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October 23, 2014 1

OSHA: A New Frontier for Whistleblowers?

Connie Bertram & Steve Pearlman

Co-Chairs, Whistleblower and Retaliation Group

Proskauer LLP

Kathy Cheung

Marriott International

October 23, 2014

What We Will Cover

• DOL/OSHA Trends

• OSHA Investigations and Litigation

• Recent SOX Decisions

• Mitigating the Risk of SOX and Other Whistleblower Claims

• Settlement Considerations

2 October 23, 2014

Federal Whistleblower Protection Provisions

Enforced By OSHA

• Consumer Product Safety

Improvement Act

• Energy Reorganization Act

• Federal Railroad Safety Act

• International Safe Container Act

• National Transit System Security

Act

• Pipeline Safety Improvement Act

• Surface Transportation

Assistance Act

• Occupational Safety and Health

Act

• Sarbanes-Oxley Act

• Asbestos Hazard Emergency

Response Act

• Clean Air Act

• Comprehensive Environmental

Response, Compensation, and

Liability Act

• Federal Water Pollution Control

Act

• Safe Drinking Water Act

• Solid Waste Disposal Act

• Toxic Substances Control Act

• Wendell H. Ford Aviation

Investment and Reform Act

3 October 23, 2014

Trends

• OSHA recently released statistics showing increases in both the

number of whistleblower cases filed with OSHA and the number

of OSHA determinations

• Almost 3,000 whistleblower cases filed with OSHA in FY 2013, up

2% from 2012

• The number of complaint determinations made by OSHA

increased by 14%

- 26% resulted in settlements approved by DOL

- 2% resulted in a finding or preliminary order by the Assistant

Secretary of Labor

• The number of SOX whistleblower claims filed with OSHA in 2013

(175) up dramatically in past several years

4 October 23, 2014

DOL Priorities for OSHA

• Improve investigation process based on recent

comprehensive audits

- Established training institute

- Hired 35 new investigators

• Undertake comprehensive top-to-bottom review of the

disposition process

• Reinvigorate protection for employees who report corporate

fraud

• Expand ADR program (currently in two Regions)

• Advocate positions in federal court through amicus briefs

October 23, 2014 5

OSHA Procedures

October 23, 2014 6

General Procedures

• Must file complaint with OSHA within 180 days of adverse

action

• Employee can pursue claim through DOL’s adjudicative

regime:

OSHA → OALJ → ARB → Federal Appellate Court

• Employee can “kick out” claim to federal district court (de

novo review) if DOL does not issue a final order within 180

days

- Even where an ALJ already adjudicated the claim

- Employer may challenge if complainant did not pursue claim

diligently

7 October 23, 2014

Other Remedies

• Complainant entitled to pursue other remedies available

under federal and state law in court

• Critical given overlapping and conflicting claims (SOX v.

Dodd-Frank)

• However, ARB’s determination may be afforded preclusive

effect in related actions

- Circuit split on Chevron v. Skidmore deference for ARB

determinations

- Supreme Court declined to address the issue in Lawson

8 October 23, 2014

OSHA’S Initial Investigation

• Employer has 20 days to submit a written position statement

- OSHA will then contact respondent to interview witnesses, review

records, and obtain documentary evidence

- Employer can request that confidential commercial or financial

information be held in confidence to the extent allowed by law

• Investigator will dismiss unless complainant establishes prima

facie case – i.e., protected activity was a contributing factor in the

adverse employment decision

• Investigator has authority to order preliminary reinstatement if it

finds reasonable cause to believe a violation has occurred

• If party appeals to ARB, all relief stayed, other than preliminary

reinstatement

9 October 23, 2014

OALJ

• Updating its rules of practice to more closely align them with the

federal rules of practice

• De novo review of evidence and law

• Complaint not subject to Iqbal/Twombly pleading standards

- Complainant only need to provide “fair notice” of claims

- Generous about allowing amendments

• Procedures:

- Generally afforded full discovery

- Right to move for summary disposition

- Rules of evidence applied, except hearsay is generally admissible

• Can appeal to ARB within 10 business days

October 23, 2014 10

Standards of Proof

• Employee must make prima facie showing

- Employed by covered entity

- Engaged in protected activity

- Protected activity contributed to adverse employment action

• Causation standard varies: a factor, contributing factor,

substantial factor, but/for

• Employer must present “clear and convincing” evidence

that employer would have acted the same absent the

whistleblowing

11 October 23, 2014

Settlement of Claims Before OSHA

• Must contain certain core provisions:

- Stipulate that employer agrees to comply with relevant

statutes, including those prohibiting retaliation

- Specify the relief obtained

- Show constructive effort to alleviate the chilling effect of the

claim/allegations, such as an electronic posting

• OSHA will not approve any “gag” provision that restricts the

complainant’s ability to participate investigations or testify in

proceedings concerning his employment

• Does not resolve pending/future government investigations

October 23, 2014 12

Recent Cases – How Bad Could It Really Be?

October 23, 2014 13

Sylvester v. Parexel Int’l, LLC, ARB 07-123

(May 25, 2011)

• Protected conduct not limited to disclosures of shareholder

fraud

• Not required to prove each element of fraud (scienter,

materiality, etc.)

• Disclosures about a potential violation protected

• Rejects ARB’s Platone decision requiring that disclosure

“definitively and specifically relate” to an enumerated

violation

• Iqbal/Twombly pleading standard does not apply to claims

filed at OSHA

October 23, 2014 14

Lockheed Martin Corp v. DOL (10th Cir. June 4,

2013)

• Employee complained that her supervisor used company funds to

engage in sexual affairs with soldiers she met though a company

pen pal program

• After reporting her supervisor, employee had her responsibilities

taken away and had her desk moved to a storage closet

• She brought a SOX retaliation claim and received a favorable

holding from the ALJ

• Circuit court upheld ALJ’s holding in favor of employee

• Takeaway: A report identifying any fraud or violation of an SEC

regulation, even if it does not directly impact shareholders, can

trigger SOX’s protections

October 23, 2014 15

Zulfer v. Playboy Enterprises, Inc., No. CV 12-

08263 (C.D. Cal. Mar. 5, 2014)

• Plaintiff, a controller, worked for PBE for 30+ years

• Fired after refused to authorize $1 million in executive

bonuses that had not been approved by board

• Playboy argued that a whistleblower complaint regarding

anticipated conduct is not protected under SOX

• Jury awarded plaintiff $6 million, even though she was not

seeking front pay

October 23, 2014 16

Nielsen v. AECOM Technology Corp. (2d Cir.

Aug. 8, 2014)

• Plaintiff alleged employer failed to take action and terminated his

employment after he reported a subordinate for approving fire

safety designs without actually reviewing the designs

• District Court determined that plaintiff did not engage in protected

activity because his claims were not “definitively and specifically”

related to the enumerated provisions in Section 806 of SOX.

• Second Circuit affirmed the dismissal, but rejected the “definitively

and specifically” standard applied by the lower court, embracing

the ARB’s decision in Sylvester

October 23, 2014 17

SEC Issues Order Against Paradigm Capital

• June 2014 Order is first enforcement action the SEC has taken

for violations of Dodd-Frank anti-retaliation provisions

• SEC’s Order asserted that Paradigm violated the anti-retaliation

provisions of Dodd-Frank by engaging in a series of retaliatory

actions against a head trader who had reported improper principal

trades to the SEC

• Without admitting or denying any wrongdoing, Paradigm and its

principal agreed to pay disgorgement of $1.7 million, prejudgment

interest of $181,771 and a civil penalty of $300,000

• The Order against Paradigm is consistent with the SEC’s

repeated pronouncements that it intends to pursue anti-retaliation

enforcement actions

October 23, 2014 18

Mitigating Risk

October 23, 2014 19

Know Your Whistleblower

• “Private Attorney General”

- Seeks to “right the ship”

- Attempting to protect the company, employees and

shareholders.

• Opportunistic or disgruntled employee

- “Sees the writing on the wall”

- Seeks leverage

- Seeks recognition or influence

- Seeks money (bounty)

20 October 23, 2014

Conducting an Effective Investigation

• Evaluate who should conduct the investigation

- Sufficient authority, but not a witness

- Good witness?

• Engage the appropriate stakeholders

• Bring in the necessary experts

• Review documents, interview witnesses and the

whistleblower

• Balance need for information with the desire to protect

confidentiality (and limiting the number of people with

knowledge)

October 23, 2014 21

Dealing with Whistleblowers Who are Current

Employees

• Promptly appoint a liaison to the whistleblower

• Promptly conduct a thorough investigation

- Report back to the extent practicable

- Temper expectations of confidentiality

- Review removal and use of confidential information

- Identify moles and leaks

• Oversee evaluations and discipline of whistleblowers, with an

emphasis on objective metrics

- Studiously comply with applicable policies and procedures

- Review treatment of comparators

• Negotiated transition may be necessary if disruptive or

using continued employment merely to collect evidence

October 23, 2014 22

Consider and Develop Your Available Defenses

• From day one, employers should consider the claims and

defenses they may have available

• All too often claimants:

- Participate in or create the fraud about which they are complaining

- Engage in self-help discovery

- Spoliate evidence

- Engage in other misconduct, such as competitive activity, that

provides a defense

- Refuse to cooperate in investigations

- Manipulate witnesses

23 October 23, 2014

Consider and Develop Your Available Defenses

• As you are investigating the claimant’s allegations, also need to

investigate his or her own conduct and motives

- Determine his or her role in and knowledge of the alleged fraud or

violation

- Review responses to COC questionnaires

- Conduct forensic review of computers, devices and accounts,

including personal devices (if permitted by policy and state law)

- Ask witnesses (including the claimant) about removal and spoliation

of evidence and other misconduct

• Focus on potential improper motives, including performance

status

• Conduct background checks and review social media

24 October 23, 2014

An Example: Self-Help Discovery

• Does protected activity include self-help or informal discovery,

including

- Taking documents?

- Downloading data?

- Imaging a hard drive?

• When and how can an employer control or discipline the

employee’s conduct and what impact can it have on litigation?

• The scary truth:

- Almost every complainant engages in this conduct - from retaining

selected employment-related documents to imaging entire hard drives

and databases

- Their counsel, unaware of the limitations, encourage and participate

in this conduct

25 October 23, 2014

Limitations On Self-Help Discovery

• Complainant may have the right to engage in lawful and

reasonable efforts to collect information and evidence supporting

his claims

• But:

- Must be undertaken for legitimate investigative purposes

- Must have right to access the document or data

- May not violate company policy or the law

- May not disclose confidential information to third parties (other than

counsel, potentially)

- May not interfere with job duties or performance

26 October 23, 2014

Limitations On Self-Help Discovery

• Courts balance the employee’s right to develop evidence in

support of his claim with the employer’s right to maintain

confidentiality and control its workforce

• May also be allowable if “sole purpose” is to support a

complaint or report to a government agency

• Must be mindful of SEC rules, which prohibits using

confidentiality agreements to restrict employees right to

provide information to the SEC

27 October 23, 2014

Be Mindful of Recent Self-Help Discovery

Cases

• Quinlan v. Curtiss-Wright Corp., 204 N.J. 239 (2010) -

although Company could have terminated the plaintiff for

her removal of documents, it could not (having chosen not

to terminate her for the theft) terminate her for using those

documents to pursue her claims of discrimination

• Vannoy v. Celanese Corp., ALJ Case No. 2008-SOX-00064

(ALJ July 24, 2013) - the transmission of confidential

company information to the government (specifically, the

IRS) is protected activity under the SOX

28 October 23, 2014

Best Practices and Solutions

• Avoid discouraging or

prohibiting reports to SEC or

other governmental

agencies in agreements

• Craft whistleblower

protection policies and

modernize code of conduct

to encourage internal

complaints

• Implement whistleblower-

specific training

• Encourage good-faith internal

complaints: letter to file;

bonus; other financial

incentive?

• Transparency in functioning of

compliance program

• Ensure objectivity in oversight

of evaluations and discipline

of whistleblowers

• Use focus groups and audits

to identify emerging

compliance problems

29 October 23, 2014

Settlement Considerations

October 23, 2014 30

Settlement Considerations

• Critical first to conduct an investigation to understand the

risks raised by the claims/anticipated claims

- How did the employee first raise his concerns?

- Who knew about the allegations and what did they know about them?

- Who made the challenged employment decision?

- What did they know about the protected activity?

- What is the “package” of evidence that supports the decision?

• Also need to understand the alleged underlying violation

- What is the scope of the claimed fraud?

- Who is implicated within the company?

- Was the complainant involved?

- Had it been addressed?

October 23, 2014 31

Settlement Considerations

• Undertake a classic risk management analysis, assessing:

- The types of claims that may be asserted (by the complainant AND

by the government)

- The fora and relief available

- The likelihood of an adverse finding

- The range of damages and penalties that could be awarded

- The impact of interim relief, such as preliminary reinstatement

- The impact of an adverse award (PR, internal, reporting)

- The other claims/investigations the proceeding could generate

• The same considerations apply once suit is filed, but it may

be difficult to “unring the bell” for government investigations

and/or to obtain a full release

October 23, 2014 32