On Monday, June 29, 2015, Mayor Bill de Blasio signed into law the bill passed by the New York City Council “banning-the-box.” The law goes into effect on Tuesday, October 27, 2015. As discussed in our earlier advisory, the ban-the-box movement removes from an employment application the “box” that requests criminal conviction history. New York City’s law also imposes additional requirements upon the employer when making an adverse employment decision on the basis of criminal conviction history.
It is important for financial services employers to remember that the National Labor Relations Act protects their employees even when those employees are non-union, and that when groups of employees engage in discussions about their terms and conditions of employment via the employer’s email system, that conduct may constitute protected activity for which the employees may not be punished. A recent example is highlighted by my colleague Nancy L. Gunzenhauser at Epstein Becker Green in a Management Memo blog post: “NLRB Dramatically Educates Private School on Meaning of Concerted Protected Activity. ”
Following is an excerpt:
While we have been reminding readers of the fact that the National Labor Relations Act (the “Act”) protects employees regardless of whether they are represented by a union and the Act applies to non-unionized workforces, too, recently a National Labor Relations Board (the “NLRB”) Administrative Law Judge issued a decision following an unfair labor practice (“ULP”) hearing based on a charge filed by a teacher at New York City’s prestigious Dalton School that should serve as an object lesson for employers in all non-union businesses.
Read the full original post here.
In its May 28th, 2015 decision in Rhinehimer v. U.S. Bancorp Investments, Inc. (pdf), the Sixth Circuit Court of Appeals ruled that an employee who reports alleged unlawful conduct has engaged in protected activity for the purposes of a retaliation claim under the Sarbanes-Oxley Act (“SOX”), 18 U.S.C. § 1514A, as long as he or she has an objectively reasonable belief that the activity reported is prohibited under SOX. The Sixth Circuit has joined the Second and Third Circuit Courts of Appeal in rejecting the previously adopted standard that an employee’s conduct must “definitively and specifically” relate to one of the enumerated categories of fraud by approximating the basic elements of the fraud claim. The issue has not yet been revisited in the First, Fourth, Fifth, and Ninth Circuits since the Administrative Review Board rejected the “definitively and specifically” standard in Sylvester v. Parexel Int’l LLC, ARB Case No. 07-123 (May 25, 2011).
Rhinehimer was a certified financial planner at U.S. Bancorp who was terminated after he complained to his supervisor about questionable trades made by a coworker to the detriment of his elderly client – trades Rhinehimer claimed constituted unsuitability fraud. He alleged that his termination constituted unlawful whistleblower retaliation in violation of SOX, which makes it illegal for companies to retaliate against an employee who reports alleged fraudulent activity. Rhinehimer obtained a verdict at trial and U.S. Bancorp appealed. On appeal, the Sixth Circuit was asked to determine whether a jury could reasonably find that Rhinehimer engaged in protected activity under SOX.
SOX requires that an employee reasonably believe that the activity reported is prohibited by law. The defendants argued that Rhinehimer did not have a reasonable belief because he did not meet the “definitively and specifically” standard, which requires an employee to justifiably believe that each of the legally-defined elements of the suspected fraud occurred. Acknowledging decisions by other Courts of Appeals, including the Second and Third Circuit Courts, the Sixth Circuit similarly rejected the “definitively and specifically” standard, finding that such an interpretation is inconsistent with the purpose of SOX, which was designed to provide broad protection for employees who provide information regarding “any” conduct reasonably believed to constitute a violation of relevant law. Instead, the Sixth Circuit held that a plaintiff need only have a reasonable belief, based on the totality of the circumstances of the case, that the conduct complained of was prohibited under SOX. Ultimately, the Court held that a person in Rhinehimer’s position met this standard.
The trend is plainly in favor of rejecting the “definitively and specifically” standard of determining protected activity, but employers can still prevail by demonstrating that an employee lacked reasonable belief – a fact-specific inquiry that requires a showing of both subjective belief and objective reasonableness.
The authors gratefully acknowledge the assistance of summer associate Judah Rosenblatt in the preparation of this post.
My colleague Joshua A. Stein at Epstein Becker Green has a Hospitality Labor and Employment Law blog post that will be of interest to many of our readers: “DOJ Further Delays Release of Highly Anticipated Proposed Website Accessibility Regulations for Public Accommodations.”
Following is an excerpt:
For those who have been eagerly anticipating the release of the U.S. Department of Justice’s proposed website accessibility regulations for public accommodations under Title III of the ADA (the “Public Accommodation Website Regulations”), the wait just got even longer. The recently released Spring 2015 Unified Agenda of Federal Regulatory and Deregulatory Actions reveals that DOJ’s Public Accommodation Website Regulations are now not expected until April 2016. This delay moves back the release date nearly a year from what most had previously anticipated; this summer in advance of July’s 25th Anniversary of the ADA. While there was no public statement explaining the release, most insiders believe it has to do with the difficulty of appropriately quantifying the costs and benefits of complying with any promulgated regulations – a necessary step by DOJ for such a rulemaking.
Read the full original post here.
The number of whistleblower complaints is on the rise, according to the 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program, and defending against them can be costly and disrupt business operations. Taking appropriate steps in response to internal complaints can go a long way toward minimizing the risk that the issue becomes an external dispute at OSHA or in court.
Understanding the Objectives A prompt investigation and an understanding of the objectives of the investigation are paramount. Employers should decide, for example, whether the goal is to create a factual record, prepare an investigative report addressing a particular inquiry or legal consideration, provide a basis for decision making, or serve as a defense in anticipated litigation—or any combination of these objectives. These considerations will determine whether the investigation should be undertaken by a non-attorney or by corporate counsel or outside counsel, or both. For example, if the goal is simply to correct a problem internally, perhaps corporate counsel is appropriate. If, on the other hand, there is a high likelihood that the employee’s complaint will lead to full-blown litigation, outside counsel may be more appropriate. In addition, employers must have a basic understanding of the privileges afforded to attorney work product and attorney-client communications. This is because the choice of investigator can impact whether, and to what extent, these privileges apply to the information adduced during the investigation, which, in turn, will determine whether such information will be protected from disclosure to third parties.
Whistleblowers in Compliance or Audit Functions Employers should also know how to respond to the challenge raised by complaints made by whistleblowers who work in compliance or audit functions or are otherwise responsible for receiving and investigating internal whistleblower complaints. These “trusted” whistleblowers are especially problematic because, while they should be working to investigate and correct the issue internally, they may also decide to blow the whistle themselves and report the matter to outside authorities. Further, while they are generally ineligible for financial awards under the Dodd-Frank whistleblower bounty program, these “trusted” whistleblowers can become eligible for an award if the business takes no corrective action within 120 days after they make an internal complaint. They are also protected by anti-retaliation provisions of Dodd-Frank and SOX.
Training Managers to Receive Complaints One of the most important considerations is making sure that supervisors and managers are trained and understand how to recognize and elevate a whistleblower complaint to the appropriate internal legal or compliance unit, and how to conduct themselves going forward to minimize the risk of a retaliation claim by an employee who blows the whistle. Issues are frequently first raised at the supervisory level, and the sooner that compliance and/or legal professionals receive information about a claim so that they can access the appropriate response, the sooner an internal investigation can commence, when necessary. Further, managing an employee who has made a whistleblower claim can present a host of challenges, particularly if the employee is under-performing and therefore has been or is becoming a candidate for corrective or even disciplinary action. If a current employee raises a whistleblower complaint, it is essential that the alleged wrongdoing is not compounded by retaliation against that employee (or by actions that give the appearance of retaliation). Thus, supervisors and managers should receive periodic training regarding the laws and company policies prohibiting retaliation. They should also understand the need to have any potentially adverse employment actions vetted by the legal department before taking action. Finally, supervisors and managers should be given appropriate support from the legal and/or human resources departments in terms of counseling and advice in dealing with the whistleblower on a day-to-day basis as issues arise, rather than trying to navigate these waters on their own.
On May 5, 2015, the Eleventh Circuit Court of Appeals ruled in Wiersum v. U.S. Bank, N.A. (pdf) that the National Bank Act (“NBA”), 12 U.S.C. §24 (Fifth), preempted a bank officer’s state law whistleblower claim that he was wrongfully terminated for opposing the bank’s alleged unlawful conduct. This was a first-impression issue for the Eleventh Circuit, and the majority concluded that the state law claim was preempted because it directly conflicted with the power Congress vested in federally chartered banks to dismiss officers “at pleasure.”
Wiersum, a former Vice President and Wealth Management Consultant for U.S. Bank, claimed that the bank had wrongfully terminated him in retaliation for complaining about, and refusing to participate in, the bank’s alleged unlawful practice of conditioning credit upon asset management (i.e., illegal tying arrangements). He alleged that his termination violated the Florida Whistleblower Act (“FWA”), which prohibits an employer from taking adverse personnel action against an employee because he or she objected to an activity of the employer that violates a law, rule, or regulation. The Eleventh Circuit, however, ruled that Wiersum’s claim was preempted by the NBA, which permits the board of directors of a national banking association to appoint officers, define their duties, and “dismiss such officers or any of them at pleasure.”
The Court analyzed the dispute as a question of conflict preemption – i.e., where state law is preempted because it conflicts with federal law such that a party cannot comply with both state and federal requirements, or conflicts with the objectives of Congress in enacting applicable federal regulations. The majority of the Court concluded that in this case the state law (FWA) conflicted with applicable federal law (NBA): on the one hand, the FWA would prohibit U.S. Bank from terminating an officer for objecting to alleged unlawful activities, while, on the other hand, the NBA grants U.S. Bank the full discretion to terminate an officer at will. Relying on decisions from the Fourth and Sixth Circuits that recognized the NBA’s preemptive power over state laws that divest a national bank of the right to terminate officers at pleasure, the majority held that the state whistleblower claim was in direct conflict with, and therefore barred by, the NBA’s at-pleasure provision.
In a dissenting opinion, Hon. Beverly Martin argued that the historical underpinnings of the at-pleasure provision demonstrate that it was not intended to preempt state whistleblower law, and that the Fourth and Sixth Circuit decisions the majority relied upon have “very little supporting their broadly preemptive interpretation of the NBA” and have been criticized by other federal courts. Judge Martin wrote that the consequences of the majority ruling are “worrying” because it denies bank officers protections afforded by state and local anti-retaliation laws.
The majority was unswayed, calling this a “straightforward case of conflict preemption” and finding the dissent’s concerns unfounded because bank officers would continue to be protected by federal laws that prohibit unlawful whistleblower retaliation (e.g., Dodd-Frank). The majority decision confirms the power afforded to national banks to dismiss officers “at pleasure” – at least for the time being in the Eleventh Circuit. Yet, for the reasons articulated in the dissent, the extent to which national banks can rely on the NBA’s “at pleasure” provision as a defense to whistleblower claims brought pursuant to state and local laws may be less certain unless and until the issue is squarely addressed by the U.S. Supreme Court.
As the economy becomes increasingly globalized, it is important for financial services industry employers to maintain their competitive edge by developing a robust toolkit of cross-border capabilities. The ability to transfer managers, executives, and other key personnel to the United States expeditiously for short-term or long-term projects or assignments is a growing business necessity. Fortunately, U.S. immigration law contains nonimmigrant (temporary) and immigrant (permanent) visa classifications specifically for managers and executives, and provides a potential fast-track to permanent residency.
Employers, however, must be careful in selecting a visa classification appropriate to the terms and conditions of employment, noting that classifications carry different tax, benefit, and short-term and long-term employment implications. Employers should also be aware of the potential mechanisms that they can utilize to facilitate the international transfer of their vital managerial and executive resource population, making short-notice transfers as quick and seamless as possible.
The L-1A Nonimmigrant Visa Program
Most often, companies transfer their managers and executives from their operations abroad to their U.S. operations through the L-1A nonimmigrant visa program. As a general rule, L-1A classification requires that (1) the U.S. and foreign entities have a qualifying parent, subsidiary, or affiliate relationship; (2) the employee has been employed abroad by the foreign entity for at least one of the last three years in a managerial, executive, or specialized knowledge capacity; and (3) the employee will be transferring to the United States to serve as a manager or executive.
Criteria for Obtaining an L-1A Nonimmigrant Visa
To take advantage of the L-1A program, employers should carefully document their corporate organizational structure in a manner demonstrating that the size and scope of their operations warrants the services of an L-1A manager or executive. Employers that apply for an L-1A visa without a clearly documented structure may be faced with requests for additional evidence that can delay the application process substantially.
Employers should also take care in defining a manager or executive’s role and responsibilities. The U.S. Citizenship and Immigration Services (“USCIS”) and the U.S. Department of State tend to focus on particular factors in adjudicating L-1A applications, including whether the individual has any direct reports, budgetary authority, and discretionary decision-making authority in policy formation and/or day-to-day company operations.
While these criteria are seemingly straightforward, the financial services industry’s increasing tendency toward heavily matrixed management structures does not always align with the USCIS’s understanding of a personnel manager. Therefore, it is important in these cases to strengthen the managerial argument by carefully identifying a discrete and organizationally important “function” or area of operations that will be managed by the employee.
Drawbacks to L-1A Classification
When considered as part of a larger global mobility strategy, L-1A classification can have notable long-term and programmatic benefits, including:
- the possibility of an expedited green card process (foregoing the often lengthy and expensive labor certification (“PERM”) process) for managers and executives who were also employed in managerial or executive positions with the qualifying entity abroad;
- the avoidance of annual quotas associated with the H-1B visa program;
- the ability to streamline the transfer of managers and executives by obtaining L-1 Blanket Petition approval from the USCIS, which reduces onboarding time by enabling employees to apply for L-1 visas directly at a U.S. Consulate or Embassy;
- high predictability for senior managers and executives so that organizations can plan for transfers and rely on set timelines; and
- the potential for keeping L-1A managers and executives transferred to the United States on a foreign payroll, facilitating relocation packages and the retention and continuity of social benefits.
Alternatives to L-1A Classification
L-1A classification is not a one-size-fits-all category, however, and the filing costs, time limitations (including an overall seven-year period of stay), and tax implications (L-1 holders are generally held to the same tax standards as U.S. citizens and green card holders) may not make business sense for managers and executives traveling to the United States on a short-term basis. In developing an internal immigration program, employers should be aware that there may be alternative solutions available, including:
- intermittent L-1A status for managers and executives who spend less than half their time in the United States during the year, which eliminates the seven-year time limitation and may lessen or eliminate U.S. income tax liability by qualifying them as nonresident aliens; and
- B-1 Business Visitor or Visa Waiver classification for managers and executives travelling to the United States on a very short-term basis to attend business meetings or conferences, participate in short-term trainings, negotiate contracts, or perform activities related to membership on a U.S. board of directors.
In sum, it is increasingly important for financial services industry employers to establish an internal immigration program to streamline the global mobility of business-critical employees as an essential tool in the cross-border toolkit. These steps can be just as vital to long-term growth as the development of cutting-edge analytics, IT capabilities, and portfolio management techniques.
For financial services industry employers that participate in arbitrations administered by FINRA, the composition of the arbitration panel may have as much, or more, of an impact on the outcome of the dispute than the facts or the law. This is because FINRA arbitrators are not bound to follow case precedent or strictly apply principals of law and can render awards based on their own notions of “fairness” or “justice.” The important process of selecting an acceptable arbitration panel, however, can be opaque, as the information that FINRA provides about prospective arbitrators often gives limited assistance to employers trying to make informed selections. Further, recent changes to the rules affecting the composition of FINRA arbitration panels, particularly in customer cases, make it even less likely that the dispute will be heard by an experienced panel.
Current Selection Procedures
Traditionally, FINRA administrators provided all parties with three lists of arbitrators from which to select a panel: 10 “public” arbitrators, 10 “non-public” arbitrators, and 10 “public” arbitrators qualified to serve as the panel chairperson. The parties would strike a certain number of arbitrators from each list and rank the remaining arbitrators in order of preference. FINRA would then choose the highest-ranked arbitrator from the two lists to form the panel, which would consist of a “public” chairperson and two panelists, one “public” and the other “non-public.”
Pursuant to a rule change that took effect on February 1, 2011, and was modified on September 30, 2013, either side in a customer dispute can designate an “all-public” panel by striking all of the arbitrators on the “non-public” list. The change may negatively impact employers because “non-public” arbitrators generally have certain defined connections to, or experience in, the securities industry and can bring an insider’s perspective to bear on the dispute that may be useful in understanding an employer’s position. “Public” arbitrators, on the other hand, generally have limited knowledge of securities or financial services and are perceived as being more sympathetic to customers. In fact, according to Regulatory Notice 13-30, FINRA found that “customers were awarded damages significantly more often when an all-public panel decided their case.”
On February 26, 2015, the SEC accepted proposed changes to FINRA rules 12100(p), 12100(u), 13100(p), and 13100(u),which set forth new definitions of “public” and “non-public” arbitrators in customer and industry disputes. The new definitions significantly limit the financial industry experience a person can have and still be permitted to serve as a “public” arbitrator. Further, the rules substantially limit the circumstances under which a “non-public” arbitrator can be reclassified as a “public” arbitrator. Under former rule 12100(p) of the Customer Code (and 13100(p) of the Industry Code), there was a “cooling off” period that prohibited an individual who was classified as a “non-public” arbitrator due to his or her affiliation with certain financial services entities from becoming eligible to serve as a “public” arbitrator until five years after he or she retired from the securities industry. Under the revised rules, the “cooling off” period is eliminated and the same individual may be permanently classified as “non-public” and, therefore, ineligible to serve as a “public” arbitrator.
Employers should be aware that these new rules will significantly reduce the number of individuals who can serve as “public” arbitrators and dramatically decrease the likelihood that an assigned “public” arbitrator will have the financial industry experience and understanding that employers in FINRA disputes often seek. For customer disputes in particular, the new rules, taken together with the “all-public” panel rule, greatly increase an employer’s chances of drawing a panel of inexperienced arbitrators with limited understanding of the industry. For industry disputes, where panels still must have one non-public member, the recent rule change further shifts the balance of the panel toward “public” arbitrators with no industry experience.
On March 5, 2015, the Occupational Health and Safety Administration (“OSHA”) issued its “Final Rule” establishing the procedures for handling retaliation complaints brought under Section 806 of the Sarbanes-Oxley Act (“SOX”). Section 806, as amended by Dodd-Frank, protects employees of publicly traded companies, as well as employees of contractors, subcontractors, and agents of publicly traded companies, from being retaliated against for reporting fraudulent activity or other violations of SEC rules and regulations. The Final Rule addresses the comments that OSHA received in response to its interim rule, issued in 2011, and sets forth the final procedures for retaliation claims under SOX, including the procedures and timeframes applicable to employee complaints and OSHA investigations. While the Final Rule does not differ substantively from the interim rule, it crystalizes the SOX whistleblower complaint procedures and reflects an increasingly whistleblower-friendly landscape.
One of the most important aspects of the Final Rule—and a subject of considerable concern to commenters—is its adherence to the interim rule provision permitting verbal SOX complaints. Prior to the interim rule, complaints had to be in writing and include a full statement of the alleged wrongful acts or omissions. The interim rule eliminated this requirement and permitted complaints to be made verbally and reduced to writing by an OSHA investigator. Commenters argued that this procedure transforms the investigator into an advocate for the complainant, lacks any standard for the investigator’s written complaint, and increases the risk that the complainant may attempt to change his or her allegations by contending that the claims were not accurately recorded by the investigator. OSHA rejected these arguments, concluding that allowing verbal complaints is “[c]onsistent with OSHA’s procedural rules under other whistleblower statues.”
The Final Rule also adopted the interim rule’s provision on preliminary reinstatement, i.e., reinstating the complainant to his or her former position during the pendency of a dispute. Commenters had suggested—without success—that OSHA include a provision that preliminary reinstatement should not be granted if the complainant is a security risk and that OSHA articulate specific circumstances under which preliminary reinstatement is appropriate. Instead, the Final Rule provides that, if there is a reasonable basis to believe that a SOX violation has occurred, a preliminary order will be issued that provides the relief necessary to make the complainant whole, including reinstatement to the position that he or she would have had but for the retaliation.
Moreover, as an alternative to actual reinstatement, the Final Rule permits OSHA to order preliminary “economic reinstatement” during the pendency of a dispute, which allows the complainant to collect his or her same pay and benefits without having to return to work. Significantly, OSHA intentionally omitted any mechanism for employers to recover the costs of preliminary economic reinstatement if the complainant is ultimately unsuccessful on his or her claim.
Notice to Respondents
One helpful development for employers is OSHA’s decision to clarify in its Final Rule the notice that respondents must receive when a complaint is filed, as well as respondents’ right to receive the information that the complainant submits to OSHA during an investigation. The Final Rule expressly provides that, when a complaint is filed, OSHA must notify the respondent of the filing of the complaint, the allegations made, and the substance of the supporting evidence. The Final Rule also notes that OSHA “generally provides the respondent with a copy of its memorandum memorializing the complaint” and that the respondent can “request that OSHA clarify the allegations in the complaint if necessary.” In addition, the Final Rule makes clear that, during an investigation, OSHA will ensure that each party receives a copy of all of the other parties’ submissions to OSHA and is given an adequate opportunity to respond to those submissions.
In the light of these generally supportive and encouraging procedures for whistleblowers, it is more important than ever for employers to correctly identify, investigate thoroughly, and take appropriate steps to address internal whistleblower complaints before they become costly, full-blown whistleblower disputes.
To register for this complimentary webinar, please click here.
I’d like to recommend an upcoming complimentary webinar, “EEOC Wellness Regulations – What Do They Mean for Employer-Sponsored Programs? (April 22, 2015, 12:00 p.m. EDT) presented by my Epstein Becker Green colleagues Frank C. Morris, Jr. and Adam C. Solander.
Below is a description of the webinar:
On April 16, 2015, the Equal Employment Opportunity Commission (“EEOC”) released its long-awaited proposed regulations governing employer-provided wellness programs under the American’s with Disabilities Act (“ADA”). Although the EEOC had not previously issued regulations governing wellness programs, the EEOC has filed a series of lawsuits against employers alleging that their wellness programs violated the ADA. Additionally, the EEOC has issued a number of public statements, which have concerned employers, indicating that the EEOC’s regulation of wellness programs would conflict with the regulations governing wellness programs under the Affordable Care Act (“ACA”) and jeopardize the programs currently offered to employees.
During this webinar, Epstein Becker Green attorneys will:
- summarize the EEOC’s recently released proposed regulations
- discuss where the EEOC’s proposed regulations are inconsistent with the rules currently in place under the ACA and the implications of the rules on wellness programs
- examine the requests for comments issued by the EEOC and how its proposed regulations may change in the future
- provide an analysis of what employers should still be concerned about and the implications of the proposed regulations on the EEOC’s lawsuits against employers
Who Should Attend:
- Employers that offer, or are considering offering, wellness programs
- Wellness providers, insurers, and administrators
To register for this complimentary webinar, please click here.