Financial Services Employment Law

News, Updates, and Insights for Financial Services Employers

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.

NLRB’s Murphy Oil Decision Reaffirms Board’s Position on Class or Collective Action Waivers Despite Rejection by Federal Courts

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When the Supreme Court held in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013),  that the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery, many employers in the financial services industry, if they had not done so already, strengthened the language of  their mandatory arbitration provisions and policies to include explicit class action and class arbitration waivers.  Notwithstanding the American Express decision and earlier Supreme Court decisions that have paved the way for the enforceability of contractual class action waivers, however, the National Labor Relations Board has been saying, in essence, “not so fast.”

On Epstein Becker Green’s Management Memo blog, my colleague Jill Barbarino reviews the National Labor Relations Board’s ruling in Murphy Oil that revisited and reaffirmed its position that employers violate the National Labor Relations Act by requiring employees covered by the Act (virtually all nonsupervisory and non-managerial employees of most private sector employees, whether unionized or not) to waive, as a condition of their employment, participation in class or collective actions.

Click here to read the Management memo blog post in its entirety.

Labor and Employment Cases Predominate in the Supreme Court’s Current Term

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By Stuart M. Gerson

While by most accounts the current term of the Supreme Court is generally uninteresting, lacking anything that the popular media deem to be a blockbuster (the media’s choice being same-sex marriage or Affordable Care Act cases), the docket is heavily weighted towards labor and employment cases that potentially affect employers in all industries including  retail, health care, financial services, hospitality, and manufacturing.  In chronological order of argument they are as follows.

The Court already has heard argument in Integrity Staffing Solutions, Inc. v. Busk, No. 13-433, which concerns whether the Portal-to-Portal Act, which amends the Fair Labor Standards Act, requires employers to pay warehouse employees for the time they spend, which in this case runs up to 25 minutes, going through post-shift anti-theft screening. Integrity is a contractor to Amazon.com, and the 9th Circuit had ruled in against it, holding that the activity was part of the shift and not non-compensable postliminary activity. Interestingly, DOL is on the side of the employer, fearing a flood of FLSA cases generated from any activity in which employees are on the employers’ premises.  This case will affect many of our clients and should be monitored carefully.

On November 10th, the Court will hear argument in M&G Polymers USA,  LLC v. Tackett, No. 13-1010, which I see as an important case, though most commentators don’t seem to realize it. The question involves the so-called “Yard-Man Presumption” in the context of whether the courts should infer that silence as to the duration of retirement health insurance benefits established under a CBA are meant to apply for the lifetimes of covered retirees.

In two other cases involving an issue of discretion and judicial review set for argument on December 1st, Perez v. Mortgage Bankers Ass’n, No. 13-1041; and Nichols v. Mortgage Bankers Ass’n, No. 13-1052, the Court will decide whether DOL violated the Administrative Procedure Act by not affording notice-and-comment rulemaking to a reversal of a wage and hour opinion letter issued in 2006.  The DC Circuit ruled against DOL in both cases (one in which DOL is the petitioner; another in which affected loan officers are petitioners), rejecting DOL’s contention that the policy change was an “interpretive rule” not subject to APA notice-and-comment strictures. The case at bar itself doesn’t involve much, but as a precedent concerning how free agencies like DOL (a particular worry to employers during this administration), are to regulate unilaterally, free of judicial oversight it will be important, especially in the DC Circuit where there are so many agency cases.

On December 3rd, the Court will hear argument in Young v. United Parcel Service, Inc., No. 12-1226, which poses whether the Pregnancy Discrimination Act requires an employer to accommodate a pregnant woman with work restrictions related to pregnancy in the same manner as it accommodates a non-pregnant employee with the same restrictions, but not related to pregnancy. The 4th Circuit had ruled in favor of the company, which offered a “light duty program” held to be pregnancy blind to persons who have a disability cognizable under the ADA, who are injured on the job or are temporarily ineligible for DOT certification. Ms. Young objects to being considered in the same category as workers who are injured off the job. This case, too, will create a precedent of interest to at least some of our clients. Of  note, last week United Parcel Service sent a memo to employees announcing a change in policy for pregnant workers advising that starting January 1, the company will offer temporary light duty positions not just to workers injured on the job, which is current policy, but to pregnant workers who need it as well. In its brief UPS states “While UPS’s denial of [Young’s] accommodation request was lawful at the time it was made (and thus cannot give rise to a claim for damages), pregnant UPS employees will prospectively be eligible for light-duty assignments.”  The change in policy, UPS states, is the result of new pregnancy accommodation guidelines issued by the Equal Employment Opportunity Commission, and a growing number of states passing laws mandating reasonable accommodation of pregnant workers.

In a case not yet fully briefed or set for argument, Mach Mining LLC v. EEOC, No.13-1019, the Court will  decide whether the EEOC’s pre-suit conciliation efforts are subject to judicial review or whether the agency has unreviewable discretion to decide the reasonableness of settlement offers. The Seventh Circuit has ruled in favor of the EEOC in the instant case, but every other Circuit that has considered the matter has imposed a good-faith-effort standard upon the EEOC.

On October 2nd, the Supreme Court granted cert. in a Title VII religious accommodation case, EEOC v. Abercrombie & Fitch Stores, Inc., No. 14-86. The case concerns whether an employer is entitled to specific notice, in this case  of a religious practice – the wearing of a head scarf —  from a prospective employee before having the obligation to accommodate her.  In this case, the employer did not hire a Muslim applicant. The Tenth Circuit ruled that the employer was entitled to rely upon its “look” policy and would not presume religious bias where the employee did not raise the underlying issue. Retail clients and others will be affected by the outcome.

Finally, also on October 2nd, the Supreme Court granted cert. in Tibble v. Edison Int’l, which raises the issue of whether retirement plan fiduciaries breach their duties under ERISA by offering higher-cost retail-class mutual funds when identical lower-cost institutional class funds are available and the plan fiduciaries initially chose the higher-cost funds as plan investments more than six years (the notional statute of limitations) before the claim was filed. This issue has been around for years and the Court finally will resolve it.   The dueling rationales have been discussed in depth on many financial pages, for example recently in the New York Times. The potential importance of the case relates to whether trustees have a separate duty to reconsider their past decisions under a continuing violation theory that would supersede ERISA’s statute of limitations. The Solicitor General, in an amicus brief, argued on behalf of the United States that trustees of ERISA plans owed a continuing duty of prudence, which they breach by failing to research fund options and offer available lower-cost institutional-class investments during the six-year period prior to the filing of the complaint. The Court apparently took the case on the SG’s recommendation that noted the unresolved split on the issue in the Circuits.  If the Solicitor General proves correct, and the Petitioner prevails, fiduciaries all across the employment spectrum will be exposed to greater risk of scrutiny for their past actions.

More will follow as developments warrant.