What you need to know:
Last week, the Northern District of California held in Wadler v. Bio-Rad Laboratories, a case of first impression, that members of a company’s Board of Directors can be held individually liable under Sarbanes-Oxley and Dodd-Frank for whistleblower retaliation. The court also ruled that an individual qualifies for whistleblower protection under Dodd-Frank, even where he or she does not bring a complaint to the SEC. The Wadler decision is particularly significant as it represents a notable expansion of whistleblower protections, and comes in the wake of a number of recent decisions which have similarly broadened the scope of whistleblower protection. See Choate Alert 9-10-15 and Choate Alert 10-13-15.
What you need to do:
Employers should review and update their whistleblower compliance and related training programs to ensure that employees at all levels—and importantly, Board members and company leaders— understand best practices for responding to and investigating employee complaints.
The plaintiff, Sanford Wadler, served as Bio-Rad’s in-house general counsel for approximately 25 years. Wadler alleges that in 2011, he began investigating and reporting to Bio-Rad’s management potential violations in China of the Foreign Corrupt Practices Act. In response, Bio-Rad’s Board of Directors engaged outside counsel to investigate these alleged FCPA violations. Outside counsel found no evidence of such violations.
Following his termination from Bio-Rad in 2013 (a decision made by a vote of the entire Board of Directors), Wadler sued Bio-Rad and individual members of its Board of Directors in California federal court. He alleged, among other things, that by terminating his employment they retaliated against him in violation of the Sarbanes-Oxley Act and Dodd-Frank Act, for identifying, investigating and reporting Bio-Rad’s potential FCPA violations.
Bio-Rad moved to dismiss Wadler’s SOX and Dodd-Frank claims on two substantive grounds. First, Bio-Rad argued that Wadler’s SOX and Dodd-Frank claims against Bio-Rad’s individual board members should be dismissed on the grounds that SOX and Dodd-Frank do not allow for suits against individual directors. Second, Bio-Rad argued that Wadler’s Dodd-Frank claim should be dismissed because he does not qualify as a “whistleblower” under Dodd-Frank’s definition since he did not report any complaints to the SEC.
The court disagreed with Bio-Rad on both grounds. On the issue of whether members of Bio-Rad’s Board of Directors can be held individually liable under SOX and Dodd-Frank, the court ruled that directors indeed may be individually liable under both statutes. The court reasoned that the term “agent” in SOX is ambiguous and is best understood as having been intended to include company directors among those persons who may be held individually liable. As for whether directors may be liable under Dodd-Frank, the court similarly held that the term “employer” in Dodd-Frank is ambiguous and best understood as including company directors among those persons who may be held individually liable.
On the issue of whether Wadler’s internal complaints qualify for whistleblower protection under DoddFrank even though he did not bring such complaints to the SEC, the court agreed with Wadler that his internal complaints warrant Dodd-Frank protection. In so ruling, the court notably rejected the Fifth Circuit’s decision in Asadi v. GE Energy, which held that an individual does not qualify for whistleblower protection under Dodd-Frank unless he or she reports potential violations of securities law to the SEC.
The Wadler decision is particularly significant in that it expressly expands liability for whistleblower retaliation to individual members of a company’s Board of Directors. Moreover, it extends protected activity under Dodd-Frank to complaints made by in-house counsel (persons arguably tasked with guarding against such complaints), which are solely reported internally, and not to the SEC. Wadler sends a strong message to employers to review and update their whistleblower compliance and training programs – particularly at the Board of Directors and executive leadership levels – and to proceed with caution when disciplining or terminating any employee who has raised either internal or external complaints. Employers should consult with employment counsel and stay apprised of new developments in this area, especially in light of other recent decisions, which have similarly expanded protections for whistleblowers.