Whistling Past the Pandemic: The Increasing Trend of Whistleblower Reports during COVID-19

Whistling Past the Pandemic: The Increasing Trend of Whistleblower Reports during COVID-19

Whistling Past the Pandemic: The Increasing Trend of Whistleblower Reports during COVID-19

One of the collateral impacts of employee anxiety due to COVID-19 has been an increase in whistleblower reports to the Securities and Exchange Commission (SEC). According to Steven Peikin, Co-Director of the Division of Enforcement, the SEC received 35% more tips, complaints and referrals for investigation between mid-March and early May 2020 than during the same period in 2019. This uptick may lead to additional SEC enforcement actions and penalties, giving SEC-regulated companies cause for concern.

The SEC’s Whistleblower program

The SEC’s Whistleblower program, initiated as a result of the 2010 Dodd-Frank Act, accepts information from members of the public regarding potential violations of the securities laws. Such violations may arise from activities by publicly-traded companies, as well as securities industries professionals like registered investment advisers and broker-dealers. 

Since August 2011, the SEC has awarded more than $500 million for tips that led to monetary sanctions of more than $1 million. Three of the ten largest awards were issued in the last six months: an award of $50 million in June and awards of $27 million and $18 million in April. According to the SEC’s most recent annual report, the money available for payouts to whistleblowers was about $400 million as of September 30, 2019.

Clearly, the SEC’s whistleblower program is here to stay, and conditions created by the pandemic may increase whistleblowing activity. For companies that are regulated by the SEC, this has important implications. 

Considerations for SEC-regulated companies

  1. Both the Dodd-Frank Act and Sarbanes-Oxley Act of 2002 prohibit retaliation against whistleblowers. The U.S. Supreme Court has held that the broader whistleblower protections of Dodd-Frank only apply when the whistleblower made a report to the SEC, not if the matter was only reported internally. But it would be a rare case indeed for an employer to know that an employee submitted a tip to the SEC hotline. As a result, employers must use care in handling any potential whistleblower, both to avoid employee claims and to avoid a possible SEC action for retaliation.

  2. The SEC has taken enforcement action against companies whose employment agreements contain language that can be read to discourage whistleblower reports to the SEC. All employment agreements (including severance agreements), compliance manuals, and codes of ethics should be drafted and reviewed carefully to avoid such a finding.

  3. Regulated companies should continue to investigate potential violations of the securities laws, including those where a potential SEC whistleblower may be involved. Any internal investigation must avoid disclosure of the whistleblower’s identity, if discovered, and retaliation. But good governance and risk mitigation both require critical self-examination, and internal investigations fill that role. In the event of an SEC investigation, companies can receive cooperation credit for investigating and remediating, as well as self-reporting, potential violations of the securities laws. 

As businesses navigate the COVID-19 pandemic, responding to increased whistleblower activity does not require a new playbook, just good execution of existing strategies.

Mary O'Connor | Farrow-Gillespie & Heath LLP | Dallas, TX

Mary L. O’Connor’s practice focuses on representing companies and their officers and directors in commercial litigation and arbitration, securities litigation, internal investigations, and regulatory investigations and enforcement proceedings. Mary is currently listed among the Best Lawyers in Dallas by D Magazine, and the Best Lawyers in America by US News and World Report.

Dallas Paid Sick Leave Ordinance

Dallas Paid Sick Leave Ordinance Struck Down

Dallas Paid Sick Leave Ordinance

Penalties associated with a City of Dallas sick leave ordinance that was rolled out last August were scheduled to become effective on April 1, 2020. The penalties have been the subject of much discussion since the striking down of a similar Austin ordinance and the subsequent filing of a federal lawsuit seeking to prohibit enforcement of the Dallas ordinance. U.S. District Judge Sean Jordan put an end to the suspense by issuing an injunction on March 30, 2020, which struck down the ordinance as unenforceable and prohibited the City from issuing penalties.

The ordinance would have required Dallas employers to provide paid sick leave for most employees. In particular, the ordinance mandated the payment of one hour of sick leave for every thirty hours worked by employees who were employed for at least eighty hours in a year. Small businesses of five or fewer employees were not required to comply until August 2021, and businesses with fifteen or fewer employees could cap paid sick leave at forty-eight hours a year. Independent contractors and government employees were excluded.

The decision was not unexpected given the decision of the Austin Court of Appeals concerning the City of Austin’s sick leave ordinance. Judge Jordan largely agreed with the analysis of the Austin court, determining among other things that the ordinance violated Texas’ minimum wage laws.

The issue now goes back to the Dallas City Council to decide whether to appeal the ruling or to prepare a revised ordinance.  In the era of COVID-19, it will be interesting to see what the Council does next. If you have any questions about this ruling or any other employment matter, please feel free to contact our employment law department for assistance.

Tahlia Clement

Tahlia Clement’s primary practice areas are marketing, advertising and promotions law, health law, internet law, and general business transactions. Tahlia graduated from SMU Dedman School of Law and holds a B.A. in journalism and mass communications from Arizona State University.

Dallas Paid Sick Leave Ordinance

City of Dallas Paid Sick Leave Ordinance

Dallas Paid Sick Leave Ordinance

Chapter 20 of the Dallas City Code entitled Earned Paid Sick Time went into effect August 1, 2019. The provision requires employers to provide paid sick leave to workers. It applies to any private business (governmental employers are exempt) that employs at least one person either full or part time at a minimum of eighty hours a year within the Dallas city limits.

Overview of Dallas Ordinance

The ordinance calculates the accrual of paid leave time at the rate of one hour for every thirty hours worked. An employee can use this accrued hour for illness, injury, preventive medical or healthcare, or health condition. This also extends to the care of a family member’s physical or mental illness. Time off for relating to being the victim of a criminal attack that resulted in injury or illness also qualifies. However, an employer may not inquire as to the nature of the circumstances for employees taking time off for this purpose.

If an employer has sixteen or more employees, an employee may accrue up to sixty-four hours in paid leave time. For employers with fifteen or fewer employees, this total is reduced to forty-eight hours, and for employers with five or fewer employees, this ordinance does not go into effect for two more years.

Employers operating a fiscal year other than a calendar year must provide each employee with written notice of such policy by August 1, 2019, and thereafter at the commencement of employment. Employers are required to maintain records of the accrued paid sick time used and/or available to each employee.

The ordinance also affects bookkeeping and HR departments. It requires that each employee receive a monthly written or electronic statement showing the amount of the employee’s available earned paid sick time. If an employer issues an employee handbook, it must be amended to include a notice of an employee’s rights and remedies under this ordinance.

Fines for violating the ordinance for non-compliance will not be levied until April 1st, 2020, and per the City of Dallas Chief of Equality and Inclusion, the City will seek “voluntary compliance with the ordinance before seeking payment of a fine.” Civil fines can range up to five hundred dollars per violation.

Lawsuits and Injunctions

Similar ordinances passed by the cities of San Antonio and Austin have been challenged by lawsuits. This litigation has resulted in the City of San Antonio delaying implementation of its program until December 1, 2019. However, the city’s concession did not dispose of the case.

Austin’s paid sick and safe leave law ordinance is subject to a temporary injunction, suspending enforcement of the ordinance. The Austin Court of Appeals has found the ordinance to be unconstitutional. The lawsuit is expected to be resolved in the Supreme Court of Texas.

As of the date of this article (August 15, 2019), the status of Dallas’s ordinance is unclear. The State of Texas, joined by a staffing agency and a law firm, has filed suit in the federal court in Sherman, Texas, to challenge the ordinance. The situation is unresolved and changing week by week, but until the court enters a temporary injunction suspending the Dallas ordinance, it remains in effect.

Employers and employees are urged to contact counsel for legal advice concerning status and enforcement of the ordinance. This article is intended as an overview only, and is not a full legal analysis.

Henry Wehrmann | Farrow-Gillespie & Heath LLP | Dallas, TX
Henry Wehrmann
Business Litigation Defense

Henry S. Wehrmann practices in the primary areas of employment litigation defense, trade secrets and other intellectual property litigation, personal injury litigation defense, and products liability litigation defense. He is Board Certified in Personal Injury Trial Law by the Texas Board of Legal Specialization and is a former chair of the Sports & Entertainment Law section of the Dallas Bar Association.

Attorney-Client Privilege in #MeToo Era Investigations

In September 2018, Dallas Basketball Limited, which operates the Dallas Mavericks, released a 43-page report of an internal investigation of alleged sexual misconduct in its business office.  The investigation was conducted by outside counsel and found numerous instances of sexual harassment and other improper workplace misconduct spanning almost twenty years.

The Mavericks are not the first organization to release the results of an internal investigation of sexual harassment and assault claims.  A number of universities and private schools have done so in recent years, and in January 2018, NPR posted on its website an investigation report of sexual harassment in its newsroom.

Against this backdrop of increasing disclosure, organizations conducting internal investigations in the #MeToo era may face pressure to disclose the resulting findings.  But disclosing an investigation report may waive the organization’s attorney-client privilege and work product protection, requiring it to turn over some or all of the underlying investigation materials to adversaries in lawsuits.

In Doe v. Baylor University, No. 16-CV-173-RP (W.D. Tex. Aug. 11, 2017), the court found that Baylor waived the attorney-client privilege as to “the entire scope of the investigation” into Baylor’s handling of sexual assault allegations against Baylor’s athletes. The waiver was based on Baylor issuing a 13-page summary of the investigation and a 10-page list of recommendations to improve its Title IX compliance and support for assault victims. Because the court found that Baylor conducted the investigation in large part over concern for Title IX lawsuits, it held that the interview memoranda, notes, emails, presentations and other documents prepared by the lawyers during the investigation were protected as attorney work product.  However, the large collection of documents amassed by the investigators was discoverable, as were the names of the individuals interviewed.

In another case decided last year, Banneker Ventures, LLC v. Graham, 253 F. Supp. 3d 64 (D.D.C. 2017), the court found that the Washington Metropolitan Area Transit Authority waived its attorney-client privilege by publishing an investigation report of a failed development project.  Because the report made detailed reference to the interviews conducted by counsel, the court found the waiver extended to the interview memos, as well.  The court also found there was no work product protection for the underlying memos because WMATA did not reasonably anticipate litigation at the time of the investigation.

These recent cases illustrate the risk that public release of an investigation report, even a summary report, may require disclosure of the remaining investigation materials in later lawsuits. To reduce this risk, organizations should take steps from the beginning of an investigation to document and protect their privileges, including: (1) documenting in an engagement letter or memorandum that counsel will conduct the investigation for the purpose of providing legal advice, (2) documenting any existing or anticipated litigation arising from the circumstances that triggered the investigation; and (3) taking steps to limit any waiver of privilege during and after the investigation. For specifics on how to preserve privilege, please consult an experienced investigations attorney.

Mary L. O'Connor | Farrow-Gillespie & Heath LLP | Dallas, TXMary L. O’Connor’s practice focuses on representing companies and their officers and directors in commercial litigation and arbitration, securities litigation, internal investigations, and regulatory investigations and enforcement proceedings.

During the course of her career, Mary has been named to the list of Best Lawyers in Dallas by D Magazine, and to the list of Texas Super Lawyers (a Thomson Reuters service) by Texas Monthly Magazine.



Two Major Developments for Employers

Employment law has seen two recent major developments that affect employers. The first involves nondisclosure limitations in sexual harassment settlements. The second rewards employers who conduct internal wage and hour audits.

Recent Development #1: New Tax Law Nondislosure Limitations

One of an employer’s primary motivations in resolving an employment claim is to obtain the employee’s promise to keep the settlement and the allegations underlying the claim confidential. The recently-passed federal tax law may interfere with an employer’s interest in maintaining the confidentiality of such agreements.

In response to the recent “me too” movement, Section 13307 of the tax law (signed December 22, 2017) disallows tax deductions for an employer’s payment of a sexual harassment or sexual assault settlement if the settlement is subject to a nondisclosure agreement. The deduction restriction applies not only to the settlement amount, but also to the employer’s payment of related attorneys’ fees. While many experts predict some modification of the provision, employers should be mindful of this deduction restriction when considering whether to resolve a claim of sexual harassment or sexual assault.  Until the provision is revised, an employer either should negotiate any confidential settlement agreement with the understanding that the payment will not be tax deductible, or should resign itself to having no nondisclosure provision in the agreement.

Recent Development #2: DOL Payroll Audit Independent Determination Program

On March 6, 2018, the U.S. Department of Labor (DOL) announced a new pilot program aimed at providing employers with an opportunity to voluntarily correct payroll errors that may have resulted in inadvertent violations of the Fair Labor Standards Act (FLSA). Recognizing that employers who discover a failure to pay overtime or the misclassification of employees are often hesitant to take corrective action because of potentially expansive liability exposure, the DOL has adopted the Payroll Audit Independent Determination (PAID) program. The program allows employers to avoid potential litigation and liquidated damages by conducting internal audits and self-reporting any violations to the DOL.  DOL’s Wage and Hour Division (WHD) will assist employers in correcting mistakes and will facilitate the exchange of back wages payment for enforceable releases of liability from the affected employees.

The WHD plans to implement the PAID pilot program nationwide for six months, then evaluate the results. The PAID program is not available to settle ongoing FLSA litigation and is not accessible to employers with recurring violations.

For more information regarding either of these new developments, contact Julie Heath.

Julie Heath | Farrow-Gillespie & Heath LLP | Dallas, TXJulie E. Heath practices primarily in the area of employment litigation and counseling. In addition to litigation and arbitration defense, she counsels HR departments and businesses of on all aspects of employment law. Julie has been named to the list of Texas Super Lawyers (a Thomas Reuters service) in every year since 2012.

BEC: the Phishing Email Impersonating Your Boss

That flowery email from a Nigerian Prince who can’t spell has been supplanted by a far more dangerous phish — the Business Email Compromise (“BEC”). According to the FBI, in the past two years over 8,000 businesses, small and large, have been victimized by BEC attacks for combined losses of over $1.2 billion.

What is BEC? BEC is a sophisticated hack in which a scammer (usually impersonating the boss) instructs an employee to send money or sensitive data to what appears to be a vendor or other plausible business recipient. In some cases, the hacker infiltrates the company’s email system and sends the email from a recognized address. In others, the email address has only a minor difference. BEC hackers also research social media and company websites to mimic communication styles and to reference actual company matters.

The best defense against BEC is solid HR training: require in-person confirmation of payment requests; educate personnel in cyber-security; and train employees never to deviate from normal checks and controls.

Farrow-Gillespie Heath Witter LLP provides employment law training and HR counseling for cyber-related issues, along with insurance policy review for coverage related to cyber attacks.

Employment Law | Farrow-Gillespie & Heath LLP

Employment Law Update: New DOL Rule Suspended

Employment Law | Farrow-Gillespie & HeathA federal court in Texas has ruled that there is a substantial likelihood that a proposed new DOL rule that increases the threshold salary for exempt employees violates the law. Earlier this year, the Department of Labor published new rules, one of which raised the threshold salary for exempt employees from $23,660 to $47,476. The Texas court issued an injunction preventing the new overtime rules from going into effect. The rules were to have taken effect on December 1 of 2017. The DOL likely will appeal the ruling to the Fifth Circuit Court of Appeals, and the issue may go all the way to the Supreme Court. But for now, implementation of the new salary threshold rule for exempt employees is on hold. The decision, along with a new administration, makes it unclear whether and when the new rules will take effect. How should employers respond to the ruling?

  • Nothing in the injunction prevents you from moving forward and changing compensation plans for some employees—raising some salaries or converting them to hourly nonexempt status.

  • If you want to hold off on increasing an exempt employee’s salary but keep him or her in an exempt status, you can. Right now, the injunction leaves in place the old salary basis test. If the injunction is lifted, you may have to implement some changes quickly—so you will need to pay attention to the legal news.

  • If you want to change some of your formerly exempt folks to nonexempt hourly status, you can. Paying someone on an hourly basis is always okay as long as you pay required overtime.

New Employment Law Overtime Rules

Julie Heath | Farrow-GIllespie & Heath LLP

The U.S. Department of Labor has published historic changes to the overtime rules that will make approximately 4.2 million currently exempt employees eligible for overtime pay. The new rule increases the salary threshold for employees who are exempt (not eligible to receive overtime) from $23,660 to $47,476. To comply with the new regulations, employers either must increase an exempt worker’s salary to $47,476 so the worker remains exempt, or must reclassify him or her as nonexempt, and thus make the worker eligible to receive overtime.


All employers will have to comply with the changes made to the overtime regulations by December 1, 2016.

Employment Law | Farrow-Gillespie & Heath LLP

Affordable Care Act Information for Employers

The Affordable Care Act is a federal statute that creates new responsibilities for employers. Employers who have fewer than 25 “full-time equivalent” employees can qualify for a small business health care tax credit if they pay at least 50% of the employees’ health insurance premium costs and offer coverage through the Small Business Health Options Program (“SHOP”) Marketplace. Larger employers face new requirements to insure their employees—and steep penalties, should they fail to comply with the requirements. In 2015, employers with 100 or more full-time equivalent (“FTE”) employees must offer coverage to 70% of those employees and their dependents. And beginning in 2016, all employers with 50 or more FTE employees must offer coverage to 95% of those employees and their dependents.

For an employer to determine whether it comes within these new requirements, the employer must first calculate its number of full-time equivalent (“FTE”) employees. Each employee who works 30 hours or more per week, over at least 120 days per year, is a full-time employee. But hours worked by part-time employees also add to the FTE number; if, for example, five part-time employees work a total of 60 hours per week, their employer would need to add two FTE employees to its total. Notably, affiliated companies may be treated as a single employer under the Act.  As a result, three companies each having 20 FTE employees could either: 1) qualify for small business health care tax credits, if they are treated as three separate employers; or 2) be subject to the employer coverage mandate, if they are sufficiently connected to be treated as a single employer.  It is therefore particularly important that companies who share ownership or control, or who otherwise coordinate their business activities, consult with counsel to determine their employer status under the ACA.

Once an employer confirms that it is subject to the employer mandate, it has more decisions to make. For each year that the employer does not offer any insurance coverage to its employees, it will face a $2,000 penalty per FTE, minus the first 30 employees (or, in 2015, minus the first 80 employees). To avoid such penalties, the employer should offer its employees an “affordable” plan that provides “minimum value” under the ACA. These calculations are complex. Generally, “minimum value” requires that the employer pays at least 60% of the plan’s costs, and “affordable” requires that an employee’s premiums cost no more than 9.5% of his or her household income. If the employer’s plan is deemed to not provide minimum value, or to not be affordable, the employer will be fined $3,000 for any full-time employees who receive federal premium subsidies for marketplace coverage. Some employers may, nevertheless, opt for “skinny plans” that may not meet the required minimum essential coverage under the Act, but which will avoid the $2,000-per-employee penalty and reduce coverage costs.

For more information about how the Affordable Care Act may affect your business, please contact board-certified health care attorney Scott Chase or employment lawyer Julie Heath.