Hunton Employment & Labor Law Perspectives : Employment Lawyers & Attorneys : Hunton & Williams Law Firm : Labor Law Legislative Updates

Here are the highlights:

• Dodd-Frank incentivizes individuals to aggregate and then report information that leads to a successful enforcement action of the Securities Exchange Commission (“SEC”), the Department of Justice (“DOJ”) or other arms of government, by entitling an individual to between 10% and 30% of monetary sanctions exceeding $1 million as a result of “original information” provided by the individual;
• Dodd-Frank creates new whistleblower protections by prohibiting retaliation against an individual who provides information related to violations of securities laws to the SEC, who participates in any related SEC action, or who makes required disclosures under the Securities Exchange Act, SOX, or any law or regulation within the SEC’s jurisdiction;
• Dodd-Frank entitles an individual to bring a private whistleblower action directly in federal court where he or she may be entitled to reinstatement and two times back pay;
• Dodd-Frank incentivizes plaintiffs’ counsel to pursue whistleblower actions through lengthy limitations periods and allows for reimbursement of costs and attorneys’ fees to a prevailing plaintiff; 
• Dodd-Frank gives the SEC the authority to restrict pre-dispute arbitration agreements between customers or clients of brokers, dealers, or municipal securities dealers, so long as the SEC views the limitations as being in the public interest or to protect investors;
• Dodd-Frank creates a new private whistleblower action for alleged retaliation for any individual who provides information to the SEC; initiates or participates in any investigation or judicial or administrative action of the SEC; or makes disclosures as otherwise required under a variety of Federal laws including SOX and believes they were retaliated against as a result;
• Dodd-Frank amends SOX to expand coverage of the SOX whistleblower provisions to now include both publicly-traded companies and “any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such” publicly-traded company;
• Dodd-Frank amends SOX to expand the time an individual has to bring a SOX whistleblower claim from 90 days after a violation occurs, to within 180 days of the aggrieved individual learning of the violation;
• Dodd-Frank amends SOX to allow a jury trial of whistleblower claims; and
• Dodd-Frank declares void any pre-dispute arbitration agreements waiving rights and remedies provided by SOX.

Although the regulations implementing and related to this legislation have not yet been written, an individual who submits information will still be entitled to the statutory protections the legislation affords.  Just as individual whistleblowers and their lawyers will not wait around for this legislation to ripen, companies subject to securities laws need to address the Dodd-Frank Act immediately and thoughtfully in a coordinated and deliberate fashion.  As the regulations are drafted and this enormous piece of legislation gains traction in the coming days, weeks and months, please consult the Hunton Employment & Labor Perspectives Blog for related in-depth analyses and updates.

Employee’s Administrative Claim and District Court Claim Dismissed
David Stone filed a retaliation claim against his former employer, Instrumentation Laboratory Company, with the Occupational Safety and Health Administration pursuant to the Sarbanes-Oxley Act.  After OSHA issued its preliminary findings, Stone timely objected to them and requested a hearing before an ALJ.  ILC filed a motion for summary decision before the ALJ, which the ALJ granted.  The Administrative Review Board thereafter granted Stone’s petition for review of the ALJ’s order.  Before his initial brief to the Administrative Review Board was due, Stone notified the Board that he was going to bring a de novo action in federal district court, and the Board thereafter dismissed the appeal.

ILC filed a motion to dismiss in the district court pursuant to Federal Rule of Civil Procedure 12(b)(6), which the court granted, finding that the ALJ’s ruling was a “final judgment on the merits” for the purposes of collateral estoppel.  The court found that permitting Stone to pursue relief in district court would be “wasteful,” required the Administrative Review Board to rule on Stone’s appeal, and stayed Stone’s federal court proceedings.  When Stone refused to further prosecute his appeal before the Administrative Review Board, the Board entered a final order of dismissal and the district court entered a final judgment also dismissing his claim.

Court of Appeals Restores Employee’s Claim
Stone appealed the district court’s dismissal of his claim arguing “that as a Sarbanes-Oxley whistleblower complainant, he is entitled to a de novo review in federal district court because the Secretary of Labor did not reach a ‘final decision’ within 180 days, as required by the Sarbanes-Oxley Act.  ILC argued the Act does not “abrogate the district court’s long-recognized power to apply principles of preclusion to avoid duplicative litigation.”

The court first looked to the plain language of the statute and concluded that it unambiguously permits a whistleblower complainant to bring an action for de novo review in district court if the Secretary of Labor has not issued a final decision within 180 days of the complainant filing an administrative complaint.  The court held that “[i]n applying preclusion principles, the district court strayed from the plain and unambiguous meaning of [the Sarbanes-Oxley Act]” which does not merely give the federal district court jurisdiction over a complainant’s action, but rather gives a complainant a “statutory right” to a federal district court’s de novo review.  The court explained that the district court should not have looked to any Department of Labor interpretive regulations or the Secretary’s comments to such regulations to come to a different conclusion because the statute itself is clear.  Citing Astoria Federal Sav. & Loan Ass’n v. Solimino, 501 U.S. 104, 108 (1991), the court noted that courts do not have free rein to impose preclusion if it was not intended by the legislature.

The court next considered whether the plain language of the statute would lead to an “absurd result” because of the likely duplication of efforts by the ALJ and district court.  The Secretary of Labor had previously commented that it “anticipates that Federal courts will apply [preclusion] principles if a complainant brings a new action in Federal court following extensive litigation before the Department that has resulted in a decision by an administrative law judge or the Secretary.”  However, the court ruled that the Secretary’s comments “cannot be squared with the statutory language chosen by Congress,” nor does the Secretary or ILC “present a compelling argument as to why such duplication is ‘absurd.’”  The Court explained that Congress purposely chose an “aggressive timetable for resolving whistleblower claims,” a “natural result” of which is duplication if the Department does not resolve the claim within the prescribed timeframe.  If the timetable does not work in practice, it must be resolved by Congress, not the courts.

Given the unambiguous language of the Sarbanes-Oxley Act and the absence of the potential for an “absurd result,” the court held that Stone was entitled to de novo review of his whistleblower claim in the district court and, accordingly, vacated the dismissal and remanded to the district court.  The result for employers is the proverbial “second bite at the apple” for Sarbanes-Oxley plaintiffs.