Whistleblower Law Update

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1 Whistleblower Law Update Honorable J. Michelle Childs, US District Judge, Columbia SC Edward T. Ellis, Littler Shareholder, Philadelphia PA Alexis Ronickher, Katz, Marshall & Banks Partner, Washington, D.C. Presented By Honorable J. Michelle Childs US District Judge Columbia, SC Edward T. Ellis Shareholder, Littler Philadelphia, PA Alexis Ronickher Partner, Katz, Marshall & Banks Washington, D.C. 2 1

Sarah Doe v. Falso Corp. The Background Facts: Sarah Doe works as the Director of Finance at Falso Corp., a publicly traded government contractor. Sarah supervises a team of six employees.

2 Sarah Doe v. Falso Corp. The Background Facts: Sarah Doe works as the Director of Finance at Falso Corp., a publicly traded government contractor. Sarah supervises a team of six employees. In June 2016, Sarah learned that Falso had eliminated the billing code for indirect costs, which was the code her team used to record their time. Sarah immediately notified Chief Financial Officer Jason Smith, her direct supervisor, about the change and asked how her team should now bill their time. Jason seemed unconcerned about the change and instructed her to have her team bill their activities to a leftover code from a closed project. 3 Sarah Doe v. Falso Corp. Sarah knew that several of Falso s recent successful bids had contained low levels of indirect costs, which had been a critical factor in winning those government contracts. She became concerned that Falso might be attempting to hide its overhead costs from the government to maintain the competitive advantage of low indirect costs. She believed doing so did not comply with the Cost Accounting Standards (CAS) required by the Federal Acquisition Regulations (FAR). The government requires Falso to certify in its bids that it complies with FAR and CAS. 4 2

3 1. Internal Reporting Sarah repeatedly raised her concerns to Jason that her team s time is being billed incorrectly between June and September In her s, she is circumspect and approaches the issue by asking if he is sure that billing her team s time to a closed project has been totally thought through and by asking for how long they will bill to the closed project code. During at least two one-on-one meetings, however, she is more direct and tells him that she does not think the practice was legally compliant. Jason s consistent response to Sarah is: just do it and stop worrying about it. A. Has Sarah engaged in protected activity under the False Claims Act? B. Sarbanes-Oxley Act? or Dodd-Frank Act? 5 2. Document Collection and Tape Recording Sarah begins to investigate the issue, copying and ing company documents that she believes support her to her private address. She also recorded a one-on-one meetings with Jason in which she again raised her concern that billing to a closed contract constituted an accounting irregularity. In response, Jason reminded her that he had previously counseled her about her rigid approach to accounting issues and warned her that she was not doing herself any favors by continuing to harp on the matter. A. Can Sarah legally take these documents? B. Can Sarah legally record this conversation? C. If Falso learns about either, can it safely discipline her? 3

3. Internal Investigations In November 2016, after months of Jason s inaction and growing hostility towards Sarah, she reported her concerns to Falso s ethics hotline, detailing that she believed the

4 3. Internal Investigations In November 2016, after months of Jason s inaction and growing hostility towards Sarah, she reported her concerns to Falso s ethics hotline, detailing that she believed the billing practice violated CAS. While the report was anonymous, Sarah made the call from her office phone. A week later, an Internal Audit team requested to meet with her to discuss issues relating to the Falso s accounting process. Sarah meets with them two days later. Two members of the internal audit team lead the meeting, but an in-house attorney observes as does Jason. Sarah details all of her concerns regarding the billing practices. A. Is this meeting privileged? B. Should Falso engage outside counsel? If so, when in the investigation? 4. Managing the Whistleblower Sarah heard nothing more from Internal Audit. In February 2017, Sarah received her yearly performance evaluation. For her last seven years at Falso, Sarah received an Exceeds Expectations. For 2016, Sarah received Meets Expectations, and Jason s comments criticized her management style, referenced negatively an incident from 2014, and noted her refusal to consider alternate perspectives and viewpoints. 4

5 4. Managing the Whistleblower Convinced that the review was retaliatory, Sarah refused to sign it, called Human Resources, and filed a report of retaliation. Sarah was so upset by her performance review and the perceived retaliation that she became hostile to Jason, yelling at him in front of the staff. Jason then wrote her up and, in April 2017, places her on a 30-day performance improvement plan (PIP). A. Does a negative performance review constitute an adverse action? What about a PIP? B. What are best practices for disciplining a whistleblower? 5. Litigation Holds Within days of Sarah being placed on the PIP, Internal Audit again asked to meet with her. Outside Counsel is present and leads this meeting. Jason is also present. Outside counsel tries to explain to Sarah that her understanding of the controlling accounting principles is incorrect. Sarah responds that she will not roll over on this issue, that the company is filing false financial statements with the SEC and is lying to investors, and that no job is worth going to jail for. 5

6 5. Litigation Holds Two weeks later, Sarah s counsel, Key & Tammy, sent Falso s General Counsel a demand letter detailing her legal claims and requesting that the Company preserve documents relevant to those claims. How to safely issue a litigation hold notice after Halliburton Inc. v. ARB (Menendez). 6. Terminating the Whistleblower Sarah s 30-day PIP ended on May 2, That morning, Jason called her into his office and informed her that she was terminated effective immediately. He then left the room. The HR Representative provided her with termination paperwork that included a severance agreement that provides for the Company s standard severance of two-weeks of pay for every year with the Company. The HR Representative then walked her to her office to collect her belongings and escorted her from the building. 6

6. Terminating the Whistleblower The next day, Sarah filed a whistleblower tip with the SEC, in which she provided all the documents she gathered in her investigation,

Protected Activity The first step element of a retaliation claim is that an employee engaged in protected activity.

7 6. Terminating the Whistleblower The next day, Sarah filed a whistleblower tip with the SEC, in which she provided all the documents she gathered in her investigation, including the audio recording. A. What are best practices for terminating a whistleblower? B. Can an employer buy peace of mind through a severance agreement? Protected Activity The first step element of a retaliation claim is that an employee engaged in protected activity. While there are scores of whistleblower laws on the federal and state level, regardless of the law, whether activity is protected depends on: 1. the subject matter of the communication; 2. the type of activity; and 3. the recipient of the communication. 7

8 Protected Activity Sarbanes-Oxley Act (SOX) Subject Matter: Mail Fraud Wire Fraud Bank Fraud Securities Fraud SEC rules and regulations Any provision of Federal law relating to fraud against shareholders. Type of Activity: Provide information or assist in investigation regarding any conduct that an employee believes constitutes a violation of the listed federal laws; or File, testify, participate in, or otherwise assist in a proceeding related to the listed federal laws. Recipient Federal regulatory or law enforcement agency; Any member of Congress or any committee of Congress; or A person with supervisory authority over the employee (or such other person working of the employer who has the authority to investigate, discover, or terminate misconduct) See 18 U.S.C. 1514A(a) Protected Activity Dodd-Frank Act Subject Matter Any law, rule, or regulation subject to the SEC s jurisdiction Mail, wire, and bank fraud Type of Activity Provide information to SEC Initiating, testifying in, or assisting in any investigation or judicial or administrative action of the SEC Making disclosures required or protected under SOX, the Exchange Act of 1934, and any other law, rule, or regulation subject to the SEC s jurisdiction Recipient SEC Internal reports - Supreme Court to decide in Digital Realty Trust, Inc. v. Somers See 15 U.S.C. 78u-6(h) 8

Protected Activity False Claims Act (FCA) Subject Matter False or fraudulent claims against the federal government Type of Activity Lawful acts done in furtherance of an FCA (qui tam) action Other

9 Protected Activity False Claims Act (FCA) Subject Matter False or fraudulent claims against the federal government Type of Activity Lawful acts done in furtherance of an FCA (qui tam) action Other efforts to stop 1 or more violations of the FCA Recipient Federal government Internal reports See 31 U.S.C. 3730(h) Causation Most whistleblower laws fall into two causation frameworks: But-for Causation Contributing Factor/Clear and Convincing Evidence 9

10 Causation But-For Framework Employee must prove that but-for an improper motive, the employer would not have taken the adverse action. A higher standard than motivating factor available under Title VII. See Univ. of Texas Sw. Med. Ctr. v. Nassar, 133 S. Ct. 2517, 2544, 186 L. Ed. 2d 503 (2013) A plaintiff who can show that retaliation was the real reason for the adverse employment action will necessarily be able to show that the harm would not have occurred in the absence of-that is, but for-the defendant's conduct. Foster v. Univ. of Maryland-E. Shore, 787 F.3d 243, 252 (4th Cir. 2015) (citations omitted). Causation Contributing Factor Framework Employee must show that her protected activity was a contributing factor in the unfavorable personnel action. A contributing factor is any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision. Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254, 263 (5th Cir. 2014). To prevent liability, the burden then shifts to the employer to show by clear and convincing evidence that it would have taken the same action in the absence of protected activity. The affirmative defense is purposely a high one. Menendez v. Halliburton, Inc., ARB No ALJ No SOX-5, p. 16 (ARB Mar. 15, 2013). For employers, this is a tough standard, and not by accident. Congress appears to have intended that companies in the nuclear industry face a difficult time defending themselves. Stone & Webster Eng. Corp. v. Herman, 115 F.3d 1568, 1572 (11th Cir. 1997). 10

11 Wadler v. Bio-Rad Labs, Inc. Wadler v. Bio-Rad Labs, Inc. 11

12 Wadler v. Bio-Rad Labs, Inc. Wadler v. Bio-Rad Labs, Inc. 12

6, 2011) False Claims Act: Relator Violates the Seal Requirement District court s option whether to

13 False Claims Act: Requirement to File Under Seal 31 U.S.C. 3730(b)(2): filing under seal What if the plaintiff breaks the seal? State Farm Fire and Casualty Co. v. United States ex rel. Rigsby, No (Dec. 6, 2011) False Claims Act: Relator Violates the Seal Requirement District court s option whether to dismiss complaint-discretion Harm to government investigation Reputational harm to defendant? 13

3730(h): Protection of employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated

14 False Claims Act: Whistleblower Protection 31 U.S.C. 3730(h): Protection of employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against because of lawful acts in furtherance of an action under this section or other efforts to stop 1 or more violations under this subchapter. But-for causation. False Claims Act Protected Activity is determined by breadth of underlying statutory interpretation Implied False Certification: Universal Health Services, Inc. v. United States ex rel Escobar, No. 15-7, 579 U.S. (2016) 14

legal advice or attempt to address the numerous factual issues that inevitably arise in any employment-related

15 Questions Thank You! This information provided by Littler is not a substitute for experienced legal counsel and does not provide legal advice or attempt to address the numerous factual issues that inevitably arise in any employment-related dispute. Although this information attempts to cover some major recent developments, it is not all-inclusive, and the current status of any decision or principle of law should be verified by counsel. 15

WHISTLEBLOWERS. Labor and Employment Briefing May 19, 2016 Robert E. Hauberg, Jr.

WHISTLEBLOWERS. Labor and Employment Briefing May 19, 2016 Robert E. Hauberg, Jr. WHISTLEBLOWERS Labor and Employment Briefing May 19, 2016 Robert E. Hauberg, Jr. WHAT IS A PUBLIC EMPLOYEE WHISTLEBLOWER - Federal Whistleblower Protection Act of 1989, Pub. L 101-12, 5 U.S.C. 1201 et