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Three recent administrative decisions under the employee protection (whistleblower) provisions of the Sarbanes-Oxley Act, 18 U.S.C. 1514A, highlight the continuing development of the law under Sarbanes-Oxley and reflect positive developments for employers. In Stevenson v. Neighborhood House Charter School, No. 2005-SOX-00087 (Sept. 7, 2005), an administrative law judge (ALJ) rejected an attempt to extend coverage to a private company based on its dealings with public companies or reporting requirements under unrelated provisions of Sarbanes-Oxley. In Bothwell v. American Income Life, No. 2005-SOX-00057 (Sept. 19, 2005), an ALJ similarly rejected an attempt to extend coverage to a nonpublic subsidiary of a public company in the absence of evidence that the public company was involved in the subsidiary’s employment practices. Finally, in Halpern v. XL Capital Ltd., ARB Case No. 04-1120, ALJ Case No. 2004-SOX-00054 (ARB Aug. 31, 2005), the Department of Labor’s Administrative Review Board (ARB) clarified that the statute of limitations begins to run when an employee receives a “final, definitive, and unequivocal notice” of an adverse employment action, and rejected attempts to suspend the running of the statute. A common issue in many Sarbanes-Oxley whistleblower cases is whether the employer actually is covered by the act. The act provides whistleblower protection only for employees of publicly traded companies, companies with a class of securities registered under � 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781) or companies that are required to file reports under � 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)). Many complainants, however, have tried to argue that certain activities of an otherwise private company bring it within the coverage of Sarbanes-Oxley, or that nonpublic subsidiaries of public companies are also covered. The ALJ decisions in the first two decisions suggest that the definition will be read strictly. ALJ found private company not covered by provisions In Stevenson, the complainant argued that the employer, a private company, was nonetheless covered by the employee protection provisions because its pension plan was subject to the requirements of the Employee Retirement Income Security Act (ERISA) and the trustee of the plan (but not the company) was required to file periodic reports with the Securities and Exchange Commission (SEC) under � 15(d) of the Securities Exchange Act. He also argued that Sarbanes-Oxley protections applied because the employer was subject to other provisions of that act and other rules promulgated under the Securities Exchange Act. Finally, he argued that bondholders and private and public corporation donors to the employer were like the shareholders of a publicly traded company. The ALJ firmly rejected all of these arguments and dismissed the case for lack of jurisdiction. First, he held that the requirements of ERISA were irrelevant in deciding whether a company is covered by the employee protections of Sarbanes-Oxley. The contrary view would sweep numerous private employers under the act’s coverage. Similarly, he held that it was irrelevant that the employer might be subject to other provisions of the act or rules promulgated under the Securities Exchange Act, because none of these subjected the employer to the reporting requirements of � 15(d) of the Securities Exchange Act. Finally, he held that there was no evidence that Congress intended a private company to be covered by the employee protection provisions simply because it received funds from private donors or public companies, citing prior decisions involving nonpublic subsidiaries or contractors. The even more recent decision in Bothwell held that a Sarbanes-Oxley retaliation claim against a nonpublic subsidiary was barred because the complainant did not name the publicly traded parent in his charge and did not present evidence to show the corporate veil should be pierced. The ALJ first rejected an argument that the subsidiary should be covered simply because it had a publicly traded parent, finding that Congress specifically did not intend to treat subsidiaries and parents as one entity. He then distinguished a handful of cases in which it was held that Sarbanes-Oxley protections applied to an employee of a nonpublic subsidiary, on the grounds that in those cases the complainants had named the publicly traded parent as a respondent and had shown sufficient commonality of management and purpose to justify holding the parent liable for its subsidiary’s actions. Most importantly, the ALJ held that such vicarious liability only extends to areas where the parent has exerted its influence or control. Thus, even when there is some commonality of certain aspects of management, such as in directors and officers, marketing and overall business strategy, there must be some indication that the subsidiary acted as an agent for its parent with respect to employment practices toward the complainant or other employees, before its actions can be covered by Sarbanes-Oxley. In effect, he used the “common control” test, which has been applied under a wide variety of employment laws and regulatory schemes to determine when a claim may proceed against the parent as well as the subsidiary. See, e.g., U.S. v. Bestfoods, 525 U.S. 51 (1998). As the complainant had failed to make such a showing, the claim was dismissed. Halpern v. XL Capital Ltd. addresses the date on which the statute of limitations for filing a complaint begins to run, as well as when the statute may be equitably tolled. Marc Halpern, a vice president of technical services, was suspended on Sept. 29, 2003, under circumstances that he felt indicated that he was going to be fired, and he stated this understanding in an Oct. 1, 2003, e-mail. However, on Oct. 14, 2003, the company’s general counsel sent Halpern an e-mail disavowing any final decision concerning his employment. On Jan. 8, 2004, however, the company sent him a letter terminating him effective on Jan. 12, 2004, and also informed him of this decision in a telephone call that day. Halpern did not file his complaint until April 15, 2004. Under Sarbanes-Oxley, an employee alleging retaliation for engaging in protected whistleblowing activity must file a complaint with the Occupational Safety and Health Administration within 90 days after the alleged violation occurred. 18 U.S.C. 1514A(b)(2)(D). This can be done in person, or by mail, fax or e-mail. The regulations state that a violation occurs “when the discriminatory decision has been both made and communicated to the complainant.” 29 C.F.R. 1980.103(d). In employment discrimination cases, the courts long have held that a limitations period begins to run when the employee receives unequivocal notification of the allegedly discriminatory act, not when the action actually takes effect or the consequences otherwise become apparent. See, e.g., Delaware State College v. Ricks, 449 U.S. 250 (1980). The ARB had followed this principle in prior whistleblower cases arising out of other statutes, holding that the limitations period begins on the date an employee receives “final, definitive, and unequivocal notice” of the adverse employment action. See, e.g., Jenkins v. U.S. Environmental Protection Agency, ARB No. 98-146, ALJ No. 1988-SWD-2, slip op. at 14 (ARB Feb. 28, 2003). Unequivocal confirmation of termination starts clock In Halpern, the ARB applied this precedent to Sarbanes-Oxley cases as well, rejecting an ALJ’s finding that the limitations period began on Sept. 29, 2003, on the ground that the Oct. 14, 2003, e-mail showed that Halpern had not yet received “final, definitive, and unequivocal notice” of his termination. It found, however, that the verbal and written confirmation delivered to Halpern on Jan. 8, 2004, met this standard, and therefore his April 15, 2004, filing was untimely by several days. The ARB also rejected any basis for equitable tolling of the 90-day filing period, holding that it was irrelevant when Halpern may have acquired evidence of a possible unlawful motivation for his termination so long as he was aware of the termination. The ARB’s unwillingness to stretch to try to find a basis for equitable tolling indicates that the statute will be strictly construed. In light of the ARB’s ruling and the relatively short 90-day statute of limitations for Sarbanes-Oxley claims, employers should take care to make sure that employees receive “final, definitive, and unequivocal notice” of any adverse employment actions, even if the effective date is later. Employees often seek internal reconsideration of actions, and any response should in no way suggest that the original decision is not final, lest the limitations period be restarted. This is particularly true in light of the ARB’s rejection of any tolling based on lack of knowledge of an alleged unlawful motivation. Employees often may not assert that there allegedly is evidence of such a motivation for some time, especially when the adverse action is something less than a termination. These three decisions show that both the ARB and ALJs are resisting the temptation to extend the coverage of the Sarbanes-Oxley retaliation provisions beyond the intent of Congress or to avoid the effect of the statute of limitations. As the number of cases filed increases, the law concerning these key provisions, as well as others, will continue to develop. Frank C. Morris Jr. is director of the labor and employment department in the Washington office of New York-based Epstein Becker & Green, and Brian Steinbach is a senior attorney in that department. They can be reached, respectively, via e-mail at [email protected] and [email protected].

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