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posted 9 years ago
The Second Circuit recently issued two decisions that define the scope
of whistleblower protection under Sarbanes-Oxley and Dodd-Frank. In
Nielsen v. AECOM Technology Corp., No. 13-235-cv (2d Cir. Aug. 8,
2014), the court adopted a new standard for whether an alleged
whistleblower employee is engaged in protected activity under
Sarbanes-Oxley. In Meng-Lin v. Siemens AG, No. 13-4385-cv
(2d Cir. Aug. 14, 2014), the court held that the whistleblower
anti-retaliation provision of Dodd-Frank does not apply
extraterritorially. With these decisions, the Second Circuit
broadened the scope of whistleblower protection under Sarbanes-Oxley, but
narrowed the scope of protection under Dodd-Frank.
Protected Activity Under Sarbanes-Oxley
Section 1514A of Sarbanes-Oxley protects the employees of publicly
traded companies who provide information or otherwise assist in an
investigation concerning conduct that they “reasonably believe[]
constitutes a violation” of certain enumerated federal statutes, any rule
or regulation of the Securities & Exchange Commission (SEC), or “any
provision of Federal law relating to fraud against shareholders.” 18
U.S.C. § 1514A(a)(1).
To prevail on a retaliation claim under Section 1514A, a plaintiff must
show that: (1) he or she engaged in a protected activity; (2) the employer
knew that he or she engaged in the protected activity; (3) he or she
suffered an unfavorable personnel action; and (4) the protected activity
was a contributing factor in the unfavorable action.
Relying on a 2006 Department of Labor Administrative Review Board (ARB)
decision, the Second Circuit previously ruled that an employee’s
communications “must definitively and specifically relate to one of the
listed categories of fraud or securities violations in 18 U.S.C. §
1514A(a)(1)” in order to qualify as protected activity. However, the
ARB has since abrogated that standard, and determined that the statute
requires only that the plaintiff have a subjective belief that the
challenged conduct violates a provision listed in § 1514A(a)(1), and that
the belief is objectively reasonable. The Second Circuit found the
ARB’s new standard persuasive and adopted it.
Unfortunately for the plaintiff, the court still affirmed the lower
court’s dismissal of his retaliation suit even under its new, more
employee-friendly standard. The plaintiff’s allegations centered on
a single AECOM employee’s failure to properly review engineering designs
for compliance with fire safety standards. The court held those
allegations could not form the basis of an objectively reasonable belief
that AECOM had engaged in mail fraud, wire fraud, or shareholder
fraud.
No Extraterritorial Whistleblower Protection Under
Dodd-Frank
In contrast to the Second Circuit’s adoption of a more
employee-friendly standard under Sarbanes-Oxley in Nielsen,
employers came out ahead with the court’s Meng-Lin decision
concerning Dodd-Frank one week later.
Dodd-Frank provides that “[n]o employer may discharge . . . or in any
other manner discriminate against, a whistleblower in the terms of
conditions of employment because of any lawful act done by the
whistleblower . . . in making disclosures that are required or protected
under the Sarbanes-Oxley Act of 2002 . . ., this chapter, . . . and any
other law, rule, or regulation subject to the jurisdiction of the
[Securities and Exchange] Commission.”
Plaintiff Liu Ming-Lin, a citizen and resident of Taiwan working for
the healthcare division of Siemens China Ltd., a Chinese Corporation that
is a wholly owned subsidiary of the Germany corporation Siemens AG,
alleged that he discovered Siemens employees indirectly making improper
payments to officials in North Korea and China in connection with the sale
of medical equipment there. Ming-Lin alerted his superiors through
internal company procedures, and alleged that he was demoted and then
fired for doing so. After he was fired, Ming-Lin reported the
alleged conduct to the SEC.
The district court dismissed Ming-Lin’s complaint for a failure to
state a claim on two grounds. First, the court held that the
Dodd-Frank anti-retaliation provision does not apply
extraterritorially. Second, the court held that the anti-retaliation
provision does not apply to employees who are fired after only reporting
alleged misconduct internally, and not reporting the conduct to the
SEC.
The Second Circuit affirmed on the extraterritoriality issue.
Relying on the Supreme Court’s decision in Morrison v. Nat’l Austl.
Bank Ltd., 561 U.S. 247 (2010), the court found that there was no
explicit statutory evidence that Congress intended the anti-retaliation
provision to apply extraterritorially.
The court declined to resolve the uncertainty over whether Dodd-Frank’s
anti-retaliation provision applies to purely internal reporting of alleged
misconduct. The SEC has published rules in 2011 that say it does,
but the Fifth Circuit, the only appellate court to decide the issue, ruled
it does not.
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