Financial Services Employment Law

News, Updates, and Insights for Financial Services Employers

Fourth Circuit Applies Four Year Statute of Limitations, Approves Award of Emotional Distress Damages in SOX Claim in Federal Court

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By John F. Fullerton III

On January 26, 2015, in an issue of first impression at the appellate level, the United States Court of Appeals for the Fourth Circuit held that a federal catch-all four year statute of limitations applies to whistleblower retaliation claims filed in federal court under Section 806 of the Sarbanes-Oxley Act (SOX), rather than a two-year statute of limitations applicable to cases alleging fraud under the securities laws.  In addition, the Fourth Circuit joined the Fifth and Tenth Circuits in holding that emotional distress damages are available to successful plaintiffs as part of the “make whole” remedy under Section 806. The case, Jones v. SouthPeak Interactive Corp. of Delaware [pdf] affirmed various challenges to a jury verdict in favor of the former CFO of a publicly-traded company who alleged that she was terminated shortly after raising concerns to the company’s audit committee about information in the company’s quarterly financial report.  The decision represents another example of broad rather than narrow interpretation of the statute, in ways favorable to whistleblowers who claim retaliation.

Under Section 806 of SOX, a whistleblower who seeks to assert a claim of retaliation has 180 days to file an administrative charge with OSHA.  If the Secretary of Labor has not issued a final decision within 180 days of that charge (and it rarely does), the complainant has the right to file the claim anew in federal court.  SOX is silent, however, with respect to how long the claimant can wait before filing in federal court.

There is a four year “catch-all” statute of limitations for federal statutes that create a cause of action but are silent with respect to time limits on filing. 28 U.S.C. § 1658(a). With the passage of the SOX, however, Congress added a separate statute of limitations for private causes of action alleging “fraud, deceit, manipulation or contrivance in contravention of a regulatory requirement concerning the securities laws” of two years after the discovery of the relevant facts constituting the violation, or five years after the violation (i.e., a statute of “repose”). 28 U.S.C. § 1658(b). Jones waited almost two years after notifying OSHA of her desire to terminate the administrative process before she filed her federal lawsuit, which was almost three years after her termination.

The Court held that her claim was timely filed, holding that because her federal lawsuit did not directly assert and require her to prove securities fraud, but rather, that she was wrongfully discharged in retaliation for allegedly reporting securities fraud, the four-year statute applied.  Only two district court cases had considered the issue previously, one applying the two-year and the other applying the four-year statute.

The Court also held, among other things, that emotional distress damages are available under Section 806.  The statute provides that compensatory damages for violations of the Act include reinstatement, back pay (with interest), and “compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.”  18 U.S.C. § 1514A(c)(2).  Rejecting the employer’s argument that the word “including” limited the specific types of special damages to the three mentioned in the statute, the Court held that “including” was not intended to be exclusive: it “sets a floor, not a ceiling.” The Court also noted that the statute defines retaliation to include actions in which the primary harm would be noneconomic, such as threats and harassment.  Thus, “non-pecuniary compensatory relief, such as emotional distress damages, may be the only remedy that would make the complainant whole.”  In so holding, the Court agreed with the Fifth and Tenth Circuits, as well as the Department of Labor itself, in interpreting Section 806 to permit damage awards for emotional distress.

As the ADA Turns 25, Website Accessibility Issues Pose Legitimate Risks for the Financial Services Industry

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While 2014 was certainly a noteworthy year under Title III of the Americans with Disabilities Act (“Title III”), July 26, 2015, will mark the 25th anniversary of the ADA (“25th Anniversary”), an event that will almost certainly be celebrated with significant developments impacting the scope of Title III’s coverage. The U.S. Department of Justice (“DOJ”), charged with regulating Title III, is expected to advance and finalize regulations affecting a variety of industries, including, in some instances, financial services.  Additionally, it would be reasonable to expect advocacy groups and plaintiffs—buoyed by these looming developments and emboldened by the 25th Anniversary—to continue the path followed over the past year, aggressively pursuing an expansive interpretation of Title III in “cooperative” agreements and litigation.

Contemplating what lies ahead is best done in tandem with an eye towards the year that was. While the year 2014 saw a variety of developments under Title III which targeted specific industries, one – relating to website accessibility – had potentially broader implications arguably impacting any entity covered by Title III, including financial services.

Website Accessibility

Over the past decade, website accessibility has become one, if not the most, prominent issue under Title III, as regulatory agencies at both the state and federal level and experienced advocacy groups have challenged the inaccessibility of websites under Title III and related state and local accessibility laws with increasing frequency. The legal landscape regarding this issue remains conflicted as courts have split over the issue of whether the term “Places of Public Accommodation” applies to websites and, if so, to what extent.

Generally, the division among courts has created three lines of thought: (i) the ADA must be read broadly to successfully achieve its purpose, allowing individuals with disabilities to fully and equally participate in society and, therefore, websites must be made accessible under Title III; (ii) the ADA must be read as it is written and, because “Places of Public Accommodation” are plainly defined with an extensive list of solely physical locations, the ADA must be amended, or new regulations promulgated, before Title III can apply to websites; and (iii) Title III applies to websites of Places of Public Accommodation to the extent there is a nexus between the goods and services provided by the brick-and-mortar Place of Public Accommodation and the website.

Notwithstanding this tension among the courts, DOJ—relying upon Title III’s overarching “full and equal enjoyment” obligation—has long taken a strident position that Title III, as currently drafted, unquestionably applies to the websites of Places of Public Accommodation. In addition, to further strengthen its position and to remove ambiguity about what constitutes an accessible website under Title III, since the summer of 2010, DOJ has been taking the steps necessary to promulgate regulations specifically addressing the requirements for website accessibility for public accommodations. At the time of this writing, the most recent estimates project that the next step in this rulemaking will occur this summer, shortly before the 25th Anniversary.

Separately, the U.S. Access Board continues to work on promulgating a revised version of Section 508 of the Rehabilitation Act of 1973, which addresses, among other accessible information and technology, website accessibility for federal agencies and the contractors of federal agencies in certain specific contexts.  At the time of this writing, the most recent estimates project the next step in this rulemaking to occur sometime in early 2015.  Previously, in December 2013, the U.S. Department of Transportation issued an amendment to the Air Carrier Access Act of 1986 (“ACAA”) placing accessibility obligations on public-facing websites of covered airlines and airports. 49 U.S.C. §41705; 14 C.F.R. Part 382.

Despite the fluid state of this issue on both the judicial and regulatory front, over the past year, both DOJ and advocacy groups, such as the National Federation of the Blind and the American Counsel for the Blind, have continued to press the issue, utilizing the threat of litigation and/or investigation to prompt website accessibility agreements with notable entities in a variety of industries. These agreements involved, among others, H&R Block, Peapod, Safeway, eBay, multiple colleges and universities (e.g., Florida State University, the University of Montana, and the University of Cincinnati), and other facilities, including hospitals and fashion retailers.  In recent years certain Offices of the State Attorney General (e.g., New York State) have also pursued settlement agreements involving website accessibility in industries including financial services.

Fortunately, for those looking for guidance on how to make their websites accessible now or to take steps to prepare for the eventual finalization of DOJ’s looming regulations, there is a fairly clear path. Both the pending regulations and settlement agreements entered into by DOJ and advocacy groups generally define the appropriate level of website accessibility by referencing the Website Content Accessibility Guidelines (“WCAG”) 2.0, Levels A and AA, prepared by the Website Accessibility Initiative (“WAI”) of the World Wide Web Consortium (“W3C”). Places of Public Accommodation that wish to assess the accessibility of their websites and/or take steps to enhance their accessibility should engage in a user-based and programming-based dual-pronged audit of their websites against WCAG 2.0, Levels A and AA.

Upswing in Trade Secrets Prosecutions: Leave the Source Code Behind

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Prosecutions of employees taking proprietary software with them when they leave financial services firms is on an upswing.

Our colleagues Peter Altieri and James Flynn at Epstein Becker Green address this in their post “Leave the Source Code Behind,” on the Trade Secrets & Noncompete Blog.

Following is an excerpt:

U.S. Attorneys in many jurisdictions are more willingly stepping into the fray between financial services firms and their former employees who have misappropriated trade secret information. In a recently reported case out of the Northern District of Illinois, two former employees of Citadel LLC, a Chicago based premier hedge fund in the high frequency trading space, pled guilty and received three-year sentences for their participation in a scheme to steal source code from Citadel and a prior employer in order to create their own trading strategy for their personal future use. This continues a trend begun in earnest in 2013 after the Department of Justice issued the Administration’s Strategy On Mitigating The Theft Of U.S. Trade Secrets. Since that time, federal criminal enforcement efforts in trade secret matters have been on the upswing in the financial services industry as well as other areas.

 Read the full post here.

Two Takeaways from the Supreme Court’s Whistleblower Decision in Dep’t of Homeland Security v. MacLean

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By Stuart Gerson

Yesterday, the Supreme Court decided Department of Homeland Security v. MacLean. MacLean was a Transportation Security Administration (TSA) employee who, without authorization, disclosed to a reporter the otherwise unpublicized termination of  missions related to hijack prevention. He claimed he was disclosing a matter related to public safety. He was fired pursuant to regulations promulgated under the Homeland Security Act, 116 Stat. 2135. That Act provides that the  TSA “shall prescribe regulations prohibiting the disclosure of information . . . if the Under Secretary decides that disclosur[e] would . . . be detrimental to the security of transportation.” 49 U. S. C. §114(r)(1)(C). Around the same time, the TSA promulgated regulations prohibiting the unauthorized disclosure of “sensitive security information.” MacLean was fired pursuant to that regulation.  However, the Supreme Court held that the regulation at issue did not have the force of law.

Given the fact that this case involves facts peculiar to governmental entities, one might think it unimportant to non-governmental employers in general, or financial services employers in particular.  However, we believe there are two takeaways:

The first takeaway is a reiteration that, contrary to oft-repeated arguments that the Court is pro-business, this case further shows that, with one idiosyncratic exception (Garcetti  v. Ceballos, 547 U.S. 410 (2006)), the whistleblower has thus far consistently prevailed at the Supreme Court.  Employers should take note of this fact in connection with litigation of False Claims Act, Sarbanes-Oxley,  Dodd-Frank, and other whistleblower cases where retaliation might rear its head.

The second takeaway is the theory that not all regulations have the status of actionable laws. This could be an issue for a financial services firm that terminates a whistleblower for violating regulations applicable to the financial services industry.

A final point of interest:  This was a 7-2 decision, with Justices Kennedy and Sotomayor dissenting. The majority was, thus, bipartisan, as was the dissent, at least in terms of judicial philosophy.

January 2015 Immigration Alert

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Robert S. Groban, Jr. and the Immigration Law Group of Epstein Becker Green recently issued an alert that will be of interest to employers. Following are the main topic headings:

Read the full alert here.

Legislation Introduced to Change Full-Time Employee Definition under the Affordable Care Act

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Our colleague August Emil Huelle at Epstein Becker Green has an Employee Benefits Insight Blog post that will be of interest to many of our readers: “Legislation Introduced to Change Full-Time Employee Definition under the Affordable Care Act.”

Following is an excerpt:

On January 7, 2015, U.S. Senators Susan Collins (R-ME) and Joe Donnelly (D–IN) along with Lisa Murkowski (R-AK) and Joe Manchin (D-WV) introduced the Forty Hours is Full Time Act, legislation that would amend the definition of a “full-time employee” under the Affordable Care Act to an employee who works an average of 40 hours per week.  In the coming days, the House is expected to vote on its own version of this legislation, the Save American Workers Act.

The teeth of the Affordable Care Act have the ability to sink excise taxes on employers who do not offer affordable healthcare coverage to full-time employees, which the Affordable Care Act defines as employees who work an average of 30 hours per week.  In announcing the introduction of the legislation, Senator Collins argued that the current definition “creates a perverse incentive for businesses to cut their employees’ hours so they are no longer considered full time.”  The implication being that the Forty Hours is Full Time Act will increase employee wages because the employers who reportedly reduced employee hours below 30 per week in an effort to avoid costs associated with providing healthcare coverage to employees (or the tax for not providing coverage to employees) are the same employers who will raise employee hours above 30 per week if they are not faced with such costs.

Read the full blog post here.

NLRB Rules That Employees Can Use Company Email for Union Organizing – Affects All Employers

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Our colleague Steven Swirsky at Epstein Becker Green wrote an advisory on an NLRB ruling that affects all employers: “NLRB Holds That Employees Have the Right to Use Company Email Systems for Union Organizing – Union and Non-Union Employers Are All Affected.” Following is an excerpt:

In its Purple Communications, Inc., decision, the National Labor Relations Board (“NLRB” or “Board”) has ruled that “employee use of email for statutorily protected communications on nonworking time must presumptively be permitted” by employers that provide employees with access to email at work.  While the majority in Purple Communications characterized the decision as “carefully limited,” in reality, it appears to be a major game changer.  This decision applies to all employers, not only those that have union-represented employees or that are in the midst of union organizing campaigns.

Under this decision, which applies to both unionized and non-union workplaces alike, if an employer allows employees to use its email system at work, use of the email system “for statutorily protected communications on nonworking time must presumptively be permitted . . . .” In other words, if an employee has access to email at work and is ever allowed to use it to send or receive nonwork emails, the employee is permitted to use his or her work email to communicate with coworkers about union-related issues.

Read the full advisory here.

Considerations for Employee Benefit Programs That Benefit Employers and Employees

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My colleague Lee T. Polk authored Epstein Becker Green’s recent issue of its Take 5 newsletter.   This Take 5 features five considerations suggesting the advantages of employee benefit plans as programs that are beneficial to both employers and employees.

  1. Tax Aspects of Qualified Retirement Plans Can Save Money For Both Employers and Employees
  2. The Benefits of a Contractual Claims Limitation Period
  3. The Benefits of a Contractual Venue Selection Clause
  4. The Standard of Judicial Review in the Context of Top Hat Plan Benefit Disputes
  5. Fiduciary Exception to the Attorney-Client Privilege in Plan Administration

Read the full newsletter here.

SEC Office of the Whistleblower Files Annual Report to Congress on Dodd-Frank Whistleblower Program

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Last week, the U.S. Securities and Exchange Commission’s Office of the Whistleblower, created in 2011 pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, released its mandated report to Congress on operations for Fiscal Year 2014, ending on September 30, 2014.  A number of interesting facts, statistics and developments were reported.  Here is a selection of particularly relevant highlights:

  • FY 2014 was the most active year yet in terms of whistleblower awards. The SEC has made awards to 14 whistleblowers since inception of the program, including 9 in 2014 alone.
  • “To date, over 40% of the individuals who received awards were current or former employees;” another 20% were company consultants or contractors, or had been solicited to act as consultants.
  • According to the SEC, over 80% of those receiving awards reportedly raised their concerns internally to supervisors or compliance professionals before going to the SEC, which means nearly 20% are still skipping internal whistleblower reporting policies and systems.
  • “Several of the cases in which a whistleblower received an award concerned firms involved in the financial services industry, with some involving broker-dealers.”  Alleged wrongdoing included on-going Ponzi schemes, false or misleading statements in offering memoranda or marketing materials, and false pricing information.
  • On September 22, 2014, the SEC authorized payment of its largest whistleblower award to date — over $30 million.  This was the fourth overseas whistleblower to receive an award, highlighting that whistleblowers around the world are eligible for awards and the importance for employers of implementing whistleblower and compliance policies globally.
  • On August 29, 2014, the SEC authorized its first award to a compliance or audit professional – over $300,000 to an auditor who blew the whistle internally and waited 120 days before reporting to the SEC, during which time the company had taken no action on the allegations.  The auditor therefore satisfied one of the exceptions to exclusion from eligibility for awards for compliance and audit professionals.
  • On July 31, 2014, the SEC issued an award of over $400,000 to an independent agent of an insurance company, who had “aggressively worked internally to bring the securities law violation to the attention of appropriate personnel in an effort to obtain corrective action” regarding misleading descriptions of financial products.  Although the SEC did not disclose the name of the whistleblower or the company, the whistleblower himself went to the press after receiving the award, identifying himself as well as his employer in telling his story.
  • On June 16, 2014, the SEC exercised its own anti-retaliation enforcement authority for the first time, charging a hedge fund advisory firm with retaliating against its head trader for reporting prohibited principal transactions to the SEC.  The alleged retaliatory acts included removing the whistleblower from his position and making him a compliance assistant, stripping him of supervisory responsibility, and making him investigate the very wrongdoing he reported to the SEC without any meaningful resources to do so.  The firm and its owner paid $2.2 million to settle the charges – with full disclosure by the SEC of, and publicity regarding, the identity of the firm and its owner.

  The full report is available on the SEC’s Office of Whistleblower website – click here.

Complimentary Webinar – A Year in Review: What’s New in the World of Trade Secrets and Non-Competes

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To register for this webinar, please click here.

Please join us on Tuesday, December 16, 2014 at 1:00 p.m. EST as we review developments in 2014 and what employers should expect and prepare for in 2015.

During this one hour webinar, we will discuss:

  • Recent decisions regarding what constitutes adequate consideration for a non-compete
  • The trend toward criminal prosecution of trade secret theft, especially in the international context
  • Interesting decisions determining choice-of-law issues
  • New and pending state and federal legislation

This webinar is hosted by Epstein Becker Green and presented by:

David J. Clark
Robert D. Goldstein
Peter A. Steinmeyer

Registration is complimentary.  To register for this webinar, please click here.