U.S. Whistleblower Laws' Scope Narrowed to Complaints Arising in U.S. and Subjects under U.S. Law
Michael Delikat, Partner, and Renee Phillips, Senior Associate, Orrick, Herrington & Sutcliffe LLP, New York, USA
Dodd-Frank's anti-retaliation provision, 15 U.S.C. §78u-6(h), does not apply to conduct occurring outside of the U.S. according to two recent U.S. federal district court decisions. In addition, Sarbanes-Oxley's ("SOX") whistleblower provision does not apply to employees reporting violations of non-U.S. law, the Fifth Circuit Court of Appeals recently held.
In Liu v. Siemens A.G.,1 a judge in the Southern District of New York held that Dodd-Frank's anti-retaliation provision does not apply extraterritorially. Liu, who was a Taiwanese resident, claimed that Siemens China terminated his employment for reporting alleged Foreign Corrupt Practices Act (FCPA) violations in China and North Korea. The court held that there was no indication that Congress intended Dodd-Frank's anti-retaliation provision to apply to conduct occurring overseas. The court further noted that "[t]he fact that a person outside the United States may be a 'whistleblower' under Dodd-Frank does not compel the conclusion that he is protected by the Anti-Retaliation Provision."
Similarly, in Asadi v. G.E. Energy (USA), LLC,2 a Texas district court held that the Dodd-Frank Act's anti-retaliation provision did not cover a U.S.-based employee who was working for a U.S. subsidiary of GE in Jordan pursuant to a temporary relocation. Asadi claimed that, while working in Jordan, he became aware of a possible violation of the FCPA by GE in Iraq. He alleged that, after reporting his concern to the company, he received a negative performance review, was pressured to step down from his position, and was ultimately terminated from his position. The email in which Asadi was informed of his termination stated that GE was terminating his employment "as an at-will employee, as allowed under U.S. law" and that "[a]s a U.S.-based employee you will be terminated in the U.S."
The court nevertheless held that Asadi was not covered by Dodd-Frank's anti-retaliation provision, citing the "longstanding principle" that Congress' legislation does not apply outside the United States "unless a contrary intent appears," and noting that Dodd-Frank's anti-retaliation provision was silent on the issue of whether it applied extraterritorially, creating a presumption that it does not. The court further noted that other sections of the act explicitly address their extraterritorial scope in limited contexts, which strengthened the conclusion that the anti-retaliation provision does not apply extraterritorially.
The federal courts also continue to interpret SOX's whistleblower protection provisions to be focused on U.S. concerns. In Villanueva v. U.S. Department of Labor,3 the Fifth Circuit Court of Appeals held that the plaintiff did not engage in protected activity under SOX when he reported alleged violations of Columbian law. Villanueva was a non-U.S. citizen working in Colombia for a Colombian subsidiary of a Netherlands company that was publicly traded in the United States. He allegedly reported a transfer pricing scheme, pursuant to which his Colombian employer would be required to use a Dutch Antilles entity of the company for inspection services that his employer performed for non-Colombian clients. As part of the scheme, 10% of the contract revenues were paid to the Dutch Antilles company even though it did not procure the contracts or conduct the services. Villanueva alleged that his Colombian employer wrongfully claimed Value-Added-Tax exemptions on the work and, as a result, it was able to under-report its taxable revenue to Colombian authorities. Villanueva claimed that after he reported these issues to, among others, executives in the United States, he was denied a pay raise and his employment was terminated.
The Fifth Circuit affirmed the dismissal of Villanueva's claims under SOX, holding that "Villanueva did not provide information regarding conduct that he reasonably believed violated one of the six provisions of U.S. law enumerated in § 806; rather, he provided information regarding conduct that he reasonably believed violated Colombian law. In other words, he failed to show that he engaged in protected activity under § 806."
While the decisions in Liu, Asadi, and Villanueva may limit the number of individuals who may bring retaliation claims under Dodd-Frank and SOX in the U.S. Federal Courts, the possibility is still there that the SEC could bring an enforcement action against a company that retaliated--even against a non-U.S. citizen. Additionally the Dodd-Frank cash bounty incentives are still available to non-U.S. citizens who provide tips to the SEC. As the SEC has reported in its FY 2013 Report, almost 12 percent of the over 3,000 tips received by the SEC Office of the Whistleblower came from individuals outside the United States.
1Liu v. Siemens A.G., 13 Civ. 317, 2013 U.S. Dist. LEXIS 151005 (S.D.N.Y. Oct. 21, 2013).
2Asadi v. G.E. Energy (USA), LLC, Civil Action No. 4:12-345, 2012 U.S. Dist LEXIS 89746 (S.D. Tex. June 28, 2012), aff'd on other grounds, 720 F.3d 620 (5th Cir. 2013).
3Villanueva v. U.S. Department of Labor, No. 12-60122 (5th Cir. Feb. 12, 2014).