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US Supreme Court Extends Sarbanes-Oxley Act Whistleblower Protection to Employees of a Public Company’s Private Contractors and Subcontractors

Decision: In Lawson v. FMR LLC, former employees of private companies that provide advisory and management services to mutual funds, sued under the Sarbanes-Oxley Act, alleging that their former employers retaliated against them for reporting improper business practices in the operation of the public mutual funds. The district court denied the employers’ motion to dismiss the complaint, concluding that whistleblower protections extend to employees of private contractors and subcontractors that provide services to public companies. On interlocutory appeal, however, a divided panel of the First Circuit reversed.

The Supreme Court reversed the First Circuit, holding that Sarbanes-Oxley whistleblower protection “extends to employees of contractors and subcontractors.” In doing so, the Court looked to the Act’s legislative history and context, including the Enron collapse where Congress recognized that “outside professionals … were complicit in, if not integral to, the shareholder fraud and subsequent cover-up,” in part because of “fear of retaliation.” The Court noted that mutual funds are structured so that they have no employees of their own, so, “if the whistle is to be blown on fraud detrimental to mutual fund investors, the whistleblowing employee must be on another company’s payroll.” Thus, “affording whistleblower protection to mutual fund investment advisers is crucial to Sarbanes-Oxley’s endeavor” of “ward[ing] off another Enron debacle.”

Impact: The Supreme Court’s decision considerably expands the number of employees who may bring suit under Sarbanes-Oxley's whistleblower protection. The breadth of the decision also has the potential to expand the scope of protected activity under the Act because, as the dissent indicated, it may “subject[] a multitude of individuals and private businesses to litigation over fraud reports that have no connection to, or impact on, the interests of public company shareholders” that Sarbanes-Oxley was designed to protect.

Ninth Circuit Affirms that Employees Must Request FMLA Leave

Decision: In Escriba v. Foster Poultry Farms, Inc., the US Court of Appeals for the Ninth Circuit ruled that an employee can affirmatively decline to take leave under the Family and Medical Leave Act (FMLA) when seeking time off, even if the underlying reason for the leave request is covered by the FMLA. Escriba claimed that Foster Farms violated the FMLA, the related California Family Rights Act (CFRA) and California public policy when it terminated her, based on a company policy, for failing to report to work without contacting the company after the end of a previously approved vacation period. The plaintiff argued that Foster Farms was required to designate her leave as FMLA and provide her with appropriate notices because, when requesting vacation, she had informed Foster Farms that she needed time off to care for her ailing father. The court concluded that simply mentioning a qualifying reason for leave does not automatically trigger FMLA protections. Here, there was evidence that the employee had specifically requested vacation time and had affirmatively declined to use FMLA leave. The court also ruled that the district court did not err in admitting evidence about the plaintiff’s prior FMLA leave, which was used to demonstrate that she was familiar with how to make a request for FMLA leave.

Impact: This case demonstrates that if an employee expressly declines to exercise available FMLA or CFRA rights, the employee is not automatically entitled to FMLA/CFRA protection for leave that would otherwise qualify under those acts. It is important for employers to ascertain and record whether an employee intends to take or decline FMLA or CFRA leave, as the question of whether the employee expressly declined to take a protected leave will be a fact-specific inquiry.

NLRB Holds that Policy Forbidding Internal Dissemination of Confidential Information Violates the NLRA

MCPc, Inc. and Jason Galanter

Decision: The National Labor Relations Board (NLRB) recently upheld an administrative law judge’s decision that an employer’s confidentiality policy, which prohibited employees from internally disseminating any confidential information, violated the National Labor Relations Act (NLRA). The policy stated that “dissemination of confidential information within [the company], such as personal or financial information, etc., will subject the responsible employee to disciplinary action or possible termination.” The NLRB held that this language violated Section 8(a)(1) of the NLRA because employees would reasonably construe the rule to prohibit discussion of wages or other terms and conditions of employment with their coworkers.

Impact: There have been several recent cases in which NLRB administrative law judges have struck down overly broad confidentiality policies. This case demonstrates that the NLRB itself is likely to uphold such decisions. Employers should regularly review their policies to ensure that they comply with the most recent guidance from the NLRB and with other relevant laws. Confidentiality policies, in particular, should be narrowly drafted to encompass only trade secrets and other confidential, proprietary information rather than information that might also relate to wages and other terms and conditions of employment.

EEOC Claims that Separation Agreement Unlawfully Prevents Employees from Communicating with the Agency

Equal Employment Opportunity Commission v. CVS Pharmacy Inc.

Decision: The Equal Employment Opportunity Commission (EEOC) filed a Title VII pattern and practice lawsuit against CVS Pharmacy in Illinois federal court alleging that the company’s separation agreement interfered with the right of CVS employees to file discrimination charges or to voluntarily communicate with the EEOC. The language at issue in the agreement required the employee to promptly notify the company if the employee received any inquiry or order relating to, among other things, an administrative investigation. The agreement also contained a disclaimer in its covenant not to sue, specifying that nothing in the paragraph was intended to interfere with employees’ right to participate in a proceeding with a federal, state or local government agency enforcing discrimination laws or prohibit employees from cooperating with any such agency in its investigation. However, the EEOC claimed that “[this] single qualifying sentence that is not repeated anywhere else in the agreement”, was insufficient to cure the covenant’s overbroad nature.

Impact: This suit serves as a warning to employers that the EEOC will closely scrutinize commonly used severance agreement terms. It also suggests that a disclaimer informing workers that they are still able to bring claims to the EEOC may be insufficient to ameliorate a broad general release of claims and covenant not to sue. The EEOC has not clearly articulated under what circumstances such a disclaimer would be sufficient to protect workers’ rights. Until the agency clarifies its position, it will be important for employers to monitor this area of the law and consult with counsel to ensure that its separation agreements are best positioned to withstand scrutiny from the EEOC.

New York City Joins Growing Number of Municipalities Requiring Employers to Provide Sick Leave

Law: New York City’s Earned Sick Time Act (ESTA) requires most private employers to provide up to 40 hours of sick leave per year to their employees working in the city. In general, the law provides that private employers with five or more employees must provide their workers with paid sick time. Private employers with fewer than five employees are still subject to the law but can provide unpaid sick time. If an employer that is required to provide paid sick time fails to do so, the employee will be entitled to three times the wages that should have been paid or $250 for each violation, whichever is greater. If an employee requests sick time and that request is unlawfully denied by the employer, or the employer requires the employee to find a replacement to cover the employee’s shift, the employee can recover $500 for each violation.

Impact: New York’s ESTA imposes a number of technical requirements related to carryover and recordkeeping, so even employers that already have paid sick leave policies in place should review those policies for compliance with the new law. New York City joins a growing number of municipalities that have enacted legislation requiring employers to provide sick leave to their employees, including San Francisco, Jersey City, Portland, and Washington DC. Connecticut is the only state to require private-sector employers to provide sick pay; some states, such as Wisconsin and Florida, have banned cities from adopting sick-pay legislation. Given the ongoing changes in this area, employers should keep abreast of new and pending legislation and should consult counsel to ensure that their sick leave policies comply with the laws in all jurisdictions where they have employees.

EEOC May Proceed with Its ADA Challenge to UPS’s 100-Percent Healed Policy

EEOC v. United Parcel Service, Inc.

Decision: The EEOC successfully defeated a motion by United Parcel Service (UPS) to dismiss the EEOC’s second amended complaint challenging UPS’s policy of discharging employees who cannot return to work after 12 months of leave. The EEOC alleged that UPS's policy violated the Americans with Disabilities Act (ADA) by establishing a 100-percent healed requirement that requires qualified individuals with a disability to return to work from their medical leave and to work without an additional accommodation.

In ruling on UPS’s motion to dismiss, the court rejected the company’s contention that the requirement is an attendance policy permissible under the ADA because regular attendance is an essential job function. Instead, the court held that the rule may be an unlawful qualification standard because it screens out, or tends to screen out, individuals with disabilities. The court based its ruling on the distinction in the EEOC’s ADA regulations between “qualification standards” and an “essential job function.” The regulations define qualification standards as “the personal and professional attributes including the skill, experience, education, physical, medical, safety and other requirements established by a covered entity as requirements which an individual must meet in order to be eligible for the position held or desired” whereas an essential job function is defined as “the fundamental job duties of the employment position the individual with a disability holds or desires.” According to the court, “Because [UPS’s 100-percent healed] requirement falls within the definition of a ‘qualification standard,' and the EEOC has alleged that the policy applies to qualified individuals with disabilities, the EEOC may proceed on its § 12112(b)(6) claim.”

Impact: This case serves as an important reminder that an employer’s duty under the ADA, when it comes to qualified individuals with disabilities, is to engage in an interactive process that seeks to determine whether reasonable accommodations are needed in order for an employee to return to work and perform the job’s essential functions. Return-to-work policies that do not consider reasonable accommodations may draw scrutiny from the EEOC as an attempt to circumvent this duty. Employers should regularly review their leave policies to ensure that the policies meet the particular business’s needs and comply with the law.

If you have any questions about the matters addressed in this issue, please contact the authors Andrea Weiss, Ruth Zadikany and Lori Zahalka, or the US Employment practice chairs Marcia Goodman or John Zaimes.