A recent federal district court decision wedged open a little bit wider the door for workers trying to sue their employers under the whistleblower protections of the Sarbanes-Oxley Act.
Observers say the ruling, O’Mahony v. Accenture Ltd., is the first to hold that the whistleblower provisions of SOX apply to an employee working overseas for a U.S. subsidiary of a foreign-based corporation.
“It potentially raises the stakes significantly in the case of SOX liability even for foreign companies overseas, employing non-U.S. citizens working overseas,” says Philip Berkowitz, a partner in international employment law at Nixon Peabody. He says the case shows “a disturbing willingness to apply U.S. law, even to a non-U.S. citizen, regardless of where in the world the employee is working.”
The plaintiff, Rosemary O’Mahony, a former employee of Bermuda-based Accenture, alleges that she was demoted and her salary cut after she reported that Accenture committed fraud by refusing to pay, and concealing that it was obligated to pay, French social security contributions under a Social Security Agreement while she was working for the company in France.
In denying the company’s motion to dismiss, Judge Victor Marrero of the Southern District of New York held that the court has jurisdiction over Accenture because “the alleged wrongful conduct and other material acts occurred in the United States by persons located in the United States.”
Berkowitz says the decision in O'Mahony appears contrary to settled precedent saying that a law will not apply to employment practices overseas unless Congress explicitly permits its application. “The fact that the employee here was working for a foreign company and was not a U.S. citizen causes particular concern,” he says.
As a result, “even foreign employers need to be very concerned about the possible reach of SOX if a decision concerning an employee originated in the United States,” Berkowitz says.
In his ruling, Marrero noted three points that distinguish the case from a 2006 judgment in Carnero v. Boston, where another federal district court held that a foreign employee complaining of misconduct abroad by overseas subsidiaries could not bring a claim against the U.S. parent company.
First, O’Mahony was employed and compensated by a U.S. subsidiary of a foreign corporation. Second, Marrero notes that the plaintiff alleges that the fraudulent scheme to evade social security taxes owed to France and the retaliation against her occurred in the United States. Finally, the action is against the foreign parent and its U.S. subsidiary for the alleged misconduct of the U.S. subsidiary in the United States.
Therefore, he wrote, “the Court finds the center of gravity of the alleged misconduct was located within the United States.”
Berkowitz, however, says the case “reflects an extension of SOX in a way no court has previously decided and that I don’t think Congress intended.”
Atkins
Shanti Atkins, president and chief executive of online legal compliance training provider ELT and a former employment attorney, agrees that the O’Mahony decision “appears to be a longer arm reach of SOX than we’ve seen.” The case is one “compliance professionals should be watching. Even though it’s a technical issue, it’s important from a precedent-setting standpoint.”
Atkins says the ruling is significant not only for its jurisdictional reach, but also for its extension of SOX to cases not involving fraud against shareholders.
“When people think of SOX retaliation claims, they tend to think they’re limited to issues involving fraud against shareholders,” Atkins says. “Marrero rejected that assumption.”
Indeed, in the ruling, Marrero held that “general principles of statutory construction weigh against reading [the statute] as providing whistleblower protection only to employees who provide information concerning fraud against shareholders.”
The Limits of SOX Protections
Section 806, the whistleblower protection clause of SOX, has long been a puzzle. Cindy Schmitt Minniti, a partner at the law firm Reed Smith, says the courts so far “have been split as to what kind of protection this provision is giving.” While Marrero ruled that the statute does not limit protected activities only to reporting conduct that involves fraud against shareholders, Schmitt Minniti notes that other courts have disagreed, and the Second Circuit Court of Appeals—the New York court that would review Marrero’s decision—hasn’t yet ruled on the issue.
WHISTLER PROTECTIONS
Below is an excerpt from O’Mahony v. Accenture, comparing the legal questions in this case and those of another, Carnero v. Boston Scientific.
Unlike the plaintiff in Carnero, O’Mahony was employed and compensated by a United States subsidiary of a foreign corporation. O’Mahony worked in the United States from 1984 through 1992 and was compensated by Accenture LLP, the United States subsidiary of Accenture, from 1984 through 2004. Because O’Mahony was employed within the United States until 1992 and compensated by a United States company until 2004, the concerns raised in Carnero are not present here.
The Carnero Court was concerned with the United States interfering with the employment relationship of a foreign employer and their foreign employees, and wanted to avoid opening “the door for U.S. courts to examine and adjudicate relationships abroad that would normally be handled by a foreign country’s own courts and government agencies pursuant to its own laws.” Id. Unlike the parties in Carnero, the employment relationship in this case, until 2004, was between a United States employer and its employee.
Second, in Carnero, the alleged wrongful conduct that gave rise to the claim occurred in Latin America. In contrast, O’Mahony alleges that the conduct related to the alleged fraud involved employees of Defendants located in the United States and occurred in the United States. Specifically, Accenture LLP, perpetrated the alleged fraud by deciding in the United States not to pay French social security contributions owed on O’Mahony’s behalf pursuant to the Social Security Agreement and then acting upon that decision in the United States by not making the payments in question.
In addition, O’Mahony alleges the retaliation against her was undertaken by executives located in the United States, who were employed by Accenture LLP. The Carnero Court recognized this distinction because, after determining that the plaintiff was an “employee” of BSC within the meaning of § 1514A, it stated “that if [the plaintiff’s] whistleblowing had occurred in this country relative to similar alleged domestic misconduct by domestic subsidiaries, [the plaintiff] might well have a potential claim under [§ 1514A].”
Last, in Carnero, the plaintiff brought an action against the United States parent for the alleged misconduct abroad by its Latin American subsidiary. Here, O’Mahony brings an
action against the foreign parent and its United States subsidiary for the alleged misconduct of the United States subsidiary in the United States. Because the facts of Carnero and the instant case are readily distinguishable, Carnero offers limited guidance to the Court.
Source
Southern District of New York (Feb. 5, 2008).
If the case is upheld, Berkowitz says, “the congressional rule that laws only apply overseas if Congress makes it explicitly so seems to fall by the wayside. The case suggests that courts are free to apply U.S. law to employment anywhere in the world, regardless of whether Congress has explicitly held that a law should be applied overseas.”
Minniti
Schmitt Minniti has a different view. Even if the decision is upheld on appeal, she says, it has a very specific set of facts and probably will not have broad ramifications for other cases.
“It’s an interesting case and employers should be mindful of it, but it doesn’t change the way rulings have come down in the past,” she says. “This is not a blanket ruling that says this part of SOX applies overseas.”
“The question of the extraterritorial application of the statute and how far the courts will extend their jurisdiction hasn’t been answered yet,” says Schmitt Minniti. “This decision brings us a step closer.”
Still, she and others say the case does serve as a reminder to companies to make sure their compliance and training efforts in this area are up to snuff. “U.S. employers always have to be mindful of all U.S. employment laws when making decisions regarding employees elsewhere,” she says.
Berkowitz agrees. “HR and personnel issues are no longer strictly local issues,” he says. “Decisions made concerning an employee on the other side of the world can lead to liability in U.S. courts.”
Indeed, Atkins says SOX retaliation claims are on the rise, and the average recovery in SOX whistleblower claims can trump the average recovery in a typical workplace discrimination complaint by 50 percent, she says. “When someone files a whistleblower claim, the stakes are raised, even if you believe their claim is bunk, malicious, or without merit.”
Atkins says O’Mahony serves as a reminder to raise awareness among all employees that “retaliation protections are not limited to a narrow slice of activities.” Companies would be wise to revisit their codes of conduct to make sure their antiretaliation policies are clear “and to make sure employees are made aware that they’re protected from retaliation.”
As highlighted by a 2006 Supreme Court decision involving Burlington Northern, Atkins notes that retaliatory activity isn’t limited to someone being fired. “It can be a series of much more subtle behaviors, such as giving someone the cold shoulder or not inviting them to meetings,” she says. Managers in particular need to be careful of how they treat employees involved in a claim so they don’t unwittingly build a case for retaliation.
Many ethics and compliance training programs “don’t give enough treatment to the issue of retaliation,” says Atkins. And while most multinational organizations have global codes of conduct, she says many only train employees on it in the U.S.
A compliance best practice is to make sure the company’s global code of conduct and ancillary training “are provided to everybody, regardless of where they’re located,” she says.
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