Financial Services Employment Law

News, Updates, and Insights for Financial Services Employers

Penalties Rise for ADA Noncompliance

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By Andrea R. Calem

Noncompliance with the Americans with Disabilities Act just became costlier. Pursuant to an inflation-adjustment formula, on March 28, 2014 the Department of Justice (“DOJ”) issued a final rule raising the civil monetary penalties assessed or enforced by the Civil Rights Division, including those assessed under Title III of the ADA (“Title III”).

Title III prohibits public accommodations from discriminating against disabled individuals with respect to access to goods, services, programs and facilities, and (with limited exceptions) requires public accommodations to make reasonable accommodations so that disabled individuals may equally access these goods and opportunities. Accommodations may include modification of physical space in order to remove physical barriers, the provision of auxiliary aids for communication (such as sign language interpreters, closed captioning, written materials in Braille), and a wide variety of other, context-specific adjustments to the way business is conducted or services are offered.

With the upward adjustment, the maximum civil penalty for a first violation of Title III rises from $55,000 to $75,000, and the maximum civil penalty for a second violation rises from $110,000 to $150,000. The new maximums apply to violations that occur on or after April 28, 2014. The last time these penalties were adjusted for inflation was in 1999.

These penalties can be consequential for small businesses or those with thin profit margins, and can accrue to significant levels for businesses of all sizes if the DOJ finds evidence of repeated violations of Title III. The DOJ’s current ADA enforcement environment is an aggressive one, consistent with the aggressive positions recently taken by many other federal agencies which protect workers’ and civil rights, such as the National Labor Relations Board, the Equal Employment Opportunity Commission, and the Office of Federal Contract Compliance and Programs. Industries with goods and services that tend to be accessed online, such as the financial services industry, will want to take particular note of the DOJ’s recent emphasis on accessible websites.

The increased penalties are one more reminder that the costs associated with ADA compliance should not be postponed until enforcement – in the form of a civil lawsuit or the DOJ – is knocking at your (hopefully accessible) door.

The Enforceability of Predispute Arbitration Agreements With Respect to Dodd-Frank and SOX Whistleblower Retaliation Claims Continues to be a Puzzle

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By John F. Fullerton III and Jason Kaufman

Almost four years after it was enacted in 2010, the full impact of the Dodd Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) on the enforceability of predispute arbitration agreements is not completely clear.  Some whistleblower retaliation claims are still subject to mandatory arbitration agreements, while others plainly are not, depending upon when the arbitration agreement was executed, the statute under which the claim is brought, and the jurisdiction in which the employer and employee find themselves.

First, prior to the passage of Dodd-Frank, courts had held that whistleblower retaliation claims filed under Section 806 of the Sarbanes-Oxley Act (“SOX”) could be compelled to arbitrate under mandatory arbitration agreements between an employer and employee.  Dodd-Frank amended Section 806 to include an explicit ban on agreements to arbitrate SOX claims: “No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”  There is a split in authority, however, regarding whether this provision applies retroactively to invalidate arbitration agreements executed before Dodd-Frank was enacted.  Federal courts in Massachusetts and New York [pdf] have reasoned that retroactive application is appropriate because congressional intent as to the temporal scope of the statute is unclear, and because the right to arbitrate is jurisdictional – i.e., relates only to the forum in which claims can be heard – rather than substantive.  Courts in New Jersey (most recently) [pdf], Nevada, Colorado, South Carolina, and the District of Columbia, on the other hand, have rejected this rationale based on the well-settled presumption against statutory retroactivity, and their determination that the right to arbitrate is not merely a question of jurisdiction, but a vested contractual right that cannot be withdrawn retroactively absent clear congressional intent.  Thus, in the latter jurisdictions, some SOX claims remain arbitrable if the arbitration agreement pre-dates Dodd-Frank.

Second, there is also a question, at least, as to whether agreements requiring predispute arbitration of whistleblower retaliation claims made under the Securities Exchange Act are enforceable in the post-Dodd-Frank era.  Dodd-Frank amended both the Commodity Exchange Act and the Securities Exchange Act, in very similar terms, to include incentives for whistleblowers to report violations to the Commodity Futures Trading Commission and Securities Exchange Commission, as well as provisions protecting them from retaliation for doing so.  Although the Commodity Exchange Act was amended expressly to invalidate predispute arbitration agreements in language identical to that now contained in Section 806 of SOX, as explained above, no such language was added to the anti-retaliation provision of Section 21F of the Securities Exchange Act.

As a result, agreements requiring arbitration of whistleblower retaliation claims brought under the Section 21F appear to remain enforceable although the same agreement would be unenforceable with respect to claims under the Commodity Exchange Act.  At the same time, the SEC regulations state that “employers may not require employees to waive or limit their anti-retaliation rights under Section 21F,” which some have interpreted as precluding predispute arbitration agreements as well.  In fact, some plaintiffs have argued that the omission of a predispute arbitration provision from Section 21F was simply a drafting error and that courts should read the SOX arbitration provision into Section 21F. Nevertheless, notwithstanding the SEC regulations, the few court decisions that have addressed the issue, including one from the Southern District of New York [pdf], have compelled arbitration of whistleblower retaliation claims under Section 21F of the Securities Exchange Act based on the plain language of the statute, i.e. the absence of any provision rendering pre-dispute arbitration agreements unenforceable.

Employers should therefore be aware that until these ambiguities are finally clarified – whether by Congress or the courts – it appears that a case-by-case determination will be necessary regarding when and where their mandatory arbitration agreements are enforceable with respect to whistleblower retaliation claims under these statutes.

Drafting Customer Nonsolicitation Provisions in New York

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Our colleague Lauri Rasnick, a Member of the Firm at Epstein Becker Green, wrote a Law360 article titled “Drafting Customer Nonsolicitation Provisions in NY.” (Read the full version – subscription required.)

Following is an excerpt:

A recent New York Appellate Division First Department decision, TBA Global LLC v. Proscenium Events LLC, et al., Index Nos. 10948, 651171/12, (1st Dept Feb. 5, 2014), may not answer all questions about drafting enforceable nonsolicitation provisions, but it does shed some light on the current state of New York law.

The Lower Court Decision

The case was brought by TBA Global LLC, a live events marketing company that arranges and produces live event programs and marketing presentations for companies and products, against three former employees and their new company. Each of the former employees was subject to a nonsolicitation contract. After they simultaneously resigned, the three former employees all began to immediately compete with TBA.

TBA’s complaint alleged that the former employees improperly set up the competing business while employed at TBA, and that they violated their restrictive covenants through their activities. On summary judgment, the trial court only considered the latter claim — whether the restrictive covenants at issue were enforceable as a matter of law.

Webinar, April 8: OSHA’s Temporary Worker Initiative

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Our colleague Eric Conn, Chair of Epstein Becker Green’s OSHA Practice Group, will present a complimentary webinar on April 8, at 1:00 p.m. EDT: OSHA’s Temporary Worker Initiative. Topics include enforcement issues and data related to this work relationship, and recommendations and strategies for managing safety and health issues related to a temporary workforce.

Companies are expected to employ many more temporary workers as the Affordable Care Act is implemented, particularly when the “Employer Mandate” kicks in, which will require employers with 50 or more workers to provide affordable coverage to employees who work at least 30 hours per week. With this anticipated increase in the use of temporary workers, along with recent reports of temporary workers suffering fatal workplace injuries on their first days on a new job, OSHA will make temporary worker safety a top priority in 2014 and has already launched a Temporary Worker Initiative.

This webinar is the first of a five-part series for employers facing the daunting task of complying with OSHA’s numerous federal and state occupational safety and health standards and regulations.

Read more about the webinar and the series, or click here to register.

Supreme Court Provides Expansive Interpretation of Coverage of Sarbanes-Oxley Whistleblower Protection Provision

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The Supreme Court has opened up an enormous pool of potential whistleblower claimants against employers who might not otherwise be covered by the Sarbanes-Oxley Act of 2002 (“SOX”). Reversing the First Circuit Court of Appeals, the Supreme Court has held, in Lawson v. FMR (pdf), that the SOX whistleblower protection provisions set forth in 18 U.S.C. §1514A protect the employees of private companies that contract with public companies that are directly covered by the Act. The decision is consistent with that of the Administrative Review Board in Spinner v. David Landau & Associates (ARB May 30, 2012), which similarly held that the whistleblower provision protects the employees of privately-held contractors and sub-contractors of publicly-held companies. The First Circuit in Lawson had rejected that interpretation of the Act.

 The case was brought by former employees of a private company that contracted to be the investment manager of and advisor to publicly-traded mutual funds that had no employees of their own. The issue, in a nutshell, was this: can an employee who works for a private company that is not directly covered by SOX nevertheless file a whistleblower retaliation claim against her employer when that employer is a contractor to a public, SOX-covered employer; or as the Court put it:

Does §1514A shield only those employed by the public company itself, or does it shield as well employees of privately held contractors and subcontractors—for example, investment advisers, law firms, accounting enterprises— who perform work for the public company?

The statutory text at issue is as follows:

No [public] company . . . , or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee . . . to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities or commodities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders. [emphasis added]

The language requiring interpretation was the highlighted term “an employee;” specifically, whether it is limited to the employees of the public company or refers to employees of the contractors or subcontractors as well. Justice Ginsburg, writing for the majority, held that Section 1514A “shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.” She was joined by the Chief Justice and Justices Breyer and Kagan. Justices Scalia and Thomas joined in principal part, while Justice Sotomayor, joined by Justices Kennedy and Alito, dissented.

The majority decision rested primarily on the view that the narrower reading impermissibly requires the unsupported interpolation of the phrase “of a public company” after “an employee.” The majority also noted that “[c]ontractors are not ordinarily positioned to take adverse action against employees of the public company with whom they contract,” such that the reference to “an employee” logically must include the contractor’s own employees. The majority also rejected reliance on the statutory heading in the statute, “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud” (emphasis added), as evidence of Congressional intent.

The dissent’s view was that Section 1514A is far more ambiguous than the majority recognizes, particularly in light of the statute’s headings, and that the Court’s broad interpretation leads to “absurd results” because it means, for example, that the household employees of employees of public companies are protected by SOX. The majority found this to be a “theoretical” rather than realistic concern.

 In sum, the 6-3 holding by a majority comprised of both liberals and conservatives that SOX protects employees of private contractors when they report covered forms of fraud, thus giving an expansive reading of the scope of coverage of the Act, seems to be another inevitable win for whistleblowers in a post-Enron world.

Webinar on the ACA Employer Mandate: Feb. 20

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In a complimentary webinar on February 20 (1:00 p.m. ET), our colleagues Frank C. Morris, Jr., and Adam C. Solander will review the ongoing impact of the Affordable Care Act (ACA) on employers and their group health plans.

The Treasury Department and the Internal Revenue Service recently issued highly anticipated final regulations implementing the employer shared responsibility provisions of the ACA, also known as the employer mandate. The rules make several important changes in response to comments on the original proposed regulations issued in December 2012 and provide significant transition relief.

Objectives of the webinar are to:

  • Provide an overview of the shared responsibility rules
  • Discuss how the changes to the rules will affect employers of all sizes
  • Analyze special rules for seasonal, educational, and other employees and those with breaks in service
  • Provide insight into compliance issues affecting employers
  • Discuss strategies for compliance
  • Provide a roadmap of future ACA regulations

Click here to read more about this webinar, or click here to register.

Immigration Update

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Robert Groban 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.

Top 5 Issues for Financial Services Employers in 2014

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My colleague Jason Kaufman and I put together “Five Hot Topics for Financial Services Industry Employers” in this month’s Take 5 newsletter.  Below is an excerpt:

The economy may be improving, but challenges remain for employers in the financial services industry. From ever-increasing whistleblower claims to new diversity and inclusion regulations and recent IRS determinations affecting bonus payments, financial services industry employers will have to navigate a number of new developments and potential pitfalls in 2014. Here are five issues to keep an eye on in the new year. …

  1. Dodd-Frank and Sarbanes-Oxley Whistleblower Programs
  2. Dodd-Frank Diversity Standards Proposed for the Financial Services Industry
  3. Pay Disputes in the Financial Services Industry
  4. IT Personnel: Independent Contractors or Employees
  5. Employer Deductions for Bonus Compensation

Read the full newsletter here.

California’s 2014 Whistleblower Law to Expand Employee Protection

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By David Jacobs and Amy B. Messigian

We would like to call your attention to a significant change to the whistleblower statute in California that went into effect on January 1.  The statute, Cal. Lab. Code section 1102.5, has been substantially expanded beyond its prior form to now protect employees from retaliation for making internal complaints or even potential complaints about suspected violations of federal, state or local law.

California previously protected employees from retaliation for reporting reasonably suspected violations of state or federal laws to a government agency. The new law also extends whistleblower protections to employees who report behavior that they reasonably believe to be illegal to a supervisor or other employee with authority to “investigate, discover or correct,” or to a “public body conducting an investigation, hearing or inquiry.”   The new law also expands these protections to cover complaints about local laws.  Thus, it is possible that a complaint relating to the purported violation of an obscure ordinance could give rise to protection under the amended statute.

Therefore, under the new law any complaint made to human resources that relates to purportedly unlawful conduct may result in the protection of California’s whistleblower statute.  Moreover, these protections will apply regardless of whether the employee is required as a function of his or her job to disclose purported illegal activity.

Also of concern, under the revised provisions of Labor Code section 1102.5, it is unlawful for any person acting on behalf of the employer to retaliate against the employee based on a belief “the employee disclosed or may disclose” the information, either internally or to a government agency.  In effect, the revamped law protects employees who have not yet even complained against “anticipatory retaliation.”

Due to the expansive scope of the new provisions, it is possible that the changes in the law may lead to an increase in whistleblower claims and claims under the Private Attorney General Act brought on behalf of the public welfare.  As violations of Labor Code section 1102.5 may subject an employer to a variety of damages, including civil penalties of up to $10,000 per violation, California employers should consider training their supervisors and human resources personnel on the expansion of the new law in order to prevent against unwitting violations or becoming a test case on the scope of these new provisions. Particularly, supervisors should be reminded to document performance issues as they occur to avoid someone turning into a “whistleblower” to forestall disciplinary action.

Frank Morris’s “Top 5” Action Items for Employers in 2014

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Our colleague Frank C. Morris, Jr., at Epstein Becker Green wrote the December issue of Take 5, with five key action items for employers in 2014.  Following is an excerpt:

It’s December, and human resources professionals and law departments are reflecting on the issues addressed in 2013 and giving thanks for incident-free holiday parties. But the big question is this: What issues should get priority attention for 2014 as part of a proactive approach to workplace issues and limiting potential employment and labor law claims? This month’s Take 5 provides a “Top 5″ list of action items to maximize the use of your time and resources for optimum results in 2014. …

  1. Consider Whether Your Organization Should Adopt Mandatory Arbitration Agreements and Seek to Bar Class/Collective Actions in 2014
  2. Enhance the Accessibility of Your Organization’s Website to Individuals with Disabilities
  3. Ensure That Proper Exempt/Nonexempt and Independent Contractor/Employee Determinations and Updated Job Descriptions Are in Place in 2014
  4. Update Confidentiality and Non-Compete Agreements to Better Protect Intellectual Property and Human Capital Assets in a High-Technology, BYOD, Mobile World
  5. Consider Key Employer ACA Issues for 2014

Read the full newsletter here.