A federal labor appeals panel has revived a whistleblower’s claims against the defense contractor Exelis Systems Corp., ruling that the employee can allege retaliation even though he raised concerns about unlawful conduct outside the United States and was fired while overseas.
In an Aug. 29 decision, the three-judge panel of the U.S. Department of Labor’s Administrative Review Board ruled that federal whistleblower protections under the Sarbanes-Oxley Act can extend to employees working in foreign countries who suffer retaliation after reporting potential violations of U.S. law.
The ruling reversed an administrative law judge’s dismissal of the case on the grounds that the whistleblower, Gary Blanchard, was working at an American military base in Afghanistan when he accused his supervisor of trying to cover up a security breach and filing inaccurate time sheets. Investigators with the Labor Department’s Occupational Safety and Health Administration had previously also concluded that federal whistleblower protections do not cover adverse actions, such as firings and other forms of retaliation, that occur outside the United States.
Blanchard’s lawyer, Hessam Parzivand, said the Administrative Review Board’s decision sets “significant precedent on the extraterritorial application” of the Sarbanes-Oxley Act’s whistleblower protections.
“Without this precedent, the statutory scheme didn't make sense. A U.S.-based employee could report fraud on U.S. investors to the tune of 100 million dollars and have retaliation protection whereas an employee in China would have no job protection under [Sarbanes-Oxley] for protecting U.S. investors in the same way,” Parzivand said in an email to The National Law Journal on Wednesday. “I doubt Congress intended to leave such a gaping hole in the corporate fraud protection scheme for publicly traded companies, especially because the majority of publicly traded companies have multinational operations.”
A lawyer for Exelis, Amy Bess of Vedder Price, was not immediately reached for comment Wednesday.
The appeals panel did not rule on whether Blanchard’s activity is protected by whistleblower laws or whether his conduct contributed to his termination. The judges remanded the case to an administrative law judge for further review.
The Administrative Review Board and federal courts have grappled in recent years with whether and in what circumstances federal whistleblower protections apply extraterritorially—a question rooted in the law’s silence on that issue. In 2011, the Administrative Review Board dismissed a whistleblower’s claims of unlawful retaliation based, in part, on the fact that he was working in Colombia and was fired after reporting a potential violation of that country’s tax law.
In the decision reviving the Exelis whistleblower’s claims, the Administrative Review Board said the December 2011 decision “involved a Colombian citizen’s allegations that his Colombian employer’s Dutch parent company had engaged in Colombian tax fraud.” That decision, Villanueva v. Core Laboratories, left open the possibility that federal whistleblower protections could extend extraterritorially in “a case where the complainant, for example, is working for a covered company in the United States, but may have worked in a foreign office of the company for part of the time.”
A team from Littler Mendelson, writing in 2012 on the Villanueva case, said: “The difficulty in future cases will be determining the extent to which the essential claims at issue trigger extraterritorial application of SOX.”
In Blanchard’s case, the reports of misconduct were “based solely on violations of U.S. law,” wrote Administrative Appeals Judge Joanne Royce.
“Blanchard’s protected activity allegations involved violations of domestic law covered under [Sarbanes-Oxley]. As such, extraterritorial reach of the statute is not required to cover Blanchard’s protected activity despite the ALJ’s assertions that the alleged illegal activity occurred in Afghanistan, was discovered in Afghanistan and efforts to address the illegality were largely located in Afghanistan,” Royce wrote.
Administrative Appeals Judge E. Cooper Brown joined with Royce in laying out how federal whistleblower protections can extend internationally. But the chief administrative appeals judge, Paul Igasaki, would not go so far. While he does not “necessarily disagree with their reasoning,” Igasaki wrote, he found that the case “does not give us the opportunity to go beyond holding that the location of [the base in Afghanistan] does not make the case extraterritorial.”
“Nor does any other factor as reviewed in Judge Royce’s decision,” Igasaki wrote. “This is an interesting discussion that, depending upon the facts of a future case that does present questions of extraterritoriality, could be considered by the judges reviewing that case.”
Jason Zuckerman, a whistleblower lawyer in Washington, said Blanchard’s case presented no “genuine issue” of Sarbanes-Oxley’s application to retaliation against employees in foreign countries because the whistleblower was a U.S. citizen working for a U.S. corporation working in a U.S. territory. The panel’s decision, he said, provides a framework to assess the extraterritorial application of federal whistleblower laws.
“For too long there was an incorrect prevailing assumption that a violation of the [Sarbanes-Oxley] whistleblower provision outside the U.S. is not actionable,” Zuckerman wrote in an email to the NLJ. “This opinion, however, reveals that [Sarbanes-Oxley] is as much an anti-fraud law as it is a worker protection law and therefore can apply to conduct abroad.”