US Securities and Exchange Commission Decrees that Internal Whistleblowers are Afforded Full Protection Under Dodd-Frank

Interpretation: A whistleblower under the Dodd-Frank Act (Act) does not have to report suspected violations to the US Securities and Exchange Commission (SEC) in order to qualify for the Act's anti-retaliation protections, according to a recently issued SEC interpretation. Rather, individuals will fall within those protections even if they only report suspected violations internally to their company.

The SEC issued its interpretation in response to the decision in Asadi v. GE Entergy USA LLC in which the US Court of Appeals for the Fifth Circuit dismissed the plaintiff's Dodd-Frank retaliation claim because he never reported his concerns about the company to the SEC. The SEC observed that, "[u]nder our interpretation, an individual who reports internally and suffers employment retaliation will be no less protected than an individual who comes immediately to the Commission."

Impact:  Some federal district courts have sided with the SEC on the issue of whether whistleblowers who only report suspected violations internally are protected from retaliation, but the SEC's guidance is directly contrary to the Fifth Circuit's interpretation of the Act. The Second Circuit Court of Appeals is poised to issue a decision on this issue in Berman v. Neo@Ogilvy LLC & WPP Group USA, Inc., possibly creating a split in the circuits. Given the unsettled law in this area, employers subject to the Act should consult with counsel before taking any adverse employment action against individuals who report suspected violations through the employer's internal channels.

Amendment to the California Labor Code Spawns Influx of Proposed Class Actions Based on Inaccurate Wage Statements

Update: California Labor Code Section 226 requires that employees be provided wage statements containing nine specific items of information, including gross wages earned, total hours worked, start and end dates for the pay period and deductions taken. Recently, California employers have faced a new wave of putative class actions as a result of an amendment to the statute made in 2013 making it easier for employees to recover penalties for a violation of Section 226. The amendment added a presumption of injury when an employer fails to supply a wage statement, issues an incomplete wage statement or issues a wage statement lacking sufficient information from which an employee can readily determine the specific information that Section 226 requires.

The amendment created exposure for large companies in particular by assessing penalties of up to $4,000 per employee. Employers can face additional penalties if Section 226-based claims are pursued under California's Labor Code Private Attorneys General Act (PAGA), which "deputizes" aggrieved employees to recover civil penalties for Labor Code violations as a proxy of the state's labor law enforcement agencies. 

Impact: Because of the 2013 amendment, companies have an increased exposure to lawsuits and to liability. Employers would be wise to review their wage statements to ensure compliance with the itemization requirements of Section 226.

US Department of Labor Issues Guidance on Classification of Employees and Independent Contractors

Guidance: The US Department of Labor's Wage and Hour Division (WHD) recently issued an interpretation of the Fair Labor Standards Act's (FLSA) "economic realities" test used to determine whether an individual is an employee or an independent contractor. Under the economic realities test, six factors must be applied: (1) is the worker an integral part of the employer's business; (2) does the worker's managerial skill affect the worker's opportunity for profit or loss; (3) how does the worker's relative investment compare to the employer's investment; (4) does the work performed require special skill and initiative; (5) is the relationship between the worker and the employer permanent or indefinite; and (6) what is the nature and degree of the employer's control. The WHD emphasized that the final factor—the degree of the employer's control—"should not play an oversized role in the analysis" but rather that "all possibly relevant factors should be considered" in determining a worker's classification as an employee or independent contractor.

Impact:  The WHD has repeatedly emphasized in its guidance that most workers will be classified as employees under the FLSA's broad definition. Employers, with the guidance of counsel, should become familiar with the interpretation described above and the examples therein of how the DOL would analyze each of the six factors in the economic realities test. Employers should then review their independent contractor relationships to ensure that those relationships are best positioned to meet the standards set forth in the interpretation in order to avoid charges of FLSA misclassification violations.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.