First Circuit: FCPA is not a “Rule or Regulation of the SEC” Under SOX Whistleblower Provision

On July 13, 2022, the First Circuit reversed a denial of summary judgment, finding plaintiff could not satisfy his burden of showing he engaged in protected activity under the SOX whistleblower protection provision.  Baker v. Smith & Wesson, No. 21-2019 (1st Cir. 2022).  The decision affirms that protected activity under SOX is limited to reporting violations of “any rule or regulation” of the SEC, which does not include federal statutes like the Foreign Corrupt Practices Act (“FCPA”).


Plaintiff filed a complaint against his former employer, Smith and Wesson (“S&W”), alleging S&W retaliated against in violation of SOX for reporting allegedly illegal conduct by S&W employees.  S&W moved for summary judgment, arguing Plaintiff failed to show that he engaged in protected activity.  Plaintiff responded that he reasonably believed the reported conduct violated 15 U.S.C. § 78m(b)(2), (5) of the FCPA, and that the FCPA is a “rule or regulation of the SEC” (and thus falls under the protected activity provision of SOX).  The district court agreed with Plaintiff and denied S&W’s motion for summary judgment.


On appeal, the First Circuit disagreed with the district court’s interpretation of the “any rule or regulation of the SEC” provision in SOX, finding that the statute’s plain text makes clear that the FCPA is not a rule or regulation of the SEC.  Section 806 limits protections of whistleblower claims to violations of (1) sections 1341, 1343, 1344, or 1348; (2) any rule or regulation of the SEC; or (3) any provision of federal law relating to fraud against shareholders.  Relying on the Ninth Circuit’s explanation in Wadler v. Bio-Rad Laboratories, Inc. that there is a difference between the meaning of “rule or regulation” and “law” (access our post on that decision here), the First Circuit agreed that a “law” encompasses statutes – like the FCPA – whereas a “rule or regulation” does not.  Further, the inclusion of “of the SEC” in Section 806 of SOX makes clear that the phrase “any rule or regulation” does not include federal statutes because the SEC does not possess the authority to enact statutes.  Finally, “of” also does not mean “relating to,” as Plaintiff argued, because “relating to” appears in the next provision of Section 806 (“any provision of federal law relating to fraud against shareholders”) and thus demonstrates Congress’ intent to use “of” in the context of “any rule or regulation of the SEC.”


The First Circuit’s narrow reading of what constitutes an SEC “rule or regulation” will make it more challenging for plaintiffs to show they engaged in protected activity under SOX.

SEC Announces $17 Million Award to Whistleblower

On July 19, 2022, the SEC announced an award of more than $17 million award to a whistleblower who provided critical information and assistance to the SEC in a covered action and related action.  (The order granting the award can be accessed here.)  The SEC noted that because the same information provided led to the success of the related action, the whistleblower is also entitled to an award based on amounts collected in the related action.

Creola Kelly, Chief of the SEC’s Office of the Whistleblower noted that “[t]oday’s award underscores the SEC’s commitment to rewarding meritorious whistleblowers who provide valuable information and exemplary cooperation that advance the agency’s enforcement efforts.”

Since issuing its first whistleblower award in 2012, the SEC has awarded approximately $1.3 billion to 278 individuals.

CA District Court: SOX and Dodd-Frank’s Whistleblower Provisions Do Not Apply To Individual Employed Abroad

On June 7, 2022, the United States District Court for the Northern District of California, relying on recent ARB decisions, held that a plaintiff who lived and worked for a Canadian subsidiary of a US company could not avail himself to the anti-retaliation provisions of SOX and the Dodd-Frank Act.  Daramola v. Oracle Am., Inc., No. 19-cv-07910.  In so doing, the court solidified an increasingly well-defined test for what constitutes a domestic application of these statutes.


Plaintiff lived in and worked in Montreal, Canada, where he worked for Oracle Canada (the “Company”).  Following his resignation, Plaintiff sued the Company in the United States, alleging, inter alia, whistleblower retaliation in violation of SOX and Dodd-Frank.  He alleged that the Company made millions of dollars selling subscriptions for software that did not exist to colleges throughout the United States.  He further alleged that he was constructively discharged after he internally reported his concerns that the Company had engaged in fraud.  The Company moved to dismiss on the grounds that SOX and Dodd-Frank do not apply extraterritorially.


The court first observed that the anti-retaliation provisions in both SOX and Dodd-Frank do not apply extraterritorially, i.e., outside the United States.  While the Ninth Circuit has not expressly addressed the issue, the court relied on the Second Circuit’s holding in Liu Meng-Lin v. Siemens AG, 763 F.3d 175 (2d Cir. 2014), that the anti-retaliation provisions of SOX and Dodd-Frank do not apply outside of the United States.  (See our post on Liu here.)  Indeed, as neither statute indicates any affirmative intent to apply outside the US, there appears to be little debate on this point.  See, e.g., Villanueva v. United States Department of Labor, No. 12-60122, 2014 WL 550817 (5th Cir. Feb. 12, 2014)[1] (See our post on Villanueva here.); Ulrich v. Moody’s Corp., No. 13 Civ. 00008 (VSB), 2014 WL 4977562, at *7 (S.D.N.Y. Sept. 30, 2014) (“There is no clear indication of extraterritorial application in…the anti-retaliation provision of the SOX Act.”).

The court also held that two more-recent ARB decisions which reached the same conclusion were entitled to Skidmore deference.  Specifically, in Garvey v. Morgan Stanley, ARB Case No. 2020-0034 (ARB July 16, 2021), the ARB determined that the complainant’s “daily interactions” with supervisors and colleagues in the United States, and allegations that U.S. customers were being harmed, did not demonstrate “sufficient, tangible domestic contacts” to apply SOX.  In Hu v. PTC, Inc., ARB Case No. 2017-0068 (ARB Sept. 18, 2019), the ARB similarly held that “the location of the employee’s permanent or principal worksite is the key factor to consider when deciding whether a claim is a domestic or extraterritorial application.”  At bottom, “an adverse action which affected an employee at a principal worksite abroad does not become territorial because the alleged misconduct occurred in the U.S., or because it had, or would have, effects on U.S. securities markets, or because the alleged retaliatory decision was made in the United States.”  Id.  (See our post on Garvey and Hu here).

The court concluded that because Plaintiff lived and worked in Canada, he failed to state a claim under the SOX and Dodd-Frank anti-retaliation provisions.


This decision confirms that employees of multinational employers who live and work abroad cannot invoke the whistleblower protections of SOX and Dodd-Frank.

[1] Villaneuva v. Core Labs. NV Saybolt de Columbia Limitada, ARB Case No. 09-108, ALJ Case No. 2009-SOX-006, slip op. at 12 (ARB Dec. 22, 2011) (“Section 806(a)(1) does not allow for its extraterritorial application.”).

Florida District Court Limits Scope of Protected Activity under the FCA

On March 29, 2022, the U.S. District Court for the Southern District of Florida held that in order to engage in protected conduct under the False Claims Act (“FCA”), a plaintiff must specifically suspect that their employer has made a false claim for payment to the federal government; vague suspicions of fraud or misuse of funds is not enough.  Swartz v. Interventional Rehabilitation of South Florida, Inc., No. 21-14137 (S.D. Fla. 2022).


Plaintiff, a physician who worked for a pain management practice, sued his former employer for retaliation under both the federal False Claims Act and the Florida Whistleblower Act.  Plaintiff alleged that he was terminated after he sent four emails raising concerns about the employer’s policy on recording medical information.  The employer maintained that it made the termination decision before Plaintiff sent the emails after it received several complaints from other employees that he had engaged in unprofessional behavior.


The court granted summary judgment in favor of the employer as to both retaliation claims.  To bring a retaliation claim under both federal and Florida law, a plaintiff must first show that they engaged in protected activity.  To engage in “protected activity” under the FCA, a plaintiff must object to a false claim for payment to the federal government.  Citing precedent from the Eleventh Circuit, the court concluded that “it is not enough for an employee to ‘suspect fraud’ or ‘suspect misuse of federal funds.’”  Rather, “an employee must suspect that her employer had made a false claim to the federal government.”  The court concluded that Plaintiff did not engage in protected activity under this standard because his emails did not reference any submission of false claims for payment to the government.

The court also found that, even though some of emails plausibly constituted protected activity under Florida law (because they raised concerns about what Plaintiff believed to be illegal activity by his employer), Plaintiff could not show that these emails were the basis for his termination, since the employer established that the termination decision predated the emails.


This ruling confirms that “protected activity” for purposes of the FCA is construed narrowly to encompass only objections to a false claim for payment to the federal government.

D.C. Circuit: No Award to Whistleblower Who Made Disclosure Before Enactment of SEC’s Whistleblower Program

On May 27, 2022, the D.C. Circuit Court of Appeals affirmed an order by the Securities and Exchange Commission (“SEC”) denying a whistleblower award under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), holding that information provided to the SEC prior to Dodd-Frank’s enactment did not qualify for a whistleblower award under the statute.  Ross v. SEC, No. 21-1165 (D.C. Cir. 2022).


Plaintiff-appellant Ross appealed the SEC’s denial of his application for a whistleblower award.  Between 2005 and 2008, Ross provided information to the SEC about securities violations that ultimately resulted in a successful SEC enforcement action in which defendants were ordered to pay approximately $100 million.

Among other financial reforms, Dodd-Frank authorized the SEC to give monetary awards to “whistleblowers who voluntarily provided original information to the Commission” when that information led to a successful enforcement resulting in sanctions of over $1 million.  The regulations implementing Dodd-Frank define “original information” in the whistleblower context as, among other requirements, information provided to the SEC “for the first time after July 21, 2010,” Dodd-Frank’s date of enactment.


The D.C. Circuit affirmed the SEC’s denial, holding that the information Ross provided did not meet the Dodd-Frank definition of “original information” because it was first provided to the SEC prior to July 21, 2010.


This ruling confirms that the requirements in Dodd-Frank’s whistleblower award provisions will be strictly construed.

SEC Proposes Amendments to Whistleblower Program Rules, Which May Lead to More SEC Tips

On February 10, 2022, the U.S. Securities and Exchange Commission announced two proposed amendments to its whistleblower program rules.

As we previously reported here, a closely divided SEC adopted a final rule implementing several changes to its whistleblower program in September 2020.  On January 13, 2021, a whistleblower attorney filed a lawsuit in the U.S. District Court for the District of Columbia challenging various aspects of the final rule (our post on that case is here).  After SEC Chair Gary Gensler assumed office, he directed staff to consider revisions to two amendments that could have discouraged tips by allowing the SEC to (1) unilaterally deny “related action” awards where there is another applicable whistleblower award program, and (2) limit the size of some of the largest awards (see our post here).

In announcing the proposed amendments, Chair Gensler noted that “[t]hese amendments, if adopted, would help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the Commission.”  He also said that the first proposed rule change was “designed to ensure that a whistleblower is not disadvantaged by another whistleblower program that would not give them as high an award as the SEC would offer,” and that under the second proposed change, “the SEC could consider the dollar amounts of potential awards only to increase the whistleblower’s award.”

The SEC will vote on the proposed amendments after a 60-day public comment period.

New York Department of Labor Issues Required Posting for Expanded Whistleblower Protection Law

The New York State Department of Labor (NYSDOL) has issued a form of required notice regarding the dramatically expanded whistleblower protections under New York Labor Law § 740 that took effect last month.

As we previously reported, the expanded law – which took effect on January 26, 2022 – significantly bolsters protections for private-sector workers alleging retaliation in a variety of ways, including: (1) adding “former employees” and “independent contractors” to those permitted to bring whistleblower claims; (2) removing the previous requirement that there be an actual violation of the law and instead providing protections where a covered individual reasonably believes an employer’s activity or conduct is in violation of a law, rule or regulation or “poses a substantial and specific danger to the public health or safety;” and (3) providing that covered individuals need only make a “good faith effort” to notify their employer of violations before disclosing such violations to a public body, whereas before actual notice to the employer was required.  The amended law also expands the remedies potentially available to whistleblowers, extends the statute of limitations on bringing claims, and affords whistleblowers a right to a jury trial.

The amended law requires that employers notify employees of their rights under the law by posting a notice in a conspicuous, accessible and well-lighted place.  While the law took effect with no model having been issued, the NYSDOL finally released its form of notice on its website, which all covered employers are advised to post immediately in accordance with the law.

CA Supreme Court: Contributing-Factor Standard Applies to Whistleblower Retaliation Claims

On January 27, 2022, the California Supreme Court settled an inconsistency that has divided the courts of appeal with respect to the proper evidentiary standard for whistleblower retaliation claims under California Labor Code section 1102.6.  It ruled that the “contributing-factor” standard applies.  Lawson v. PPG Architectural Finishes, Inc., No. S266001, __ P.3d __, 2022 WL 244731 (Cal. 2022).


Plaintiff-appellant Lawson, who was discharged by his employer PPG Architectural Finishes for alleged poor performance, brought a whistleblower claim against PPG after he allegedly uncovered and reported a supervisor’s scheme to mis-tint unpopular paint colors to avoid buyback requirements.  The district court, applying the three-step framework of McDonnell Douglas v. Green, concluded Lawson did not meet his burden of demonstrating that PPG’s legitimate, non-retaliatory reason for discharging him was pretextual.  Lawson appealed to the Ninth Circuit, which certified to the California Supreme Court the question of which evidentiary standard applies to whistleblower claims under California law.


The California courts of appeal have not all applied the same evidentiary standard to whistleblower retaliation claims.  Some courts applied the three-part burden shifting framework established by the U.S. Supreme Court in McDonnell Douglas v. Green, under which (1) the employee first must establish a prima facie case of retaliation, (2) the employer then has the burden to show a legitimate reason for the adverse employment action, and (3) the burden then shifts back to the employee to show the reason given by the employer is pretextual.

Other courts have applied the contributing-factor standard, under which (1) an employee must demonstrate by a preponderance of the evidence that their whistleblowing activity was a contributing factor to the adverse action taken by their employer against them, and then (2) the employer has the burden to show by clear and convincing evidence that they would have taken that action anyways for legitimate, independent reasons, regardless of the employee’s alleged protected activity.

After considering the legislature’s intent behind and the legislative history of section 1102.6, the plain text of the statute, as well as how other courts have addressed and interpreted similar statutes at the federal level, the California Supreme Court rejected the McDonnell Douglas burden-shifting standard in favor of the “contributing-factor” standard.


Plaintiff’s attorneys are apt to try to capitalize on this ruling, as the “contributing-factor” standard enables a whistleblower to meet their burden by showing their whistleblowing activity was just one factor that contributed to the adverse action, even when there are other, legitimate factors for the employer’s decision.

SDNY: Confidentiality Agreement Impeded Investors from Whistleblowing

On November 17, 2021, the U.S. District Court for the Southern District of New York held that a company and its CEO violated Rule 21F-17 of the Exchange Act by entering into confidentiality agreements with investors that prohibited communications with the SEC, and subsequently attempting to enforce those agreements.  SEC v. Collectors Coffee Inc., No. 19-cv-4355.

Background.  As we previously reported in 2019, the SEC sued Collector’s Coffee, an online auction platform for sports memorabilia, and its CEO, for allegedly defrauding investors and impeding their communications with the SEC in violation of Rule 21F-17.  Rule 21F-17, adopted after the passage of the Dodd-Frank Act, prohibits any person from acting to “impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement … with respect to such communications.”

As discussed in our July 2021 update, the Court previously held that Rule 21F-17 applies to investors as well as employees, finding that the broad definition of “whistleblower” under Section 21F of the Exchange Act extended its protections beyond the employer-employee context.

Ruling.  The Court declined to disturb the prior rulings, holding that the only remaining issue to be resolved is whether defendants’ conduct actually violated Rule 21F-17.  Defendants had entered into agreements with investors that expressly prohibited “communications with any regulatory agencies, such as the United States Securities and Exchange Commission …” and, in at least one instance, sued an investor for breaching this confidentiality clause.  The Court held that such actions were undoubtedly “actions to impede” prohibited by Rule 21F-17, and granted summary judgment in favor of the SEC.

Implications.  The SEC’s successful enforcement of Rule 21F-17 should serve as a reminder that companies must ensure that their agreements and confidentiality provisions include clear carve-outs allowing whistleblowing to the SEC and other regulatory agencies.

EEOC Updates COVID-19 Guidance with Anti-Retaliation Section

On November 17, 2021, the EEOC updated its technical guidance on COVID-19 and anti-discrimination with a new anti-retaliation section.

The new section largely restates existing statutory anti-retaliation protections in the context of COVID-19.  The guidance provides several examples of COVID-related protected activity, which include filing a charge with the EEOC alleging that an employer has unlawfully disclosed confidential medical information (such as a COVID-19 diagnosis), informing a supervisor or HR representative of accusations that Asian coworkers are spreading COVID-19, or reporting harassing comments toward coworkers who remain unvaccinated for religious reasons.  Employers may not retaliate against employees for requesting continued telework as a disability accommodation, or for requesting protective gear that can be worn with religious garb.  Making such requests is protected, even if the requests are later denied; for instance, if the employer determines that the employee does not have a disability under the ADA, or where the requested accommodation would pose an undue hardship.

The guidance reiterates that an employer’s action constitutes retaliation if it could deter a reasonable person from engaging in protected activity.  Retaliatory acts may include denial of promotion or job benefits, non-hire, suspension, discharge, work-related threats, warnings, negative or lowered evaluations, or transfers to less desirable work or work location.  However, employers are permitted to take adverse action based on non-retaliatory and non-discriminatory reasons, such as poor performance or misconduct.

In sum, the EEOC’s updated guidance cautions employers to be mindful of their non-discrimination and anti-retaliation policies in navigating ever-changing federal, state, and local COVID-19 regulations, lest they run afoul of the ADA or other antidiscrimination statutes.


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