Businesses are constantly challenged by the ever-evolving landscape of labor and employment law, with new legislation and judicial developments occurring almost daily fueling a seemingly never-ending stream of litigation. For companies operating in multiple states, complying with this patchwork of federal, state, and local laws and developments can be daunting. Knowing these issues are a top concern for management and in-house counsel, Morrison Foerster keeps pace with this rapidly evolving landscape. MoFo ELC equips our clients with the most up-to-date and relevant information on employment and labor law issues covering key judicial, litigation and legislative developments, their implications for employers, and strategies to ensure compliance and avoid lawsuits.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Co-Chair, Global Employment and Labor Practice

Partner

Andrew Turnbull represents companies on a broad range of labor and employment litigation and counseling matters. He has successfully defended clients in complex employment litigation before federal and state courts and administrative agencies. A primary focus of his practice involves helping companies navigate the unique employment issues that arise when doing business with the federal government, including advising on all aspects of OFCCP compliance, creating and implementing affirmative action plans, defending OFCCP audits and onsite investigations, conducting mock pay equity audits, drafting and developing business ethics policies and programs, and complying with the Service Contract Act, E-Verify, and the Drug Free Workplace Act.

Andrew Turnbull

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MoFo ELC equips our clients with the most up-to-date and relevant information on employment and labor law issues, covering key judicial, litigation, and legislative developments, their implications for employers, and strategies to ensure compliance and avoid lawsuits. To learn more about our capabilities, please visit the <a href="https://www.mofo.com/capabilities/employment-labor" target="_blank">Employment + Labor</a> practice page and read about our <a href="https://www.mofo.com/people?practices=Employment%20%2B%20Labor" target="_blank">Team</a>.

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Fourth Circuit Stays Injunction of Trump DEI Executive Orders

President Trump Rescinds Affirmative Action for Federal Contractors and Requires Enforcement Plan to End Unlawful DEI at Private Companies

FAR Council Withdraws “Pay Equity and Transparency” Proposed Rule

The “Preventative Duty”: New Law Places Active Duty on Employers in the UK to Prevent Sexual Harassment in the Workplace

Good News for Employers: Texas Court Blocks FTC’s Non-Compete Ban

Earlier this month, the Supreme Court unanimously reversed the Second Circuit’s decision in Murray v. UBS and resolved a circuit split in favor of employees, holding that although intent is an element of a Sarbanes-Oxley (“SOX”) whistleblower case, a SOX plaintiff does not have to prove retaliatory intent or animus to prevail. The decision, which addressed the meaning of the contributing-factor standard, leaves SOX as one of the, if not the, most protective whistleblower statutes in the country and may extend well beyond the statute itself. As we have discussed previously, the same standard is used for not only a dozen or so other federal whistleblower statutes, but also California’s general whistleblower law, California Labor Code Sec. 1102.5. The article below provides a brief background on SOX’s contributing-factor standard, the facts of the case, an overview of the decision, and some practical takeaways.Read the <a href="https://www.mofo.com/resources/insights/240226-supreme-court-reverses-second-circuit" target="_self">full client alert</a>.

Supreme Court Reverses Second Circuit in Favor of Whistleblower Plaintiff, Holding That SOX Plaintiffs Need Not Prove Retaliatory Intent

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Eric Akira Tate co-chairs the firm’s Global Employment and Labor Group. He represents technology and other companies in bet-the-company trade secrets and employee mobility cases.

Eric Akira Tate

Eric Tate chairs the firm’s Global Employment and Labor Group. He has represented technology and other companies in the biggest and most highly-publicized trade secrets and employee mobility cases across multiple industries. Eric also represents companies in whistleblower, wage and hour, and other employment litigation.

Eric Tate

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Cooper Spinelli is a member of the Litigation Department and part of the firm’s Employment & Labor Group. His practice focuses on trade secrets and restrictive covenants, employee mobility and executive disputes, whistleblower claims, and general business litigation.

Cooper J. Spinelli

Cooper Spinelli

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Supreme Court Reverses Second Circuit in Favor of Whistleblower Plaintiff, Holding That SOX Plaintiffs Need Not Prove Retaliatory Intent

New Guidance on COVID-19 Protocols for Contractor Employees at Federal Facilities

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Earlier this month, the Supreme Court unanimously reversed the Second Circuit’s decision in Murray v. UBS and resolved a circuit split in favor of employees, holding that although intent is an element of a Sarbanes-Oxley (“SOX”) whistleblower case, a SOX plaintiff does not have to prove retaliatory intent or animus to prevail. 

On January 29, 2024, the Biden administration issued a <a href="https://www.federalregister.gov/documents/2024/01/30/2024-01343/office-of-federal-procurement-policy-federal-acquisition-regulation-pay-equity-and-transparency-in">Proposed Rule</a> that would prohibit federal contractors from seeking and considering compensation history when making employment decisions and require contractors to disclose compensation being offered in job postings. If implemented, the requirements will apply broadly to all federal contracts and subcontracts that are principally performed in the United States and cover all jobs that work on or in connection with a covered contract. Covered applicants and employees can submit complaints of alleged violations to the applicable contracting agency to “take action as appropriate,” and those agencies must forward to the Office of Federal Contract Compliance Programs (OFCCP) any such complaints that also allege discrimination.Released in recognition of the 15th anniversary of the Lilly Ledbetter Fair Pay Act, the Proposed Rule further implements the policies that the Biden administration announced in its March 15, 2022, Executive Order 14069 to advance pay equity and transparency in federal contracting. It also follows the trend of states passing pay equity and transparency laws requiring businesses to post pay information in job postings and prohibiting use of salary history information. Contractors should consider reviewing their pay equity and transparency practices now in light of the Proposed Rule so they can be prepared to comply should the rule become final.  Read the full <a href="https://www.mofo.com/resources/insights/240131-proposed-rule-seeks-to-mandate-pay-transparency" target="_blank">client alert</a>.

Andrew co-chairs the firm’s Global Employment and Labor Group. He represents companies on a broad range of labor and employment litigation and counseling matters, successfully defending clients in number complex matters before federal and state courts and administrative agencies.

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Associate

Keniece Gray is an associate in the Litigation Department of Morrison Foerster’s Washington, D.C. office.

Keniece Y. Gray

Keniece Gray

On January 29, 2024, the Biden administration issued a Proposed Rule that would prohibit federal contractors from seeking and considering compensation history when making employment decisions and require contractors to disclose compensation being offered in job postings.

Proposed Rule Seeks to Mandate Pay Transparency and Ban Using Salary History for Federal Contractors

The California Supreme Court has issued its opinion in Estrada v. Royalty Carpet Mills, Inc. (S274340, Jan. 18, 2024), resolving a split of authority regarding whether claims brought under the Private Attorneys General Act (PAGA) may be stricken where there is no manageable way to try them.  Unfortunately for California employers, the answer is no.  This outcome is disappointing to those hoping that the Supreme Court might have done something more in Estrada to curb the abuse of PAGA, which too often becomes a vehicle through which overreaching, unmanageable claims are alleged in shakedown lawsuits in an attempt to extract windfall settlements.  The present state of affairs is a sober reminder that, now more than ever, PAGA is broken and needs to be fixed.Despite its holding, Estrada recognizes that PAGA manageability is a concern.  In particular, Estrada distinguishes a trial court’s inability to dismiss PAGA claims outright on manageability grounds from the various tools that remain available to courts to efficiently manage such claims.  Indeed, the opinion acknowledges the “challenges” presented by the complexities of PAGA actions, and it leaves “undisturbed” the various case management tools courts can and should use to ensure that such claims are “efficiently, fairly, and effectively tried.”  So, while motions to strike PAGA claims for unmanageability alone are no longer viable, the focus on PAGA manageability is far from over.  To the contrary, Estrada reminds plaintiffs of the need to be practical in bringing appropriately tailored claims capable of being effectively tried.  Nothing in Estrada prevents trial courts from insisting that plaintiffs provide a trial plan showing how their claims would be tried, and Estrada reminds courts that they may limit PAGA claims and/or testimony or other evidence offered at PAGA trials to ensure manageability.  Estrada even preserves the possibility of striking a PAGA action altogether where the claims are so unmanageable as to deprive a defendant of due process.  Going forward, we can expect trial courts to emphasize workable trial plans and the use of other case management tools to effectively and efficiently manage their PAGA dockets.

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The California Supreme Court has issued its opinion in Estrada v. Royalty Carpet Mills, Inc. (S274340, Jan. 18, 2024), resolving a split of authority regarding whether claims brought under the Private Attorneys General Act (PAGA) may be stricken where there is no manageable way to try them.  

Per the California Supreme Court: PAGA Claims May Not Be Stricken on Manageability Grounds

One of the difficult realities of running a business is that companies occasionally find themselves needing to make reductions to their staff headcount, be it because of workplace shutdowns due to economic difficulties, reorganizations, the need for synergy after acquisitions, or any number of other legitimate business reasons.As with any employee termination, termination processes that have the potential to impact multiple jobs need to be carefully prepared and carried out. Formalities under the law of the country in which affected employees are based need to be observed. In February 2023, we summarized the 10 <a href="https://www.mofo.com/resources/insights/230213-key-considerations-for-navigating-workforce-reductions" target="_blank">most important considerations for navigating workforce reductions</a> and pointed out that where employees outside the United States are affected additional complexities and obligations — and often considerably extended timeframes — arising under local laws may apply. Companies with an international workforce need to be aware that specific regulations—similar in principle, but often with different and sometimes more onerous practical requirements for employers, to the U.S. federal WARN law—for collective redundancies exist in Europe.In EU member states, these regulations are determined by the local legislation that implemented the 1998 European Collective Redundancies Directive (Directive 98/59) (the “Directive”). This alert sets out a brief reminder for companies with employees in EU member states of the key issues to be aware of when contemplating headcount reductions, along with an indication of how the implementing legislation works in Germany and the UK (where the previously existing collective redundancy legislation was amended in 2013, while the UK was an EU member state, to reflect the Directive’s implementation).The European Collective Redundancies DirectiveEU directives do not apply directly to employees and employers but are solely aimed at the member states. Each member state needs to implement a directive’s regulations into national law in order for them to become binding within the jurisdiction. A directive only sets out the minimum standards for local legislation, which means that member states can apply or introduce provisions that are more favorable to employees. Accordingly, there are variations across how each EU member state has implemented the Directive but many of the principles remain the same.Under the Directive, a dismissal is any termination of employment initiated by the employer for one or more reasons not related to the employee concerned. Thus, it includes not only a termination notice handed over by the employer, but also the conclusion of a settlement/termination agreement if initiated by the employer. In other words, even where an employee opts for voluntary redundancy—in a situation where a company looking to reduce headcount offers enhanced exit benefits if employees agree to leave voluntarily—this would still be deemed a dismissal under the Directive and respective national laws and, therefore, will count towards the “collective” dismissal threshold (see more below).The Directive sets out the following key elements to collective redundancy:<ul dir="ltr"><li dir="ltr">Threshold: The Directive provides two options for the threshold for the number of notices of termination that need to be issued within a certain time period in order for the proposed redundancies to amount to a collective redundancy. Each individual member state had the discretion to choose which of the two alternatives to implement into national law. The relevant thresholds options under the Directive were:</li><ul><li dir="ltr">Option 1: within a 30-day period, notice of termination issued to: </li><ul><li dir="ltr">at least 10 employees in establishments where between 21 and 99 employees are employed;</li><li dir="ltr">at least 10% of the employees in establishments where between 100 and 299 employees are employed; and</li><li dir="ltr">at least 30 employees in establishments where 300 or more employees are employed; OR</li></ul><li dir="ltr">Option 2: within a 90-day period, notice of termination issued to at least 20 employees regardless of the number of employees employed at the establishments in question.</li></ul></ul>Note that the Directive refers to “establishments” and not the total number of employees employed by a company/employer. For the purposes of the collective redundancy threshold, redundancies are counted on a per establishment basis meaning that redundancies by employers with multiple establishments (e.g., multiple plants or offices) will not necessarily trigger a collective process where impacted employees are spread across different establishments.<ul><li>Consultation with employee representatives, if any: Where a company is contemplating collective redundancies, the employer needs to consult with employee representatives, to the extent any exist, beforehand with a view to reaching an agreement. During the consultation, the Directive requires the parties to discuss whether and how collective redundancies can be avoided, or if the number of affected workers can be reduced and if there are any ways to mitigate the consequences for the employees. In order to enable the employee representatives to effectively engage in this consultation, the employer is obliged to provide the representatives with certain information regarding the rationale and process for the redundancies. Where there are no pre‑existing elected employee representatives, the Directive does not require the election of new representatives specifically for this consultation.</li><li>Notification to a competent public authority: In most situations, employers are obliged to notify the relevant competent public authority in the jurisdiction in writing in advance of any proposed collective redundancies. The notification shall contain all relevant information concerning the collective redundancies and the consultations with employee representatives along with a copy of the consultation and, similarly, a copy of the notification to the relevant authority must also be shared with the employee representatives, if any.</li><li>Effective date of terminations: The terminations cannot take effect until at least 30 days after the notification to the competent public authority described above.</li></ul><ul><li>Consequences for non-compliance: Each member state must implement laws to ensure that employee representatives and/or employees are able to enforce the obligations either by judicial and/or administrative procedures. However, the Directive does not detail any specific penalties or consequences for non-compliance with any aspects of the collective process. Accordingly, it was up to the member states to decide whether non-compliance with a procedural step could impact the validity of the redundancies as well as, or instead of, penalties on the employer for failure to follow the proper collective redundancy process.</li></ul>How did Germany implement the Directive?Germany opted for the 30-day period alternative but determined different, in effect lower, thresholds for what would constitute a collective redundancy meaning that a collective process could be triggered in Germany where it wouldn’t be the case in another EU member state even though the same number of employees were impacted. Employers with employees in Germany need to have the following thresholds in mind, depending on the size of the business in Germany, when contemplating collective redundancies:<ul><li>more than five employees in establishments with between 21 and 59 employees;</li><li>10% of the regularly employed employees or more than 25 employees in establishments between 60 and 499 employees; or</li><li>at least 30 employees in establishments with 500 or more employees.</li></ul>In addition to the comprehensive information and consultation obligations set out in the Directive, under German law collective redundancies may trigger additional works council rights. Depending on the size of the establishment, the implementation of collective redundancies could be deemed to be an “operational change”. As a result, the company would be obliged to negotiate and agree with the works council on measures to mitigate the economic consequences for the employees. This process can take up to six months (sometimes even longer) depending on the circumstances and needs to be completed before any redundancies can take effect.Interestingly, the German implementing legislation did not set out any sanctions or consequences for non-compliance with any aspect of the information, consultation or notification process. However, German labor courts filled this silence. Up until recently, the view of the labor courts was that the correct, timely, and complete collective redundancies notification to the German employment agency (the competent public authority in Germany) and the prior information and consultation process with the works council were mandatory steps for a dismissal to be effective. If an individual employee challenging their termination filed a protection against dismissal lawsuit, the burden was on the employer to prove that the notification was correctly filed and met all standards and requirements. This added another layer to the preparation process, and in many cases a termination was held invalid by labor courts because of mistakes made in connection with the collective redundancies notification.However, the importance of these procedural steps may be about to change. Following a ruling of the European Court of Justice (the “ECJ”), a chamber of the German Federal Labor Court (the highest labor court in Germany) announced in December 2023 that it intends to change its position that a termination is deemed to be invalid solely as a result of a failure to properly notify the unemployment agency. It remains to be seen whether the highest labor court in Germany will in fact abandon its previous case law and allow dismissals to take effect even where certain procedural formalities have not been complied with. If it does, German lawmakers may look to take action and instead implement an alternative sanction for non-compliance with the full collective process. We will continue to monitor these developments.Is the collective redundancies process different in the UK?In short, yes. Although it is worth noting that the UK’s approach to collective redundancies remains broadly unchanged from when the Directive was first implemented into English law through a 2013 Order amending the Trade Union and Labor Relations (Consolidation) Act 1992 (“TULCRA”). In simple terms, TULCRA requires employers who are proposing to dismiss 20 or more employees at one establishment within a period of 90 days or less to inform and consult with elected employee representatives. Minimum periods for consultation apply before the first dismissal can take effect: 30 days where fewer than 100 redundancies are proposed at a single establishment and 45 days where 100 or more redundancies are proposed. The same periods, 30 and 45 days respectively, broadly apply to the advance notice required to be given to the UK Secretary of State (the relevant competent public authority for this purpose).There are various ways in which TULCRA diverges from the Directive, but the most notable are the phrase “redundancies proposed”, which is said to allow for consultation to start at a later date than the Directive’s “contemplated” language, and the requirement for redundancies to be at one establishment to meet the 90-day threshold, whereas the Directive’s second limb option spanned dismissals over a 90‑day period across establishments. Unlike in Germany, it is not the case that a dismissal would be deemed ineffective where one of the procedural steps required by TULCRA has not been followed. Instead, employees could seek to bring claims for unfair dismissal and/or failure to comply with the obligation to consult, both of which carry the potential for significant financial awards. The specific penalty for failing to provide the required advanced notice to the Secretary of State in the prescribed “Form HR1” carries an entirely separate penalty—failure to notify the Secretary of State is a criminal offence with potential criminal liability for both the employer and the individuals involved. See our recent article in the <a href="https://restructuring.mofo.com/topics/the-administrator-an-officer-of-the-company-" target="_blank">MoFo Restructuring Round-Up</a> on this potential liability.This alert provides a small flavor of the types of variations that exist when dealing with multiple employee dismissals in just two European jurisdictions. In other European countries the processes required can be more onerous and the potential risks greater. We strongly recommend employers seek local law advice as soon as they determine any possibility of redundancies or other dismissals as the pitfalls of getting the process wrong can be grave.

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Lara Sirimanne is an associate in the London employment practice of Morrison & Foerster. She advises domestic and international clients on the full spectrum of both contentious and non-contentious emp

Lara M. King

Lara King

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Senior Associate

Christin is a senior associate at Morrison & Foerster’s German office in Berlin and is a member of the Employment & Labor practice group. She advises national and international companies on all issues

Christin Dunkel

Christin is a senior associate at Morrison & Foerster’s German office in Berlin and is a member of the Employment & Labor practice group. She advises national and international companies on all issues and disputes arising under labor law.

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Of Counsel

Oliver Spratt is Of Counsel based in the London office of Morrison Foerster. 

Oliver Spratt

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For more than two decades, Hanno has advised and represented leading domestic and international corporations in a wide variety of industries, including technology, consumer products, automotive, and 

Hanno Timner

Hanno Timner is a partner in the Berlin office and head of the Employment and Labor practice group in Germany. He advises and represents national and international employers in all labor law issues and disputes.

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One of the difficult realities of running a business is that companies occasionally find themselves needing to make reductions to their staff headcount, be it because of workplace shutdowns due to economic difficulties, reorganizations, the need for synergy after acquisitions, or any number of other legitimate business reasons.

Collective redundancies in Europe

Each year seems to bring significant developments in whistleblower law, and 2023 has been no exception. As whistleblower activity increases, so, too, has the scope of its protections. From state to federal government, from the SEC to the U.S. Supreme Court, courts and regulators in the last 12 months or so largely have made it easier for employees to raise whistleblower claims while making it harder for employers to defend them. Below are some of the highlights, including two important decisions effectively expanding the scope of protections under California’s general whistleblower law (Section 1102.5), a U.S. Supreme Court that seems to be leaning toward a ruling that may favor SOX plaintiffs, and an SEC enforcement action against a private company to enforce its whistleblower protection rule.California Supreme Court Adopts Expansive Interpretation of Protected Activity Under California’s General Whistleblower LawSection 1102.5 of the California Labor Code prohibits employers from retaliating against an employee “for disclosing information” reasonably believed to be a violation of state or federal law to a government agency or “to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct the violation or noncompliance.” For the last few years, there has been something of a circuit split in California on what it means to “disclose” in this context. Does Section 1102.5 protect employees who report suspected unlawful activity even if the recipient of the report already knows about it? Or does the law protect disclosure of only previously unknown information?The California Supreme Court resolved this question on May 22, 2023 in favor of employees, holding in People ex rel. Garcia-Brower v. Kolla’s, Inc. that Section 1102.5 does not require that a reported violation be unknown to the recipient. People ex rel. Garcia-Brower v. Kolla’s, Inc., 14 Cal. 5th 719 (2023). Although it recognized that “disclose” often refers to sharing previously unknown information, the court noted the California legislature has used “disclose” to mean “bringing into view” information “to which the discloser tends to have special access,” regardless of whether it is already known to some or all of the recipients, such as when a judge discloses campaign contributions. For the court, these usages illustrated that “disclose” “need not mean only the revelation of information previously unknown to the recipient.” And applying this narrower reading of “disclose” to the whistleblower statute would, in the court’s view, be contrary to its remedial purpose. The court also held that disclosure is protected even if the recipient of the disclosure is engaged in the wrongdoing being disclosed.The upshot is that, under Section 1102.5, employee Y may be deemed to “blow the whistle” even if employee X has already blown it first, even if employee Y knows this before coming forward,[1] and even if the employer of X and Y is already aware of and involved in the alleged wrongdoing or trying to correct it.Ninth Circuit Endorses Expansive Interpretation of California’s General Whistleblower LawIn Killgore v. SpecPro Pro. Servs., LLC, 51 F.4th 973 (9th Cir. 2022), an employee sued under California Labor Code Section 1102.5(b) on the basis that he was fired for reporting suspected illegality about an environmental assessment report to the U.S. Army Reserve Command (his employer’s customer) and his supervisor. The employer moved for summary judgment on multiple grounds, several of which are relevant here: that Section 1102.5 does not protect (1) disclosures to people who do not have authority over the discloser; (2) reporting made in the course of an employee’s normal duties; and (3) disclosures made before the allegedly illegal act was complete. On appeal, the Ninth Circuit rejected each ground and ruled for the employee:<ol dir="ltr"><li dir="ltr">Under Section 1102.5, an employee can engage in protected activity by disclosing suspected illegality to someone who has authority over the employee, even if that person lacks the power to correct it. Section 1102.5 complaints often arise when an employee discloses suspected unlawful activity internally to their employer. But in the context of internal complaints, Section 1102.5 can apply only if the employee discloses the information “to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct a violation or noncompliance[.]” In Killgore, the employer argued that the plaintiff’s disclosure to his supervisor could not have been protected because his supervisor is a private citizen in the employ of a private firm and lacked the power to correct the Army Reserve’s alleged non-compliance. The court rejected this argument, however, reading the key clause in (b)—“to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance” (emphasis added)—as disjunctive, and that “who has authority to investigate . . .” modified only the last antecedent, i.e., “another employee” rather than also “a person with authority over the employee.”</li><li>Under Section 1102.5(b), an employee can engage in protected activity even if disclosure is part of the employee’s “normal duties.” In so holding, the court pointed to Section 1102.5(b)’s 2014 amendment, which added that a whistleblower’s disclosures are protected “regardless of whether disclosing the information is part of the employee’s job duties.” Cal. Lab. Code § 1102.5(b). Based on this amendment, “[e]ven if the district court were correct that [the plaintiff’s] reports to [the government customer] were a normal function of his employment, his disclosures were clearly protected under state law at the time they were made.”</li><li>That the employee disclosed suspected illegality before the alleged illegality was complete is not necessarily fatal to whether they had a reasonable belief of illegality. The employer argued that the plaintiff could not have reasonably believed there was a violation of the environment assessment report because the plaintiff was fired before the report had even been completed and therefore before any illegality could have occurred. The court disagreed. Under Section 1102.5(b), “[a]n employer may not retaliate against an employee for disclosing wrongful conduct “or because the employer believes that the employee disclosed or may disclose information” about a violation of law.” (Emphasis in case.) Relying on the “may disclose” language, the court found that Section 1102.5(b) also protects “anticipated whistleblower” activity and an employer cannot “fire the potential whistleblower before completing the illegal act and thereby escape liability.”</li></ol>U.S. Supreme Court May Issue Decision Making It Harder for Employers to Defeat SOX Whistleblower ClaimsThe U.S. Supreme Court heard oral argument in the SOX case Murray v. UBS on October 10, 2023. We covered the <a href="https://www.mofo.com/resources/insights/230731-scotus-poised-to-resolve-circuit" target="_blank">Second Circuit’s decision and issues</a> presented earlier this year. The question before the Court is whether SOX’s contributing-factor standard requires that a whistleblower plaintiff make a showing of retaliatory intent, or whether it is enough for a plaintiff to show that the protected activity in some way contributed to the adverse employment action, regardless of whether the employer intended to retaliate against the employee. Put somewhat differently, is there a meaningful distinction between causation and intent under the contributing-factor standard and does it require a SOX whistleblower plaintiff to prove retaliatory intent? Although a technical question, it is one that could have far-reaching implications.[2]Oral argument certainly does not always reveal which way Justices will vote. The Justices’ questioning here, however, suggests that the Court may reverse the Second Circuit in favor of the employee and establish a SOX standard that does not require retaliatory intent. Justices Jackson, Sotomayor, Kagan, Gorsuch, and, to a lesser extent, Barrett and Kavanaugh, all at various points appeared less than convinced by the causation-intent distinction underlying the company’s position in the SOX context. Justice Gorsuch, in particular, pushed back against the idea that the statute requires a SOX whistleblower plaintiff to prove retaliatory intent:SCALIA: We can talk about the other flaws in the instructions that were given here that we think are independent reasons to affirm the Second Circuit. But, again, if you’re instructing a jury about retaliatory intent in a case that’s involving Sarbanes-Oxley whistleblower retaliation –JUSTICE GORSUCH: I just don’t see those words in this statute.SCALIA: – I think it becomes a little bit confusing for a jury.JUSTICE GORSUCH: I see discrimination in this statute, and I see whistleblowing activity, and I know there’s a causation requirement, but I don’t see the retaliation in this statute.SCALIA: Yeah.JUSTICE GORSUCH: So help me out. You’re asking me to read things into a statute that aren’t there, aren’t you, counsel?MR. SCALIA: Yeah.JUSTICE GORSUCH: So help me out. You’re asking me to read things into a statute that aren’t there, aren’t you, counsel?Justice Kavanaugh also seemed to suggest that, at the end of the day, the standard might not make much practical difference because, supposedly, employers often have all the facts and can still prove that the protected activity was not a contributing factor.JUSTICE KAVANAUGH: But they’ll have – to pick up on Justice Kagan’s point, I’m sorry to interrupt, but the – the employer will have the information that shows, okay, we fired 10 other employees as well who hadn’t engaged in the protected activity for the same reason. Or here’s our list of performance ratings and, see, we fired these other people who had the same performance rating. That’s how the employer wins these cases, but they – the employer has the information. Once you put that in, then the jury, as was went on in the closing arguments here, has to figure out is that enough to show that the protected activity wasn’t the – you know, whatever the – the reason.[3]A decision is expected by the end of this term before summer 2024.SEC Takes Unprecedented Action Against Private Company’s Employment AgreementSEC Rule 21F-17(a) prohibits taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.” Among other contexts, this can apply to employment or separation agreements that contain certain confidentiality or non-disparagement provisions, if such provisions are, in the SEC’s view, overly broad and operate to impede a whistleblower from coming forward. Since the rule’s promulgation in 2010, the SEC has limited its enforcement of this Rule to publicly held companies. The SEC’s recent enforcement action may signal a change.In September 2023, the SEC charged a privately owned energy and technology company with violating Rule 21F. The SEC took aim at the private company’s confidentiality requirements in their severance agreements. The agreements included standard protection-of-rights language: “nothing in this agreement is intended to limit in anyway your right or ability to file a charge or claim with any federal, state or local agency.”[4] But the agreement also waived the employee’s right to receive any recovery of a monetary award for filing their claim or participating in the governmental agency investigation or action, without providing a carveout for whistleblowing activity to the SEC. Even though the SEC found no evidence that this waiver in fact discouraged any employee from reporting to the SEC, it still entered a cease-and-desist order and issued a $225,000 fine. In doing so, it made clear that private companies, as well as public, must comply with Rule 21F:Both private and public companies must understand that they cannot take actions or use separation agreements that in any way disincentivize employees from communicating with SEC staff about potential violations of the federal securities laws . . . .Any attempt to stifle or discourage this type of communication undermines our regulatory oversight and will be dealt with appropriately.[5]All employers, both public and private, should review their employment and separation agreements to ensure compliance with Rule 21F in light of the SEC’s latest enforcement actions.We can only expect further developments in 2024 and beyond, and the MoFo team will report on them as they arise.[1] People ex rel. Garcia-Brower v. Kolla’s, Inc., 14 Cal. 5th 719, 731 (2023) (“there is no indication that an employee must also have reasonable cause to believe that he or she is the first to report the alleged violation, and we see no basis for reading such a requirement into the statute.”).[2] See <a href="https://www.mofo.com/resources/insights/230731-scotus-poised-to-resolve-circuit" target="_self">client alert</a>.[3] As counsel for respondents noted, however, employers often do not have this type of comparative evidence, especially in reduction-in-force cases (which Murray v. UBS was) and may not have it in a way that is clear and convincing.[4] https://www.sec.gov/files/litigation/admin/2023/34-98322.pdf.[5] https://www.sec.gov/news/press-release/2023-172.

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Each year seems to bring significant developments in whistleblower law, and 2023 has been no exception. As whistleblower activity increases, so, too, has the scope of its protections. 

Whistleblower Roundup - Cal. Labor Code Section 1102.5, SOX, and More

On August 25, 2023, OFCCP announced that it received approval from the Office of Management and Budget (OMB) for its new Scheduling Letter and Itemized Listing, significantly expanding the information and data federal contractors must submit to OFCCP at the outset of audits. These changes underscore OFCCP’s new aggressive approach to audits and provide OFCCP a greater opportunity to identify issues for investigation during audits.Read the <a href="https://www.mofo.com/resources/insights/230827-ofccp-new-audit-scheduling-letter" target="_self">full client alert</a>.

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OFCCP Signals Return to More Aggressive and Less Transparent Audits

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On August 25, 2023, OFCCP announced that it received approval from the Office of Management and Budget (OMB) for its new Scheduling Letter and Itemized Listing, significantly expanding the information and data federal contractors must submit to OFCCP at the outset of audits.

OFCCP’s New Burdensome Audit Scheduling Letter Approved

In Innovative Technologies, Inc., ASBCA No. 6186, 62185, the Armed Services Board of Contract Appeals (“ASBCA” or the “Board”) held that, despite the federal government’s failure to include or incorporate the McNamara-O’Hara Service Contract Act (“SCA”) FAR Clause 52.222-41 (the “SCA Clause”) in the contract, the contractor was required to comply with the SCA and not entitled to an equitable adjustment for all costs it incurred from a $1.5 million settlement with the U.S. Department of Labor (“DOL”) for its noncompliance. This case serves as an important reminder for contractors to be vigilant in determining whether their services contracts are covered by the SCA, even if the agency fails to include or reference the SCA Clause. Read the <a href="https://govcon.mofo.com/topics/missing-sca-clause-did-not-excuse-noncompliance-or-allow-for-full-equitable-adjustment-" target="_self">full blog post</a>.

Missing SCA Clause Did Not Excuse Noncompliance or Allow for Full Equitable Adjustment

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Nicole Giles is an associate in the Government Contracts practice in Morrison Foerster’s Washington, D.C. office.

Nicole E. Giles

Nicole Giles

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Missing SCA Clause Did Not Excuse Noncompliance or Allow for Full Equitable Adjustment

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In Innovative Technologies, Inc., ASBCA No. 6186, 62185, the Armed Services Board of Contract Appeals (“ASBCA” or the “Board”) held that, despite the federal government’s failure to include or incorporate the McNamara-O’Hara Service Contract Act (“SCA”) FAR Clause 52.222-41 (the “SCA Clause”) in the contract, the contractor was required to comply with the SCA and not entitled to an equitable adjustment for all costs it incurred from a $1.5 million settlement with the U.S. Department of Labor (“DOL”) for its noncompliance. 

On July 17, the California Supreme Court issued its opinion in Adolph v. Uber Technologies, Inc. (S274671, Cal. Jul. 2023), holding that an employee who has been compelled to arbitrate claims under the Labor Code Private Attorneys General Act of 2004 (PAGA, Cal. Lab. Code § 2698, et seq.) that are “premised on Labor Code violations actually sustained by the [employee] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ in court.”The Viking River DecisionThe California Supreme Court’s decision in Adolph follows in the wake of Viking River Cruises, Inc. v. Moriana, where—as <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration" target="_blank">we previously reported</a>—the United States Supreme Court held that the Federal Arbitration Act (FAA, 9 U.S.C. § 1, et seq.) preempted California law as set forth in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), to the extent it precluded the division of PAGA actions into arbitrable individual claims and nonarbitrable non‑individual claims. Under Viking River, an employee’s agreement to arbitrate their individual PAGA claims may be enforced. The Supreme Court in Viking River also concluded that where the employee’s individual PAGA claims were no longer pending in court, the employee no longer had standing to maintain the remaining “non-individual” representative PAGA claims, warranting their dismissal. After Viking River, many trial courts have entered orders compelling individual PAGA claims to arbitration, with some courts electing to dismiss the remaining non‑individual PAGA claims consistent with Viking River, and several others choosing to stay the claims pending the individual arbitrations.Adolph: Procedural BackgroundErik Adolph initially filed a putative class action against Uber Technologies, Inc. (Uber) in October 2019, alleging that he and other individuals were misclassified as independent contractors when they signed up to be delivery drivers on the “Uber Eats” app, and that Uber purportedly failed to reimburse them for business expenses. Adolph later amended the complaint to add a claim for civil penalties under PAGA for various alleged Labor Code violations.As part of the Uber Eats sign-up process, Adolph signed an agreement that required him to resolve any disputes arising out of his contractual relationship with Uber in individual arbitration. The agreement contained class, collective, and representative (including PAGA) action waivers, with a severability clause requiring that if the PAGA waiver were to be found unenforceable, the representative PAGA claim must be stayed pending the outcome of any individual claims in arbitration.Uber successfully moved to compel Adolph’s individual claims to arbitration, dismiss the class claims, and stay the PAGA claims pending arbitration. Adolph then dismissed his individual claims and retained only the claim for civil penalties under PAGA. Uber moved to compel arbitration of Adolph’s alleged individual status and his standing to pursue a PAGA claim. The trial court denied the motion, and the Court of Appeal affirmed, finding that Adolph’s PAGA claim could not be split into individual arbitrable and non‑individual, nonarbitrable components under Iskanian. Uber petitioned for California Supreme Court review. The United States Supreme Court issued its decision in Viking River while Uber’s petition was pending. The California Supreme Court granted review to provide guidance on PAGA standing.Adolph: The California Supreme Court’s DecisionAdolph holds that an order compelling arbitration of an employee’s individual claims, including individual PAGA claims, does not strip the employee of standing to litigate non‑individual PAGA claims in court. In the Court’s view, its conclusion is consistent with the statutory text, PAGA’s purpose, and the legislative intent underlying PAGA. The Court noted that because the issue of PAGA standing was a matter of state law, it was not bound by the high court’s contrary interpretation in Viking River. Nor was the Court persuaded by several arguments explaining why a PAGA plaintiff loses standing to litigate non-individual claims in court when their individual PAGA claims are subject to arbitration.The Court acknowledged that under Viking River, the FAA preempts the Iskanian rule against dividing PAGA actions into individual and non-individual components and requires enforcement of agreements to arbitrate a PAGA plaintiff’s individual claims. It reversed the Court of Appeal’s decision, denying Uber’s motion to compel arbitration of Adolph’s individual PAGA claims, and remanded the case for further proceedings.Observations and TakeawaysAdolph offers some key takeaways for California employers.<ul><li>Non-individual PAGA claims should be stayed pending the outcome of the individual arbitration. In rejecting the argument that allowing Adolph to retain standing to litigate non-individual PAGA claims would permit him to relitigate his “aggrieved” status, Adolph explained that the trial court may stay the non‑individual PAGA claims pending arbitration of the individual PAGA claims pursuant to California Code of Civil Procedure Section 1281.4. The Court viewed this as a practical solution to managing the potentially “piecemeal” nature of concurrent litigation in different forums.</li><li>A PAGA plaintiff who loses at arbitration lacks standing to pursue non-individual PAGA claims. Adolph acknowledges that if a PAGA plaintiff loses their individual arbitration and is found not to have suffered any Labor Code violation, the individual loses standing to prosecute the remaining non‑individual PAGA claims.</li><li>Adolph advises that arguments about abuses of PAGA are properly directed to the Legislature. The Court recognized the arguments by several amici curiae that it should narrow PAGA’s standing requirements to curb abuses of PAGA but advised that such arguments are best directed to the Legislature. Such efforts are underway: In addition to reform efforts directed at the Legislature, an initiative to repeal and replace PAGA, the California Fair Pay and Employer Accountability Act, has qualified for the November 2024 ballot.</li></ul><ul><li>The United States Supreme Court may eventually have the last word. The California Supreme Court’s decision in Adolph is in tension with Viking River, suggesting that at some point down the road, the PAGA standing issue may end up back in front of the United States Supreme Court.</li></ul>We will continue to monitor these issues for further developments.

On July 17, the California Supreme Court issued its opinion in Adolph v. Uber Technologies, Inc. (S274671, Cal. Jul. 2023), holding that an employee who has been compelled to arbitrate claims under the Labor Code Private Attorneys General Act of 2004 (PAGA, Cal. Lab. Code § 2698, et seq.) that are “premised on Labor Code violations actually sustained by the [employee] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ in court.”