Supreme Court Extends Sarbanes-Oxley Protections to Non-Public Company Contractors

The Supreme Court formally extended the whistleblower protections of the Sarbanes-Oxley Act of 2002, determining that whistleblowing employees of contractors performing work for public companies are covered by the Act's provisions against employment retaliation.

You may recall that Sarbanes-Oxley ("SOX") was enacted by Congress following the widespread malfeasance by executives of the Enron Corporation, as well as their accounting and legal service providers. The statute was enacted to control conduct of accountants, auditors, and attorneys who work with public companies. It contains fairly elaborate provisions to protect whistleblowers, who might face employer retaliation for reporting corporate misconduct such as mail or wire fraud, bank fraud or securities or commodities fraud or fraud affecting stock prices. The language relating to whistleblower protection specifically states that it applies to public companies, or officers, employees, contractors, subcontractors or agents of such companies. The question before the Court in this case was whether the statute shielded "only those employed by the public company itself" or employees of privately held contractors and subcontractors-such as investment advisors, law firms, or accounting enterprises-performing work for the public company.

This particular case involved contract employees who were performing services for mutual funds, which the Court noted typically have no actual employees. That was true in this case; the plaintiffs were hired by the defendant contractor under a contract between the defendant and the mutual fund and serving as portfolio managers for the various fund entities. After reporting what they believed was improper accounting or costing methods relating to management of the funds, the plaintiffs were terminated.  They filed administrative complaints under SOX, and then proceeded into federal court. A federal district judge initially denied the employer's motion to dismiss, but on appeal, the First Circuit granted the motion, finding that the SOX anti-retaliation provision was restricted to employees of public companies, and not third-party contractor employees.

The Supreme Court reversed, determining that the plain language of the statute indicated that it was to apply to the employees of contractors performing services for public companies. In its decision, the Court said that such an interpretation was consistent with the purpose of the statute, i.e., helping ferret out potential fraud in public company financial operation.

In an interesting side discussion, the Court noted the contractor's defense that the original statutory language was focused only on situations where a public company hires a contractor to effectuate terminations, something referred to as an "ax wielding specialist", and portrayed by actor George Clooney in the movie Up in the Air. The Court said that the history of SOX indicated that retaliatory axe-wielding specialists were not the real world problem that prompted Congress to add contractors to the statute.

Corporate lumberjacking aside, this decision potentially breaks a lot of new ground. Although, as noted by the majority, the Department of Labor already takes the position that contractors of public entities are covered by the whistleblower protections of SOX, the majority expands the scope of the coverage even further. Virtually all employees of private businesses that do business with a public company can now avail themselves of SOX protection.  And public company employees who hire other people to work for them (think babysitters and gardeners) theoretically extend SOX protection to those personal hires, as well.  The majority noted that these concerns were more theoretical than real, but employers should note that this decision now allows virtually anyone to trigger the highly invasive and expensive SOX charge investigative procedure.  So private employers must now put in place at least some of the mechanisms used by public companies to ensure compliance with SOX requirements.  Typically this takes the form of internal policies to identify potential retaliation issues and outside management of complaints that might trigger a SOX investigation.  Some of this should already be in place; virtually all employers must be aware that any type of retaliatory-like discharge opens up the potential for litigation, either under federal law, or under a variety state wrongful discharge claims. But the Court's decision broadens the range of employers who have to to examine carefully the bases for any termination decision, especially where the employee has raised a concern about the business activities of the employer in servicing the employer's customers.

Some Rational Thinking on Unemployment, Long-Term and Otherwise

Megan McArdle has a very nice article here on the causes of unemployment, and the causes of extended unemployment. The studies that she cites mirror what I've seen with respect to the unemployed workforce, both from a personal and professional standpoint. But very little of this type of rational, numbers-based discussion seems to make it into the mainstream debate about the issue.

Bottom line-extended benefits for unemployment, whether characterized as unemployment compensation, disability benefits, or whatever, seem to exacerbate the long-term unemployment issue. People are apparently willing to tolerate a lower standard of living for an extended time when getting reemployed becomes difficult.  Making it difficult to fire people makes employers unwilling to hire people; the United States has a much lower unemployment rate than most the countries in Europe, where job security exists as a matter of law.  And finally, programs that ease the emotional discomfort of job hunting (not unemployment, per se) seem to be the most effective at getting people back to work.

This article contains some very useful thoughts for public policy types dealing with what is starting to appear like an intractable problem.

A Clothes Question at the Supreme Court

Sometimes I wonder if the justices at the Supreme Court throw their hands up in frustration at some of the silly issues they have to decide. Such as in this case, when some of the arguably brightest people in the United States are asked to define the term "changing clothes".

In this Fair Labor Standards Act case, the stakes were reasonably high for the employer-compensation paid to employees over small increments of time that the employer, US Steel, quite reasonably thought it had dealt with through a collective-bargaining agreement. The FLSA requires employers to compensate employees for time spent putting on and taking off ("donning and doffing" in the FLSA vernacular) clothing or uniform items that are directly related to the specific work an employee is to perform. The FLSA contains a specific provision that allows employers and unions to exclude time spent changing clothes or washing up (which normally would be time for which the employee must be paid) from compensable time, presumably in exchange for a higher hourly rate of pay, or some other employee benefit.

Notwithstanding this provision, and the fact that US Steel had negotiated such a time exclusion into its collective-bargaining agreements, a group of steelworkers argued that putting on protective clothing required by their job, including shoes, helmets, eyeglasses, earplugs, work gloves, and a respirator, were not actually "clothes" within the meaning of the statute, but rather protective devices. Under the employees' argument, the time spent putting on protective devices, as opposed to "clothes",  is not included in the collective-bargaining agreement exclusion, and therefore is compensable time.

This sounds like a somewhat fatuous argument, and I think many of the justices agreed, although they did not say so precisely. What the Court did was unanimously find for the employer, determining that the time spent putting on protective clothing is properly excluded from paid time under the terms of the appropriate CBA provision. The court noted, however, that glasses, earplugs, and respirators-items that are not typically considered articles of clothing-were not covered under its definition, and time spent putting on these items would normally be compensable even in the presence of a collective-bargaining agreement exclusion. The court then determined that since the donning and doffing of these items was a negligible part of the total time putting on the protective clothing, the overall activity would be considered "changing clothes" within the meaning of the exclusion.

Because employers have generally become more compliant with their timekeeping obligations under the FLSA, lawyers for employees have increasingly shifted focus to find marginal activities that might not be compensated by the employer. These types of activities are typically found at the start or end of the workday, and have been the subject of a great deal of litigation, especially in states with highly restrictive FLSA requirements for employers. The court's definition of "changing clothes" appears to be a common sense one, but it may have some significant ramifications for employers in operations where putting on uniforms, or protective gear is an important part of the workday.

Open Offices Work About as Well As Open Classrooms

Here's an interesting discussion of studies about open offices and workplace efficiency.

But I Digress

I am a huge pizza lover, so every now and then you can expect me to wander off into flatbread land. As in today.

This product is so technologically over the top and unnecessary it just screams "frivolous Christmas/holiday/Hanukkah present."  For those of us who make our pizzas from scratch, this is the new pizza cutter standard.

Drug Use Declines for US Workers

At least for the illegal stuff. Prescription drug abuse is up, however. Maybe this is one of the side effects of increasing access to health insurance.

And let's not forget those states--Illinois just joined this group--where medical marijuana has been licensed.  My experience in Colorado is that legalization of medical marijuana leads to a large increase in the number of people suffering from pain that can only be "managed" with cannabis. Fortunately, employers in states where marijuana has been legalized in one form or another may still discipline employees who show up with dope at detectable levels in their blood or urine.  But as the article notes, the landscape for disciplining employees for off-work marijuana use is changing, as the recreational possession laws start to take effect.

And, of course, there is still the significant conflict between state law that legalizes possession and use of small amounts of marijuana, and federal law, which strictly prohibits any use or possession of the drug.  So if you want to smoke dope in Colorado (which recently legalized recreational dope use), stay unimpaired long enough to make sure you're doing so in a state park, and not on a federal national forest or park.

Some thoughts on the NFL and harassment in the workplace

It's an unfortunate truth that pro sports management often seems to operate as if athletic teams were somehow separate and apart from the rest of the American employment world.  Specifically, many professional sports management personnel, especially coaches, are blissfully unaware of the legal standards that apply to their players, other than those covered by the collective bargaining agreement. There has been some progress--many teams had no concept or even awareness that workers compensation laws applied to on-the-field football injuries for their players. Thankfully, that situation is pretty much a thing of the past, but you still encounter circumstances today in which conduct that is basically unthinkable in a normal workplace is either ignored or even encouraged in a football or basketball locker room.

Thus the Richie Incognito/Jonathan Martin situation with the Miami Dolphins. I want to first talk about the legal implications of the situation, and then a more general assessment of what reportedly happened, and what it means for professional sports in general.

Martin, an offensive tackle, left the Dolphins facility without notice to management, allegedly because he was being harassed by his teammates, and one teammate in particular, Richie Incognito, who played next to Martin on the offensive line. Prior to leaving, Martin tried to raise his concerns about harassment with team management, either personally, or through his agent. Martin apparently never talked to any of his teammates about harassment, nor did he raise it with his immediate supervisors, the coaches. Martin's attorney has produced texts and a voicemail message containing at least one racial epithet, and threatening language against Martin, and his sister.

Over the last several weeks, Incognito's version of events came out, either through statements by Incognito himself, or by statements from his teammates. These statements do not paint a picture of harassment, but rather seem to indicate that Incognito and Martin were fairly close, at least in terms of their public associations, and that the racial comments and personal threats, which Martin acknowledged to other players in the locker room and actually laughed about, were part of an ongoing joking or lighthearted taunting that permeated the locker room.

From a purely workplace law perspective, I'm guessing that Martin will have a very difficult time establishing any type of employment discrimination or employment harassment. The language used in the e-mails and voicemails is certainly awful from an objective standpoint-dropping the N-bomb on a black teammate, threatening to sexually assault his sister, or inflict bodily harm on him are not the type of activities that make the HR "Best Practices Handbook".   But all harassment cases have a subjective element as well, in that the conduct must be "unwelcome" to the victim. And that's where Martin's problems begin, because it seems readily apparent that he was at least acquiescing, if not participating in the harassment Olympics that took place in the Miami locker room.  Based on comments to date, in fact, I fully expect every black member of the Dolphins to stand up and testify that they were not offended by Incognito, and that Martin wasn't either. So much for the racial harassment claim.  Incognito may have been bullying Martin and being mean to him, but unless he was doing it because Martin was black (or because of some other protected factor we are unaware of), it simply isn't actionable.

There are some allegations that Martin or his agent complained to Dolphin management about this treatment. When that happened, and what happened after the alleged complaints, could form the basis for a viable retaliation claim, if Martin can show that club management not only knew about his complaints, but acted in response to them. Again, I think this will be a very difficult thing to prove. There is some evidence that the coaching staff wanted Martin's teammates to interact with him in a way that would draw him out, or at least get him more emotionally committed to the team. But that's a far cry from that same coaching staff being aware that Martin had complained that he was being racially harassed (if Martin even did that) and responded by having his teammates berate and humiliate him.  And if the Dolphins can show that the coaches were directing Martin's teammates to toughen Martin up before Martin complained, then this claim gets even weaker.

But this case has some wider implications for all pro sports, depending on how the NFL and other sports teams react to it.  Locker rooms are not your typical workplaces, and there are some rules that work just fine in a white collar /office environment that simply don't in a locker room.  This isn't surprising, or even that unusual.  Courts have routinely recognized that all-male working environments, or even jobs requiring difficult physical labor, are normally associated with bad language, obscene rituals, and general juvenile conduct.  It was not coincidental that the Supreme Court said that Title VII is not a civility code in reference to a case involving people working on an oil rig.

But being merely legal is not enough.  These teams are involved in the entertainment business, and the public perception of their organizations is a key element in their profitability.  Public sentiment for organizations perceived as being full of bullies and bad guys is hard to sustain.  So some teams have immediately reacted by banning any conduct that might be considered hazing, and I think more will follow suit.  But I also think that no matter what clubs try to do, there's going to be some type of harassment of new players, and low level taunting/torment of teammates, just because that's been part of sports and elite organizations since the Greeks organized the Olympics two thousand years ago.  Moreover, it's hard to isolate the intimidation that is part of football (it's part of all sports, actually) to just the opponent on the playing field.

Will the public understand?  I suspect it will, although I think this case has been badly reported by the mainstream sports media, who, after all, labor in environments where this type of conduct is relatively foreign, and certainly actionable.  As far as I can tell, the only really accurate discussions of what happens in a typical locker room are coming from former players, and, to a certain extent, some of the coaches who now work in the broadcast booth.  I think as both sides of the story get out into the press, we will see that what happened with Martin was not an isolated issue of bullying/racism, but rather conduct that is typical in locker rooms from high school forward, and that Martin at least seemed to go along with what was happening to him.  That might be enough to work an organizational change for some teams with respect to player conduct, but I doubt that it will sustain any type of legal challenge.