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Legal Report January 2014


RETALIATION. Federal courts have issued two recent opinions on the retaliation provisions of the Dodd Frank Act. These provisions protect whistleblowers who report wrongdoing to the Securities and Exchange Commission (SEC). In one case, the court ruled that the provisions do not apply outside the United States. The other decision found that employees can be covered by the provision even if they are terminated before reporting to the SEC.

In Liu v. Siemens AG, Meng-Lin Liu worked as the group compliance officer for a healthcare division of Siemens China, which is a subsidiary of Siemens AG, a German company that does business worldwide.

In October 2009, Liu discovered that his division was making inflated bids to sell medical imaging equipment in North Korea and China. After the bids were accepted, the equipment providers kicked back a portion of the proceeds to the officials who accepted the bids. Liu raised concerns over the practice, arguing that it circumvented the company’s internal compliance procedures.

Liu received a negative performance evaluation in December 2009, allegedly in retaliation for his complaints over the bidding process. In April 2010, Liu attempted to put new procedures in place to prevent the kickbacks. The plan was rejected. In August of that year, the company removed Liu’s responsibility for compliance issues, limiting his role to training. Liu began documenting the kickback scheme and presented his findings to the division’s CFO in October 2010. Two weeks later, Liu was informed that he would not be needed for the final three months of his employment contract.

Liu notified the SEC of the alleged violations and filed a lawsuit against the company for retaliation under the Dodd-Frank Act.

The court ruled in favor of Siemens, finding that the retaliation provisions of the Dodd-Frank Act do not apply outside of the United States. In the written opinion of the case, the court noted: “There is simply no indication that Congress intended the Anti-Retaliation Provision to be applied extraterritorially. Liu urges that it would be illogical for the overseas employees of publically-traded companies not to be protected for whistleblowing activities, but the Supreme Court has warned against ‘divining what Congress would have wanted if it had thought of the situation before the court.’”

In Ellington v. Giacoumakis, Richard Ellington was employed by New England Investment and Retirement Group, Inc., in 2005 as a financial planner. Over the course of his employment, Ellington became convinced that his employer was distributing misleading investment reports to clients.

In 2010, Ellington compiled a report and submitted it to Massachusetts’ Commonwealth Financial Network (CFN), which oversaw compliance at the state level. About a month later, the company’s owner, John Giacoumakis, confronted Ellington and accused him of submitting the report. Expecting to be terminated, Ellington e-mailed company documents to his personal account. After learning of this document transfer, Giacoumakis fired Ellington.

Ellington then turned all of the information over to the SEC. The SEC conducted an investigation and ultimately fined the company $200,000. Ellington then filed a lawsuit against the company and Giacoumakis for retaliation under Dodd-Frank.

The court ruled that the retaliation provisions in Dodd-Frank are not determined by the whistleblower’s employment status. The court noted that “it is apparent…that Congress intended that an employee terminated for…reporting violations to a supervisor or outside compliance officer, and ultimately to the SEC, has a private right of action under Dodd-Frank whether or not the employer wins the race to the SEC’s door with a termination notice.” (Liu v. Siemens AG, U.S. District Court for the Southern District of New York, No. 13 Civ. 317, 2013. Ellington v. Giacoumakis, U.S. District Court for the District of Massachusetts, No. 1:13-cv-11791-RGS, 2013)

EMPLOYMENT. An employer is liable for a car accident caused by an employee because the employee was required to use her personal vehicle for work-related trips.

The employee left the office on April 15, 2010, and decided that, on the way home, she would stop to take a yoga class and buy some frozen yogurt. As the employee turned into the yoga shop, she crashed into a motorcyclist.

The motorcyclist sued both the driver and her company. The company argued that it was not liable because the employee was not acting within the scope of her employment when she was driving to a frozen yogurt shop.

The California Court of Appeal disagreed because this particular employee was required, as part of her job, to use her personal vehicle for company purposes. On the day of the accident, the employee had driven herself and her coworkers to an employee function. The next day, the employee had planned to drive her vehicle to a client meeting.

The employer, ruled the court, could not benefit from the employee’s use of her vehicle to travel on employee errands and then renounce that benefit when the crash occurred. In the written opinion of the case, the court wrote that the types of errands the employee was running at the time of the accident were a “foreseeable, minor deviation” rather than a “substantial departure.” The court wrote that “the planned stops were not so unusual or startling that it would be unfair to include the resulting loss among other costs of the employer’s business.” (Moradi v. Marsh, California Court of Appeal, B239858, 2013)


SCHOOL SECURITY. A bill (H.R. 2083) that would mandate criminal background checks for public school employees has been approved by the House of Representatives and is pending in the Senate Health, Education, Labor, and Pensions Committee.

Under the bill, the background screening would include a federal fingerprint check as well as checks against the National Sex Offender Registry and child abuse and neglect databases. The bill would prohibit schools from hiring anyone who refuses to undergo a check. Schools would be required to report to local police any applicant who is determined to be a sexual predator. Checks would be repeated for existing employees every five years. Employees would be provided a copy of the background check and allowed to appeal a negative result.

SECURITY CLEARANCES. In response to the questions about security clearances for federal contractors such as Edward Snowden, lawmakers have introduced a bill (S. 1276) requiring greater oversight of clearances. The bill has been approved by the Senate and is pending in the House Homeland Security and Governmental Affairs Committee.

The bill would provide greater funding for the Office of Personnel Management (OPM) to perform audits, investigations, and oversight activities. Additional funding would also be provided for training. Under the bill, the OPM would be required to terminate anyone employed or contracted by the OPM if that person is found to be involved in misconduct that could jeopardize the integrity of the security clearance program.

S. 1276 would also require the Director of National Intelligence to issue guidance to federal agencies on what positions require a security clearance.

BORDER SECURITY. A new immigration bill (H.R. 15) includes updated border security provisions. Aside from the border security issues, H.R. 15 is almost identical to S. 744, the immigration bill that passed the Senate earlier this year.

H.R. 15 removes the requirements included in S. 744 to increase the number of federal border agents and to build a 700-mile fence along the southern border. Instead, H.R. 15 includes the text of H.R. 1417, which would require that the Department of Homeland Security (DHS) develop a comprehensive strategy to improve border security. The strategy would include advanced technology to develop situational awareness and effectively deploy manpower. The strategy would also include collecting metrics, such as the number of apprehensions, to define the program’s progress.

The bill would require that the DHS develop the strategy within 120 days and implement it within 60 days after that. The DHS must have “operational control” of the border within two years of the strategy’s implementation as verified by an independent audit.

H.R. 15 has 188 cosponsors and is currently pending in 12 committees in the House of Representatives.

AVIATION SAFETY. A bill (S. 1495) introduced by Sen. Robert P. Casey, Jr., (DPA) would require that all commercial aircraft have a secondary cockpit barrier. In addition to the locked cockpit door, aircraft would have to add another barrier that could be deployed when the cockpit door is open. The bill does not indicate what the secondary barrier would be.

The bill has no cosponsors and has been referred to the Senate Commerce, Science, and Transportation Committee.


DOMESTIC VIOLENCE. A new law, formerly S.B. 400, in California makes it illegal for employers to discriminate against employees who were victims of domestic violence. The law also requires that employers make a “reasonable” effort to protect victims from their abusers. The law, which takes effect this month, lists changing phone numbers, relocating the employee to another part of the office, and implementing a work-safety plan as reasonable efforts.

PRIVACY. A new law (formerly H.B. 1377) in Maine requires that law enforcement obtain a warrant before accessing personal cell phone content, such as voice mails, text messages, and location data. Exceptions are provided if police obtain the consent of the phone’s owner or if someone’s life is in danger.

This column should not be construed as legal or legislative advice.