In Liu v. Siemens A.G., No. 13-cv-4385, 2014 WL 3953672 (2d Cir. Aug. 14, 2014), the Second Circuit affirmed that the anti-retaliation provision in Section 922 of Dodd-Frank does not apply extraterritorially.  This post examines the Court’s reasoning and the implications of this decision—particularly for multinational employers.  For more on this decision, please review our Firm’s client alert.

Background

Plaintiff Liu Meng-Lin, a citizen and resident of Taiwan, worked as a compliance officer for a division of a Chinese company that is a wholly-owned subsidiary of a German corporation (whose shares are listed on the New York Stock Exchange (NYSE)).  He claimed to have discovered improper payments to officials in North Korea and China, and to have reported the alleged misconduct to his superiors.  As a result, he asserted, he was allegedly demoted and later terminated.

Liu subsequently informed the SEC that the company had allegedly violated the FCPA.  He then filed suit in the Southern District of New York, alleging he was discharged in violation of the anti-retaliation provision of Section 922 of Dodd-Frank.  Dismissing the case, the district court ruled that: (i) the alleged facts involved extraterritorial conduct beyond the reach of the anti-retaliation provision; (ii) Liu had not made a “required or protected” disclosure to the SEC; and (iii) the disclosure of an alleged FCPA violation did not constitute protected activity under Section 806 of SOX.

Second Circuit’s Ruling

The Second Circuit affirmed the dismissal on the grounds that Section 922 of Dodd-Frank does not apply extraterritorially and that the facts alleged in this case would require such application.

First, the Court determined that “this case is extraterritorial by any reasonable definition.”  That is, “[t]he whistleblower, his employer, and the other entities involved in the alleged wrongdoing are all foreigners based abroad, and the whistleblowing, the alleged corrupt activity, and the retaliation all occurred abroad.”  The fact that the German parent’s shares were listed on the NYSE was deemed immaterial.

Given that the facts here required extraterritorial application, the Second Circuit examined whether Congress intended such an application.  The Court made clear that nothing in the text or legislative history of the statute suggested that “Congress intended the anti-retaliation provision to regulate the relationships between foreign employers and their foreign employees working outside the United States.”  The “presumption against extraterritoriality” and “the absence of any direct evidence of a congressional intent to apply the relevant provision extraterritorially” defeated Liu’s claim.

The Court declined to address whether one qualifies as a whistleblower under Dodd-Frank if he or she has disclosed the alleged misconduct only within the corporation, and not to the SEC.  Nor did the Court address whether the disclosure of an alleged FCPA violation constitutes protected activity under Section 806 of SOX.

Implications

This is a welcome decision for multinational employers, as it is clear that Dodd-Frank’s anti-retaliation provision lacks an extraterritorial reach and thus does not invite the inconvenience and other difficulties inherent in defending matters where substantial evidence and witnesses are overseas.  Still, it should be noted that different results could be possible where the alleged underlying misconduct, protected activity and retaliation had a meaningful connection to the U.S.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice.…

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice. Steven’s national practice focuses on defending companies in federal and state courts and arbitration against claims of: discrimination, retaliation and harassment, including claims brought by high-level executives; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations (including class, collective and PAGA actions).

Illustrating his versatility, Steven has successfully handled bench and jury trials in multiple jurisdictions (e.g., Illinois, California, Florida and Texas); defended one of the largest Illinois-only class actions in the history of the federal courts in Chicago; and prevailed following his oral arguments before the Seventh Circuit and state appellate courts. Steven brings his litigation experience to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He was also named as One of the Top 10 Impactful Labor & Employment Lawyers in Illinois for 2023 by Business Today. He is a Fellow of the College of Labor and Employment Lawyers. Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Chambers also reports that “He is someone who can navigate the twists and turns of litigation without difficulty. Steven is great with brief-writing, crafting arguments, and making sure the client is always happy.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC, and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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