. 2014-FRS-154 (ARB Sept. 30, 2016) (en banc) • “Contributing factor” = protected activity played some role—even an insignificant or insubstantial role—in the adverse action. • Decision-maker knowledge of the protected activity and close temporal proximity will suffice to prove causation in some cases. • Whistleblower need not prove pretext.
- 15. CONTRIBUTING FACTOR CAUSATION • Palmer • “We want to reemphasize how low the standard is for the employee to meet, how ‘broad and forgiving’ it is. ‘Any’ factor really means any factor. It need not be ‘significant, motivating, substantial or predominant’ — it just needs to be a factor.” • Potential forms of proof: • temporal proximity; • the falsity of an employer’s explanation for the adverse action; • inconsistent application of an employer’s policies; • the employer’s shifting explanations for its actions; or • animus toward the whistleblower’s protected activity.
- 16. SAME-DECISION AFFIRMATIVE DEFENSE • In contrast to Title VII, not a burden of production. • What is “clear and convincing evidence”? • Not enough for the employer to show that it could have taken the same action; it must show that it would have taken the same action. • Quantified, the probabilities might be in the order of above 70%.
- 18. DISTINCTIONS BETWEEN SECTION 806 OF SOX AND SECTION 922A OF DODD-FRANK
- 19. TAXPAYER FIRST ACT AND CONSUMER FINANCIAL PROTECTION ACT
- 20. TAXPAYER FIRST ACT WHISTLEBLOWER PROTECTION • Effective July 1, 2019 • Modeled on SOX and FCA whistleblower protection provisions • Broad scope of coverage, prohibiting any “employer, officer, employee, contractor, subcontractor, or agent” of an employer from retaliating against a whistleblower. • Applies to law firms, accounting firms, public companies and private companies
- 21. TAXPAYER FIRST ACT WHISTLEBLOWER PROTECTION • Protected Conduct: • Providing information or assisting in an investigation regarding underpayment of tax or any conduct which the employee reasonably believes constitutes a violation of the internal revenue laws or any provision of Federal law relating to tax fraud • Testifying or participating in any IRS judicial or administrative action regarding tax underpayment or violation of internal revenue law • Protects internal disclosures • Reasonable belief standard
- 22. TAXPAYER FIRST ACT WHISTLEBLOWER PROTECTION • Broad scope of actionable retaliation • Contributing factor causation • 180-day statute of limitations • Must file initially at OSHA • Option to litigate in federal court 180 days after filing • Exempt from mandatory arbitration
- 23. TAXPAYER FIRST ACT WHISTLEBLOWER PROTECTION • Remedies • double back pay with interest; • reinstatement; • uncapped special damages (comp damages); and • attorney fees, litigation costs, and expert witness fees.
- 25. CFPA WHISTLEBLOWER PROTECTION LAW • 12 U.S.C. § 5567 • Covers any individual performing tasks related to the offering or provision of a consumer financial product or service. • Protects disclosures concerning any act or omission that the employee reasonably believes to be a violation of any CFPB regulation or any other consumer financial protection law that the Bureau enforces. • Burden-shifting framework, remedies and procedures similar to Section 806 of SOX.
- 27. FCA RETALIATION: SCOPE OF COVERAGE • Protects: • Employees; • Contractors; and • Agents
- 28. FCA PROTECTED CONDUCT • Two forms of protected conduct: • lawful acts done by the employee contractor, agent or associated others in furtherance of an action under this section; • or other efforts to stop one or more violations of the FCA
- 29. FCA PROTECTED CONDUCT • In furtherance of a qui tam action: • Investigating a potential FCA violation • Opposing an FCA violation internally • Reporting a FCA violation to the government • Assisting a qui tam relator • Some courts limit this prong to actions taken in furtherance of a viable False Claims Act case
- 30. FCA-PROTECTED CONDUCT • Efforts to stop an FCA violation: • The focus of the second prong is preventative—stopping “violations” – and it is met if the whistleblower demonstrates that they took lawful measures to stop or avert what they reasonably believed would be a violation of the FCA. • The purpose of second prong is to untether protected efforts from the need to show that a FCA action is in the offing. • “[A] layperson should not be burdened with the ‘sometimes impossible task’ of correctly anticipating how a given court will interpret a particular statute.” Singletary v. Howard Univ., No. 18-7158, 2019 WL 4554535 (D.C. Cir. Sept. 20, 2019).
- 31. DUTY SPEECH/“STEP OUT” DEFENSE • Malanga v. NYU Langone Med. Ctr., 2015 WL 7019819 (S.D.N.Y. Nov. 12, 2015) (FCA) (duty speech doctrine invalid post-FERA). • United States ex rel. Reed v. KeyPoint Government Solutions, No. 17-1379, (10th Cir. Apr. 30, 2019). • Senior quality control analyst discovered fraud while performing job duties and reported it through her chain of command. • Not protected because job duties may have required her to seek remedial action from employees other than her direct supervisor.
- 32. FCA-PROHIBITED RETALIATION • A prohibited adverse action occurs when an employee is: • discharged; • demoted; • suspended; • threatened; • harassed; or • in any other manner discriminated against in the terms and conditions of employment.
- 33. FCA-PROHIBITED RETALIATION CONSTRUCTIVE DISCHARGE • If an employer ignores or fails to remediate a whistleblower’s internal disclosures, does that constitute constructive discharge? • Smith v. LHC Grp., Inc., 727 F. App'x 100 (6th Cir. 2018). • Smith raised concerns about employees altering reimbursement paperwork and making false representations about staffing for the purpose of admitting patients. • As Director of Nursing, Smith was concerned about potential prosecution and jeopardizing her nursing license. • Company ignored her disclosures and failed to take remedial action. • Requiring an employee “to engage in activity she considers illegal and immoral” may create intolerable working conditions sufficient for constructive discharge.
- 34. POST- EMPLOYMENT RETALIATION • United States ex rel. Felten v. William Beaumont Hospital, No. 2:10-cv-13440 (6th Cir. March 31, 2021). • Felten bought qui tam alleging kickbacks to physicians for referrals of Medicare patients. • After qui tam settled for $84.5M, Felten pursued retaliation claim alleging he was terminated and blacklisted, i.e., former employer disparaged him to nearly 40 prospective employers.
- 35. POST- EMPLOYMENT RETALIATION • No temporal qualifier accompanying “employee” in 3730(h). • Half of proscribed retaliatory acts – “threatened,” “harassed,” and “discriminated” – are not restricted to a current employment relationship and can refer to former employees. • Discrimination in the “terms and conditions of employment” include conditions of employment that can persist after an employee’s termination. • “If employers can simply threaten, harass, and discriminate against employees without repercussion as long as they fire them first, potential whistleblowers could be dissuaded from reporting fraud against the government.”
- 36. POST- EMPLOYMENT RETALIATION • Potts v. Center for Excellence in Higher Education, Inc., 2018 WL 5796963 (10th Cir. Nov. 6, 2018). • After Potts resigned, operator of for-profit college sued her for disparaging them to the Commission of Career Schools and Colleges concerning alleged deceptions in maintaining accreditation. • Potts alleged that the suit against her violated the FCA’s anti-retaliation provision. • FCA retaliation proscribes retaliation only against current employees, not former employees.
- 37. FCA: CAUSATION • Courts require a showing of “but for” causation. • The “but for” causation standard "means a defendant cannot avoid liability just by citing some other factor that contributed to its challenged employment decision." Bostock v. Clayton Cty., 590 U. S. __ (2020), slip op at *6. • The plaintiff's protected activity or characteristic(s) "need not be the sole or primary cause of the employer’s adverse action." Id. at *14.
- 38. FCA: CAUSATION • Proving Causation: • Pretext/inconsistent or shifting explanations • Close temporal proximity • Retaliatory animus • Suspicious timing • Disparate treatment • Deviation from company policies
- 39. FCA RETALIATION REMEDIES • Reinstatement • Two times the amount of back pay • Uncapped special damages • Emotional distress • Reputational harm • Humiliation
- 40. FCA RETALIATION REMEDIES • In lieu of reinstatement, a judge can award front pay to compensate the plaintiff until such time as they can regain their former career track. • Get expert analysis and testimony about career damage. • Track mitigation efforts. • Analyze available comparable positions. • Document harm to reputation.
- 41. FCA RETALIATION PROCEDURE • Three-year statute of limitations • Heightened pleading standard does not apply • No exhaustion requirement • Retaliation claim can be brought under seal with qui tam action
- 42. INTERPLAY OF FCA QUI TAM AND FCA RETALIATION • Respect the seal (breaching seal can waive relator share) • If retaliation claim is not under seal, it may open the door for employer discovery • Settling a retaliation claim with a global release can waive the right to relator share if the whistleblower has disclosed the fraud to the government
- 43. NATIONAL DEFENSE AUTHORIZATION ACT (NDAA) RETALIATION PROVISIONS • DoD, NASA, and Coast Guard Contractors, 10 U.S.C. § 2409 • Contractors of other agencies, 41 U.S.C. § 4712
- 44. NDAA SCOPE OF COVERAGE • Covers employees of nearly all government contractors, subcontractors and grantees, and personal services contractors. • Excludes contractors of Intelligence agencies.
- 45. NDAA-PROTECTED CONDUCT • Broad scope of protected conduct: • Violation of law, rule, or regulation relating to federal contracts, including competition for or negotiation of a contract; • Gross mismanagement, gross waste of federal funds, abuse of authority; or • Substantial and specific danger to public health or safety.
- 46. NDAA- PROHIBITED RETALIATION • NDAA whistleblower provisions bar a broad range of retaliatory acts, including: • discharging; • demoting; or • otherwise discriminating against a whistleblower.
- 47. NDAA CAUSATION AND AFFIRMATIVE DEFENSE • “Contributing factor” causation • Knowledge and timing suffice • (WPA standard) • Same-decision affirmative defense must be proven by clear and convincing evidence
- 48. NDAA REMEDIES • Reinstatement; • back pay; • uncapped compensatory damages (emotional distress damages); and • attorneys’ fees and costs.
- 49. NDAA PROCEDURE • Must file initially with OIG. • Complainant can remove to federal court 210 days after filing. • OIG investigates and issues report. • Not later than 30 days after receiving IG report, agency head required to act on findings. • Contractors and grantees have 60 days from the issuance of an order to appeal to Circuit Court.
- 50. FCA OR NDAA?
- 51. FCA Anti-Retaliation Provision Sections 827 and 828 of NDAA Coverage Employee, contractor, or agent Employee of a contractor, subcontractor, or grantee/personal services contractor Protected Conduct Lawful acts done by the employee, contractor, agent or associated others 1) in furtherance of an action under the FCA or 2) other efforts to stop 1 or more violations -Violation of law, rule, or regulation related to a contract -Gross mismanagement of a federal contract or grant -Gross waste of federal funds -Abuse of authority relating to a federal contract or grant -Substantial and specific danger to public health or safety Administrative Exhaustion File directly in federal court Must file initially at OIG; can remove to federal court after 210 days Causation Standard “But for” causation (not sole factor) Contributing Factor Damages Double back pay, reinstatement, special damages (emotional distress damages and harm to reputation), attorney fees Back pay, reinstatement, special damages, attorney fees Statute of Limitations 3 years 3 years
- 52. PLEADING CONSIDERATIONS • With the exception of a hostile work environment claim, each adverse action has its own statute of limitations (although time-barred acts are still evidence). • Administrative exhaustion requirement for each adverse action. • Split of authority about pleading standard at administrative agencies. • Advantages and disadvantages to pleading multiple claims.
- 53. THE INTERPLAY OF NON- DISCLOSURE AGREEMENTS AND WHISTLEBLOWER REWARDS AND PROTECTION LAWS
- 54. INVALID “GAG CLAUSES” BARRING WHISTLEBLOWING • Blatant contractual provisions barring whistleblowing to regulators or law enforcement have always been unlawful. • Post-Dodd-Frank, there is a sea change in barring provisions that have the effect of impeding lawful whistleblowing.
- 55. INVALID “GAG CLAUSES” BARRING WHISTLEBLOWING • Exchange Act Rule 21F-17 • “No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”
- 56. INVALID “GAG CLAUSES” BARRING WHISTLEBLOWING • SEC has taken steps to combat contractual provisions: • requiring employees to waive possible whistleblower awards; • prohibiting employees from disclosing the subject of an internal investigation; and/or • requiring notice prior to responding to an inquiry from the SEC.
- 57. FY2021 NDAA • Section 883 of National Defense Authorization Act (NDAA) for Fiscal Year 2021 amends Defense Contractor Whistleblower Protection Act (DCWPA) by prohibiting DoD from awarding a contract to a contractor that requires its employees to sign a confidentiality agreement “that would prohibit or otherwise restrict such employees from lawfully reporting waste, fraud, or abuse related to the performance of a Department of Defense contract to a designated investigative or law enforcement representative of the Department of Defense authorized to receive such information.” • Section 883 requires DoD contractors to inform their employees of this limitation on confidentiality agreements, i.e., inform them of their right to lawfully report waste, fraud, abuse, and other wrongdoing.
- 58. OSHA 9/15/16 GUIDANCE OSHA guidelines barring provisions that impede whistleblowing: • Provisions that require employees to waive the right to receive a monetary award from a government-administered reward program. • Provisions that require the employee to advise the employer before voluntarily communicating with the government. • Provisions that require the employee to affirm they have not previously provided information to the government.
- 60. WHISTLEBLOWER REWARDS CLAIMS • Identify specific, original information. • Establish a material violation. • Do not delay reporting, but be patient during investigation. • Provide a roadmap for a successful enforcement action. • Provide strong investigative leads. • Don’t provide privileged information. • Respect the seal in a qui tam.
- 61. WHISTLEBLOWER RETALIATION CLAIMS • Investigate before blowing the whistle • Ideally, engage in written protected conduct and identify the specific facts evidencing a potential violation • Identify and plead all retaliatory acts • Avoid having unclean hands, e.g., be cautious gathering evidence • Document reputational harm and emotional distress • Identify all potential claims to maximize damages • Exhaust administrative remedies
Editor's Notes
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