Tag Archives: whistleblower

February 7, 2017

SEC Targets Severance Agreements That Impede Whistleblowers

By Mark Wiletsky and Brian Hoffman

The U.S. Securities and Exchange Commission (SEC) is cracking down on severance agreements that prohibit former employees from contacting regulators or accepting whistleblower awards under threat of losing their severance payments or other post-employment benefits. More and more, the SEC’s Enforcement Division has announced new cases filed against, and settlements made with, companies which restrict former employers from blowing the whistle through severance agreement clauses. Many of the scrutinized companies are not in the securities industry, and the problematic contract language is not as obvious as you may think.

Dodd-Frank Act Established Whistleblower Programs

The 2010 Dodd-Frank Act established whistleblower programs for the SEC as well as the Commodity Futures Trading Commission. Under the SEC’s whistleblower program, eligible whistleblowers who provide unique and useful information about securities-law violations to the SEC can collect significant awards of 10-to-30 percent of a penalty that exceeds $1 million.

Essential to the program, however, are the anti-retaliation provisions, which prevent whistleblowers from suffering adverse actions as a result of their whistleblowing activities. In addition, an SEC rule, Rule 21F-17, prohibits any action that impedes an individual from communicating with the SEC about possible securities violations. Rule 21F(h)(1) of the Dodd-Frank Act prohibits employers from taking retaliatory actions against whistleblowers who make protected reports.

Award Waivers, Confidentiality, and Non-Disparagement Clauses

Severance agreements often contain boilerplate language, occasionally including clauses that restrict a former employee from disclosing any confidential company information and disparaging the company or its officers and managers. Agreements also sometimes require that a former employee agree to waive any awards or monetary recovery should he or she file a complaint with a governmental agency. These severance provisions are exactly the type of restrictive language that the SEC has been targeting.

In its first whistleblower protection case involving restrictive language, in 2015 the SEC charged a global technology and engineering firm with a violation of Rule 21F-17. The company had required witnesses involved in internal investigations to sign confidentiality agreements that stated that the employee could face discipline or termination if they discussed the matter with outside parties without the prior approval of the company’s legal department. Because the investigations could involve possible securities-law violations and the clause prohibited employees from reporting possible violations directly to the SEC, the SEC found that the restrictive language in the confidentiality agreements impeded whistleblowers. The company agreed to pay a $130,000 penalty to settle the charges and voluntarily amend its confidentiality statements to add language to inform employees that they may report possible violations to the SEC and other federal agencies without company approval or fear of retaliation.

Recent SEC Cases Targeting Severance Agreements 

Additional whistleblower severance agreement cases highlight other clauses targeted by the SEC. In mid-2016, the SEC charged a building products company with using severance agreements that required former employees to waive their rights to a monetary recovery if they filed a complaint with the SEC or another government agency. The clause stated that the departing employee was required to waive possible whistleblower awards or risk losing their severance payments and other post-employment benefits. The company did not admit liability, but agreed to settle with the SEC for a $265,000 penalty.

Also in mid-2016, the SEC charged a financial services company for using language in agreements that restricted employees’ ability to disclose information to government agencies. Problematic wording included restricting any disclosure of confidential information, except when disclosure is required by law, in response to a subpoena, or with the company’s permission. (See also our prior client alert on the above three cases.)


October 24, 2016

OSHA Issues Final ACA Retaliation Complaint Procedures

linton_mBy Matthew Linton

The Occupational Safety and Health Administration (OSHA) published its final rule establishing procedures and time frames for handling whistleblower complaints under the Affordable Care Act (ACA). The ACA protects employees from retaliation for raising concerns regarding conduct that they believe violates the consumer protections and health insurance reforms found in Title I of the ACA. It also protects employees from retaliation for receiving Marketplace financial assistance when purchasing health insurance through an Exchange. 

“This rule reinforces OSHA’s commitment to protect workers who raise concerns about potential violations of the consumer protections established by the Affordable Care Act or who purchase health insurance through an Exchange,” said Dr. David Michaels, Assistant Secretary of Labor for Occupational Safety and Health.

OSHA’s Affordable Care Act fact sheet provides more information regarding who is covered under the ACA’s whistleblower protections, protected activity, types of retaliation, and the process for filing a complaint and is available here.

Notably, the ACA’s whistleblower protections also provide for a private right of action with de novo review in U.S. District Court to the complaining individual if the agency does not issue a final decision within certain time limits.

October 9, 2015

Idaho Whistleblower Awarded Over $100K in Punitives After Retaliatory Discharge

Howland_PBy Pam Howland 

Firing an employee who reports that your workplace is unsafe is rarely a good idea. Firing that employee within days after the Occupational Safety and Health Administration (OSHA) issues citations and penalties based on the reported safety violations almost guarantees that your termination decision will be deemed retaliatory. An Idaho employer is finding that out the hard way after a federal judge ordered last week that it pay a discharged employee his lost wages plus $100,000 in punitive damages. Perez v. Sandpoint Gas N Go & Lube Ctr., No. 2:14-cv-357 (D. Idaho Sept. 29, 2015). 

Safety Concerns Not Rectified 

Daniel Kramer worked at the Sandpoint Gas N Go & Lube Center, owned and managed by Sydney Oskoui. Kramer informed Oskoui that employees were being exposed to unsafe working conditions that potentially violated OSHA’s safety standards. He reported that employees at the Lube Center faced the following dangerous conditions: 

  • exposed wiring near water leaks which could result in an electrical shock;
  • no nets over open automotive service bays which presented a fall hazard;
  • expired fire extinguishers;
  • no first-aid kit or eyewash station; and
  • no hard hats for employees. 

According to the lawsuit, the Lube Center did not repair or make any changes to alleviate the potentially unsafe conditions reported by Kramer. 

OSHA Investigation Confirms Safety Violations 

On February 12, 2012, Kramer notified OSHA about the unsafe working conditions at the Lube Center. Three days later, a Compliance Safety and Health Officer from OSHA’s Boise Area Office went to the Lube Center to conduct an investigation. The Officer found five violations of mandatory safety and health standards that presented a risk of death or serious bodily injury. An additional two violations that presented an other-than-serious risk were also found. 

On April 12, 2012, OSHA notified the Lube Center and Oskoui that it would be issuing citations and penalties as a result of its findings from the inspection. Just four days later, on April 16, 2012, the Lube Center fired Kramer and another employee who it suspected had also filed an OSHA complaint. 

Whistleblower Complaint Follows 

After being terminated within days of the OSHA notice of citations and penalties, Kramer filed a whistleblower complaint with OSHA alleging that he was discriminated against in retaliation for filing his safety concerns. OSHA investigated his whistleblower complaint and agreed that his termination violated the Occupational Safety and Health Act. In August of 2014, the Secretary of Labor filed a whistleblower lawsuit against the Lube Center and Oskoui in federal court in Idaho on behalf of Kramer. 

Default Judgment Award of Lost Wages and Punitive Damages 

Despite admitting to six violations of mandatory OSHA safety standards and paying a civil penalty as a result of those violations, Oskoui attempted to get the lawsuit dismissed. At times, he tried to represent his company, the Lube Center, himself. Court rules, however, require that a corporation be represented by an attorney. 

After more than a year of legal wrangling, Chief Judge B. Lynn Winmill entered a default judgment against both the Lube Center and Oskoui. His order requires that the Lube Center and Oskoui pay Kramer $979.25 in lost wages, plus pre- and post-judgment interest. More significantly, the defendants are ordered to pay Kramer $100,000 as punitive damages for the OSHA violations. The judgment also must be posted on employee bulletin boards at the Lube Center for 90 days. Both the Lube Center and Oskoui personally are on the hook for these amounts as the Judge held them jointly and severally liable. 

Handling Whistleblowers and Avoiding Retaliation 

Oskoui is appealing the default judgment but regardless of the result of his appeal, a great deal of time and expense could have been avoided had he handled Kramer’s safety concerns differently. Lessons from this case are clear. First, treat an employee’s safety concerns seriously. If Oskoui had investigated Kramer’s concerns when they were raised internally before Kramer went to OSHA, Oskoui may have discovered that conditions did indeed violate mandatory OSHA safety standards and he could have taken steps to rectify them before OSHA became involved. Second, if an employee files a complaint with OSHA, do not discharge them in retaliation for that complaint. Whistleblowers have protections and you add new violations and face additional liability for retaliating against the employee who raised the safety issues. Finally, do not skimp when it comes to safety. Your money is better spent fixing the unsafe conditions than paying a whistleblower $100,000 in punitive damages. 

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November 11, 2013

Idaho Paper Company Faces $300,000 Whistleblower Retaliation Lawsuit

By Scott Randolph 

Lest you think Idaho is off of OSHA’s radar screen, think again.  An Idaho paper company was recently sued for allegedly retaliating against an employee who reported health concerns in the workplace.  In late October, the U.S. Department of Labor filed a whistleblower complaint against Clearwater Paper Corporation (Clearwater) in federal court in Idaho seeking more than $300,000 in damages.  The facts alleged in the complaint are short and succinct: 

  • Anthony Tenny worked for Clearwater Paper Corporation in its Wood Products Division at the Lewiston facility from February 2004 until his termination in June 2010.
  • Throughout his employment, Clearwater promoted Tenny several times and gave him high performance ratings.
  • Tenny told Clearwater Paper on numerous occasions that employees were being exposed to excessive levels of red cedar dust at the mill.
  • In April and early May 2010, Tenny spoke with his immediate supervisor to express concern that the amount of red cedar dust in the air at the mill presented health hazards to the mill employees.
  • Tenny then contacted the Occupational Safety and Health Administration (OSHA) to report his concerns.
  • On May 28, 2010, OSHA inspected the mill.
  • On June 21, 2010, Clearwater Paper suspended Tenny without pay and required that he take a drug test.
  • On June 25, 2010, Clearwater fired Tenny. 

In its complaint, OSHA is seeking that Tenny be reinstated to his position and that Clearwater be found liable for an excess of $300,000 for back pay, compensatory damages, emotional distress damages and punitive damages. 

Of course, the complaint is only one side of the story and Clearwater is entitled to enter an appearance and respond to the DOL’s allegations.  Clearwater will likely do just that over the coming weeks. 

Retaliation Claims Are Often Avoidable 

In many situations, retaliation lawsuits, whether following a whistleblower’s report, harassment complaint or other protected activity, can be avoided.  Employers should exercise caution when deciding whether to take adverse action against an employee who has complained of potentially unlawful acts in the workplace.  It doesn’t mean that an employer can never discipline or discharge a complaining employee; it simply means that the true reasons behind the adverse employment action must be examined closely in light of company policies and past practices. Companies should train their supervisors and managers not to make statements or take actions against whistleblowers that might be seen as intimidating, threatening or outright retaliatory.   Investigate and resolve the underlying complaint but do not add to your woes by retaliating against the complaining employee.

Disclaimer: This article is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal advice and are not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.

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November 4, 2013

Will OSHA Whistleblower Protections Be Strengthened?

WhistleblowerBy Cole Wist 

Workers who report health and safety violations under the Occupational Safety and Health Act (OSH Act) have fewer protections than those who blow the whistle in workplaces covered by other federal statutes.  A recent reportby the Center for Effective Government (formerly OMB Watch) addressed some of these perceived deficiencies of the 1970-era OSH Act.  Two bills pending in Congress seek to strengthen the whistleblower protections in the OSH Act. 

Proposed Enhancements to the OSH Act 

The OSH Act’s current whistleblower provision, 29 U.S.C. § 660(c), is limited in both scope and remedy.  Both houses of Congress are considering bills to amend the OSH Act to, among other things, better align the anti-retaliation provision with other federal whistleblower protections.  (H.R. 1648 and S. 665).  Called Protecting America’s Workers Act, the bills propose enhancements to the OSH Act whistleblower protections including:

  • Increasing the time period for whistleblowers to file a retaliation complaint from 30 days to at least 180 days;
  • Providing for the whistleblower to be reinstated to his or her position, with compensatory damages, upon OSHA’s finding of reasonable cause to believe retaliation occurred;
  • Permitting whistleblowers to request a hearing before an administrative law judge within 30 days after a decision denying relief or within 120 days after the filing of the complaint if OSHA fails to issue a decision in the case;
  • Allowing either party to appeal a final decision and order to the U.S. Court of Appeals for the circuit where the violation occurred or where the whistleblower resides;
  • Establishing that the burden of proof for a retaliation claim is that the protected activity was a contributing factor in the adverse employment action;
  • Allowing for an award of reasonable attorneys’ fees and costs, including expert witness fees, to the prevailing whistleblower against the employer; and
  • Prohibiting the waiver of any rights and remedies under this provision by any agreement, policy, form or condition of employment, including pre-dispute arbitration agreements and collective bargaining agreements.

Both bills are being considered in their respective Congressional committees and it is unclear whether either bill will come to a vote.  However, if Congress fails to act, groups such as the Center for Effective Government are urging states to enact stronger worker protections.

Avoiding Retaliation Complaints 

Employers are well-advised to treat reports of unsafe working conditions with care.  Consider the Whistleblower Golden Rules:  

*          Address all complaints in good faith. 

*          Respond in a calm, professional manner. 

*          Protect against hazards immediately. 

*          Clearly and calmly explain conclusions to the complaining employee. 

The attention given by employers to this process directly corresponds to success in avoiding whistleblower complaints.  In the words of Zig Zigler, “The way you see them is the way you treat them, and the way you treat them is the way they often become.”

Disclaimer:This article is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal advice and are not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.

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