Earlier this month, we blogged about an important decision by the U.S. Court of Appeals for the Second Circuit in Bechtel v. Administrative Review Board, a Sarbanes-Oxley whistleblower case. In Bechtel, thecourt upheld the Department of Labor’s denial of a whistleblower claim, even though it found that the administrative law judge (“ALJ”) had applied the wrong legal standard.
So how did the ALJ get the law wrong?
To understand the ALJ’s error, it’s important to understand how the governing law defines the burden of proof in a Sarbanes-Oxley case.
Based on the statistics, it is nearly impossible to win a whistleblower claim brought under the Sarbanes-Oxley Act. In 2010, the Center for Public Integrity wrote that the U.S. Department of Labor, which administers those claims, had only upheld 25 out of the 1,091 claims brought since the Act was passed in 2002. That’s only a 2% success rate.
Although Scott Bechtel’s case took a longer path than most, it is now another statistic on the side of failure.
We’re not sequestering this week’s Suits by Suits news:
As we’ve previously discussed in a number of posts, the Dodd-Frank Act of 2010 created a bounty program to reward whistleblowers who report useful information to the Securities & Exchange Commission (SEC), and also instituted new legal protections for whistleblowers. The SEC’s Inspector General recently took a hard look at the SEC’s implementation of these reforms, and reported his conclusions in a 43-page audit report.
So how’s the SEC doing?
With only two weeks to go until the Mayans’ end of days, what better way to spend your time than reading this week’s latest in Suits by Suits:
As of now, SEC whistleblowers have a one-in-3,001 chance of receiving a whistleblower award. That’s according to the latest annual report from the SEC’s Office of the Whistleblower, which was established to administer the whistleblower bounty program established by the Dodd-Frank Act of 2010.
We’ve previously covered the only award made to date under the whistleblower program – a $50,000 payout, nearly 30% of what the SEC recovered in that particular case. But what we didn’t know at the time was how many tips had actually been made to the SEC by potential whistleblowers.
On Thursday, a 4-3 majority of the Virginia Supreme Court held in VanBuren v. Grubb that individuals such as supervisors or managers could be sued as individuals and held personally liable for the common law tort of wrongful termination (also known as wrongful discharge) in addition to whatever corporate liability the employer may have.
As a practical matter, this gives plaintiffs and their lawyers additional leverage when bringing suits that contain a cause of action for wrongful termination in Virginia by being able to name the former employee’s boss as a co-defendant. From the boss's perspective, this decision means that you, personally, could be named as a defendant and ultimately forced to satisfy a judgment for improperly firing an employee from your own pockets -- not just your company's. It also means that employers and their executives who operate in Virginia need to review their D&O insurance coverage with this potential exposure in mind.
In short: whether you're an executive or an employer, you need to know about this case and its implications on the employment relationship.
In yesterday’s post, we promised to talk more about the potential conflict that defendants have identified in the Dodd-Frank Act’s whistleblowing provision, Section 922.
As we’ve previously discussed, Section 922 changed whistleblower law in two important ways. First, it created a bounty program, under which qualified whistleblowers can receive payments from the SEC for submitting information about violations of the securities laws. In the first fourteen months of the program, the SEC has handed out the grand total of one award.
Second, Dodd-Frank enhanced the legal remedies for whistleblowers who are victims of retaliation, expanding the scope of prior protections found in the Sarbanes-Oxley Act of 2002 and creating new ones.
Employers, however, have identified a tension in Section 922 that they are seeking to use to defeat whistleblower retaliation claims.
The Dodd-Frank Act, passed in 2010, has been a hot issue on the campaign trail. One provision of Dodd-Frank that hasn’t gotten a lot of play, politically speaking, is Section 922 – the law’s whistleblower protection provision.
But in the federal courts, Dodd-Frank whistleblower law is heating up. We previously covered how a New York federal court allowed one such whistleblower’s claim to proceed. Now, the District of Connecticut brings us the case of Kramer v. Trans-Lux Corp.
As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.
Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.
John J. Connolly
Partner
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Andrew N. Goldfarb
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Sara Alpert Lawson
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Nicholas M. DiCarlo
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