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, Restrictive Covenant & Trade Secret, and Whistleblower…

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, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) 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 the unusual experience of testifying in federal court in connection with investigations. 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 is a Fellow of the College of Labor and Employment Lawyers. Chambers has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

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 U.S. Library of Congress Burton Award Winner 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.

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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