On November 6, 2018, the U.S. Court of Appeals for the Tenth Circuit handed down a decision that impacts employers across all industries, including the financial services industry. In a “win” for employers, the Tenth Circuit ruled that “…the False Claims Act’s anti-retaliation provision unambiguously excludes relief for retaliatory acts which occur after the employee has left employment.” Potts v. Center for Excellence in Higher Education, Inc., No. 17-1143 (10th Cir. Nov. 6, 2018).

The False Claims Act (“Act”) imposes liability on any person who knowingly defrauds the federal government. See 31 U.S.C. § 3729(a). The Act also contains an anti-retaliation provision protecting whistleblower employees from certain retaliatory acts by their employers. In Potts, the Tenth Circuit determined that the Act’s term “employee” includes only persons who were current employees at the time of the alleged retaliation.

The case involved Debbi Potts who resigned from her position as the campus director of an educational organization in July 2012. In connection with her resignation, Potts entered into a separation agreement with her employer in which she, among other things, agreed to not disparage the organization or “contact any governmental or regulatory agency with the purpose of filing any complaint or grievance.” Notwithstanding the agreement, and well after her resignation, Potts sent a disparaging email and filed a complaint to the organization’s accreditor alleging deceptions in maintaining accreditations. The organization brought a breach of contract claim against Potts for violating the agreement. Potts countersued alleging retaliation because the organization’s claim violated the False Claims Act since her complaint was protected activity.

The Tenth Circuit affirmed the dismissal of Potts’s retaliation claim by finding that “the False Claims Act, by its list of retaliatory acts, temporally limits relief to employees who are subjected to retaliatory acts while they are current employees.” The Tenth Circuit relied on established statutory interpretation canons in reaching its conclusion. Accordingly, in the Tenth Circuit, a former employee cannot engage in protected activity after termination of employment and as a result cannot maintain a cognizable claim under the Act for purported retaliation for such protected activity. This approach is consistent with the interpretations of other courts which have considered this same issue.

While the decision may provide some relief to employers, they should still proceed with caution in taking action against employees for raising violations of the False Claims Act or other laws. Moreover, there are regulatory opinions and actions which employers should carefully consider with their employment counsel in drafting separation agreements as certain regulators prohibit employers from having separation agreements that contain overbroad restrictions (i.e., restrictions that may impinge on employees’ rights to report unlawful practices or occurrences to the SEC or other governmental agencies).

Our colleague  at Epstein Becker Green has a post on the Retail Labor and Employment Law blog that will be of interest to our readers in the financial services industry: “DOJ Finally Chimes In On State of the Website Accessibility Legal Landscape – But Did Anything Really Change?

Following is an excerpt:

As those of you who have followed my thoughts on the state of the website accessibility legal landscape over the years are well aware, businesses in all industries continue to face an onslaught of demand letters and state and federal court lawsuits (often on multiple occasions, at times in the same jurisdiction) based on the concept that a business’ website is inaccessible to individuals with disabilities.  One of the primary reasons for this unfortunate situation is the lack of regulations or other guidance from the U.S. Department of Justice (DOJ) which withdrew long-pending private sector website accessibility regulations late last year.  Finally, after multiple requests this summer from bi-partisan factions of Members Congress, DOJ’s Office of Legislative Affairs recently issued a statement clarifying DOJ’s current position on website accessibility.  Unfortunately, for those hoping that DOJ’s word would radically alter the playing field and stem the endless tide of litigations, the substance of DOJ’s response makes that highly unlikely.

DOJ’s long-awaited commentary makes two key points…

Read the full post here.

In May, the U.S. Supreme Court ruled in Epic Systems Corp. v. Lewis that employers may lawfully require employees to sign arbitration agreements that include a waiver of the right to participate in an employee class action lawsuit or arbitration. Below, we discuss the significance of this decision and highlight issues that employers may wish to consider in the wake of it.

Epic Systems—a Pivotal Win for Employers

The NLRB planted the seed for Epic Systems in 2012, when it first took the position that Section 7 of the National Labor relations Act (“NLRA”)—which affords employees the right to self-organize, bargain collectively, and “engage in other concerted activities”—precludes enforcement of employee class action waivers. The federal Circuit Courts of Appeal split on the NLRB’s position in the ensuing years. Deepening the divide, the DOJ under the current administration broke with the NLRB.

In Epic Systems the Supreme Court rejected the notion that class actions are “concerted activities” inviolable under Section 7 of the NLRA, opining that the term is not a broad catchall. The Court observed that, while the NLRA includes many specific procedural rules, rules relating to class or collective actions are not among them. Absent clear Congressional intent, the Court reasoned that the NLRA could not “displace” the Federal Arbitration Act (“FAA”) and its edict promoting the enforceability of arbitration agreements.

Further, even if the employees could show that “the NLRA actually renders class and collective action waivers illegal[,]” the Court stated that the employees still could not properly invoke the FAA’s “saving” clause, which permits annulment of arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” The Court characterized this as an “‘equal-treatment’ rule for arbitration contracts”—i.e., an arbitration contract (including a class action waiver) will be nullified only if it suffers from an elemental flaw in its formation, such as fraud.

In sum, Epic Systems represents a continuation of the Supreme Court’s recent trend of favoring arbitration agreements.

What Employers Should Consider Next

Though Epic Systems marks a resonant victory for employers, issues around the scope and effectiveness of class action waivers remain. Financial services employers may wish to consider:

Can our firm implement a class action waiver?

In implementing waivers, the financial services sector must be mindful of FINRA’s regulatory authority. Though any doubt about the lawfulness of consumer class action waivers was erased in 2011, FINRA has since said that a member firm’s use of waivers in customer contracts violates FINRA’s rules “intended to preserve investor access to . . . judicial class actions[.]”

FINRA has not, however, announced a parallel prohibition on waivers in employment agreements. Indeed, the Second Circuit Court of Appeals in 2015 held that FINRA’s arbitral rules—though they preclude arbitration of claims subject to class actions and certain types of collective actions—do not bar employers from enforcing employee waivers.

Should our firm implement a class action waiver?

Although Epic Systems confirms that employers may require employees to waive the right to participate in a class actions, employers still must consider the practical implications. The environment around arbitration agreements and class action waivers is politically-charged, and firms implementing a class action waiver may receive backlash from employees and advocacy groups. Accordingly, any program rollout should be given due consideration.

What is the appropriate vehicle for the waiver?

A class action waiver may be included in an employment policy made available to—and acknowledged indirectly by—employees, or it could be included in a specific agreement that itself requires an employee’s signature.   The former may be an easier rollout, but the latter could be less susceptible to a claim that the employee(s) never agreed to the waiver.

Employers also should note that, although Epic Systems addressed class action waivers in the context of arbitration agreements, a class action waiver could also appear in an agreement that permits the parties to choose litigation instead of arbitration, if that is the preference.

To whom will the waiver apply?

Employers should consider whether a waiver will apply to all or some employees. Conditioning a new hire’s employment on a waiver could be fairly straightforward, but rolling out a new requirement to current employees might be more difficult from a practical and legal perspective. As noted in Epic Systems, arbitration agreements (and concomitant waivers) may be nullified under the FAA on fundamental grounds—including, potentially, a lack of “consideration” given in exchange for the waiver. Hence, employers might consider presenting existing employees with waivers in connection with a raise, bonus, promotion, etc.

What form should the waiver take?

Class action waivers should be as simple and concise as possible. Ambiguity may open the door to an adverse interpretation by a court or arbitral panel skeptical of waivers as a general matter. Epic Systems does not offer much guidance in this regard, but various trial and appellate court opinions do.

Might any class or collection actions be outside the scope of even a well-drafted a waiver?

Lastly, even a well-crafted class action waiver may not fully insulate employers. In this vein, the financial services sector—with its nucleus in New York—should keep an eye on a bill introduced in the New York State legislature, the “Empowering People in Rights Enforcement (EMPIRE) Worker Protection Act” (“EWPA”). It would amend New York’s Labor Law such that complainant employee(s) could step into NYSDOL’s shoes and pursue civil penalties “on behalf of . . . other current or former employees” and “allege multiple violations that have affected different employees.” If passed, employees could attempt to use the EWPA as an end-run around class action waivers. Employees may contend that, as NYSDOL itself is not bound by a contractual waiver, employee(s) cloaked with NYSDOL’s authority likewise would be unhindered by that waiver. Employees have made essentially that argument, with success thus far, in relation to California’s Private Attorneys General Act (“PAGA”), after which the EWPA is modeled.

Join Epstein Becker Green attorneys, Brian G. Cesaratto and Brian E. Spang, for a discussion of how employers can best protect their critical technologies and trade secrets from employee and other insider threats. Topics to be discussed include:

  • Determining your biggest threat by using available data
  • What keeps you up at night?
  • Foreseeing the escalation in risk, from insider and cyber threats to critical technologies
  • New protections and remedies under the Trade Secret Protection Act of 2014
  • Where are your trade secrets located, and what existing protections are in place?
  • What types of administrative and technical controls should your firm consider implementing for the key material on your network to protect against an insider threat?
  • What legal requirements may apply under applicable data protection laws?
  • How do you best protect trade secrets and other critical technologies as information increasingly moves into the cloud?
  • Using workforce management and personnel techniques to gain protection
  • The importance of an incident response plan
  • Developing and implementing an effective litigation response strategy to employee theft

Wednesday, October 3, 2018.
12:30 p.m. – 2:00 p.m. ET
Register for this complimentary webinar today!

Our colleagues  at Epstein Becker Green has a post on the Retail Labor and Employment Law blog that will be of interest to our readers in the financial services industry: “NYC Commission on Human Rights Issues Guidance on Employers’ Obligations Under the City’s Disability Discrimination Laws.”

Following is an excerpt:

The New York City Commission on Human Rights (“Commission”) recently issued a 146-page guide titled “Legal Enforcement Guidance on Discrimination on the Basis of Disability” (“Guidance”) to educate employers and other covered entities on their responsibilities to job applicants and employees with respect to both preventing disability discrimination and accommodating disabilities. The New York City Human Rights Law (“NYCHRL”) defines “disability discrimination” more broadly than does state or federal disability law, and the Guidance is useful in understanding how the Commission will be interpreting and enforcing the law. …

Read the full post here.

On June 25, 2018, President Trump signed into law the Whistleblower Protection Coordination Act (the “Act”), permanently reinstating the Whistleblower Ombudsman Program, which was created in 2012 to encourage employees of federal government administrative agencies to report wrongdoing but expired on November 27, 2017 due to a five-year sunset clause.

The Act, which Congress passed with bipartisan support, reauthorizes a “Whistleblower Protection Coordinator” at each administrative agency’s Office of Inspector General (“OIG”) to educate agency employees about their rights to blow the whistle on suspected wrongdoing and the remedies available to them should their employers retaliate against them for doing so. Additionally, the Coordinator is tasked with ensuring that the OIG handles such whistleblower complaints promptly and thoroughly and coordinates with the U.S. Office of Special Counsel, Congress, and other agencies to address the allegations appropriately.

While the Act is specific to federal government employees and has no impact on the anti-whistleblower retaliation protections of the Sarbanes-Oxley and Dodd-Frank Wall Street Reform and Consumer Protection Acts, it is notable that the Trump administration passed the Act rather than letting the Whistleblower Ombudsman Program remain expired. This executive action suggests that the Trump administration does not currently appear to be intent upon rolling back legislative efforts to encourage employees to report suspected legal violations and to protect those that do from retaliation by their employers.

This post was written with assistance from Cynthia Joo, a 2018 Summer Associate at Epstein Becker Green.

Featured on Employment Law This Week:  New Legislation Eases Disclosure Requirements for Startups under the Dodd-Frank Wall Street Reform.

Startups offering equity plans get regulatory relief. The legislation that President Trump signed in May to ease regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act also contained some good news for startups. The law adjusts the Rule 701 thresholds, which allow private companies to offer equity to employees without registering the sales as public offerings.

Watch the segment below.

Our colleague  at Epstein Becker Green has a post on the Hospitality Labor and Employment Law blog that will be of interest to our readers in the financial services industry: “The Generally Prevailing Website Accessibility Guidelines Have Been Refreshed – It’s Time to Officially Welcome WCAG 2.1.”

Following is an excerpt:

After nearly ten years, on Tuesday, June 5, 2018, the World Wide Web Consortium (the “W3C”), the private organization focused on enhancing online user experiences, published the long awaited update to its Web Content Accessibility Guidelines 2.0 (“WCAG 2.0”), known as the WCAG 2.1.  Those who have been following along with website accessibility’s ever-evolving legal landscape are well aware that, despite not having been formally adopted by regulators for the vast majority of the private sector, compliance with WCAG 2.0 at Levels A and AA has become the de facto baseline for government regulators, courts, advocacy groups, and private plaintiffs when discussing what it means to have an accessible website. …

Read the full post here.

We published an article with Thomson Reuters Practical Law summarizing key employment issues for financial services employers, highlighting those rules applicable to registered representatives regulated by Financial Industry Regulatory Authority (FINRA). With Thomson Reuters Practical Law’s permission, we have attached it here.

Featured on Employment Law This Week:  The Securities and Exchange Commission (“SEC”) recently issued the largest whistleblower awards under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in history.

Affirming the payout of over $49 million to two whistleblowers and over $33 million to a third for information that led to successful securities law prosecutions. Dodd-Frank established the whistleblower “bounty” program in 2010, and the SEC reports that it has awarded more than $262 million so far, to 53 whistleblowers.

Watch the segment below and read our recent post.