In overseas employee is protected under the Sarbanes-Oxley whistleblower provisions, a U.S. District Court judge in New York recently decided in an apparent first impression ruling.
In O’Mahony v. Accenture (No. 07-7916), Rosemary O’Mahony, a foreign citizen, sued the U.S. subsidiary where she previously worked, as well as its Bermuda parent company, alleging she had been retaliated against for refusing to take part in a foreign tax fraud scheme.
“This is the first time any court has applied the whistleblower provisions of Sarbanes-Oxley to an overseas employee,” according to David A. Mair, counsel for O’Mahony. “As long as the decision-making [affecting the whistleblower] takes place in the United States, then the whistleblower is protected no matter where in the world he or she is situated.”
The court distinguished a First Circuit decision, Carnero v. Boston Scientific Corp., that a foreign employee complaining of misconduct abroad by overseas subsidiaries could not sue the U.S. parent company. (433 F.3d 1 (2006).)
Instead, Southern District of New York Judge Victor Marrero said he had subject matter jurisdiction “because the alleged wrongful conduct and other material acts occurred in the United States by persons located in the United States, and hence the exercise of jurisdiction by this court to resolve the dispute before it would not implicate extraterritorial application of American law.”
Philip M. Berkowitz, chair of the international labor and employment team at Nixon Peabody in New York, said the decision’s potentially broad application should have companies concerned.
“Any employer, whether a U.S. or a foreign company, that has an American making a decision in the United States that could affect the employment of any employee anywhere in the world should be aware that decision-making process could result in a violation of U.S. law,” he said.
Anthony J. Rao, a partner at Seyfarth Shaw in New York City who represented the defendant, declined to comment on the case.

French social security

O’Mahony worked for Accenture, a Bermuda company listed on the New York Stock Exchange. In 1992, she left the United States for an assignment in France, where she remained until 2006.
She was paid by an American subsidiary of the company until 2004, when a French subsidiary of Accenture began paying her. The company obtained a certificate of coverage exempting it from paying social security contributions to France of behalf of O’Mahony from 1992 until 1997.
In 2001, O’Mahony informed various executives that because the certificate had expired, the company was responsible for paying the contributions. She alleged she told an Accenture employee in the United States, who informed her the company’s “interests” would be better served by not making the contributions.
O’Mahony objected, saying she would not be a party to tax fraud. Less than two months later, O’Mahony was demoted and her salary reduced by roughly $670,000.
She then filed a complaint with the Department of Labor, alleging that Accenture and its subsidiaries violated Title VIII of Sarbanes-Oxley (18 U.S.C. §1514A) by retaliating against her as a whistleblower.
The DOL dismissed her complaint, a decision upheld by an administrative law judge, and she then filed suit in U.S. District Court.

U.S. the ‘center of gravity’

The defendants filed a motion to dismiss, arguing the court lacked subject matter jurisdiction because SOX doesn’t apply to extraterritorial employees.
Marrero denied the motion, saying, “[The plaintiff] was employed and compensated by a United States subsidiary of a foreign corporation. … [T]he employment relationship in this case, until 2004, was between a United States employer and its employee.”
According to the judge, O’Mahony alleged the conduct related to the alleged fraud involved employees located in the United States.
“Specifically,” wrote Marrero, “the [U.S. subsidiary] perpetrated the alleged fraud by deciding in the United Sates not to pay French social security contributions owed on [the plaintiff’s] behalf pursuant to the Social Security Agreement and then acting upon that decision in the United States by not making the payments in question.”
Not only that, the alleged retaliation was made by executives located in the U.S., the judge noted.
The “center of gravity” of the alleged misconduct was in the U.S., the judge said, even though O’Mahony worked in France.
“[T]he court is not confronted with a transaction that is predominately foreign which would require it to decide whether Congress would have wanted to extend American jurisdiction,” wrote Marrero. “The court is not being asked to intervene to apply American law in a dispute between foreigners that occurred abroad concerning a foreign transaction.”

Congressional intent

Marrero also assessed Congressional intent in supporting his ruling.
“Congress enacted §1514A as a civil action to protect employees of publicly traded companies against retaliation in fraud cases. The plain text of the statute indicates that it is meant to protect employees, like [the plaintiff] from retaliation for reporting misconduct. The court finds that it would not be unreasonable nor against Congressional policy to extend jurisdiction” over a parent company’s U.S. subsidiary, Marrero wrote.
Berkowitz expressed concern about whether Sarbanes-Oxley was intended to apply overseas.
Congress wrote protections into other statutes, such as Title VII and the American with Disabilities Act, he noted, indicating the legislature knows how to establish rights for overseas employees.
Not explicitly including such language in the whistleblower provisions of Sarbanes-Oxley “indicates Congress clearly did not intend to extend the whistleblower provisions overseas and did not intend for the remedies of the Act to apply,” Berkowitz said.
But Mair said the Congressional intent of Sarbanes-Oxley would not be fulfilled without protecting overseas employees.
“The Congressional intent in protecting whistleblowers of U.S. publicly-traded companies,” Mair said, “is not fulfilled if you make an artificial distinction between whistleblowers located on American soil and those located overseas who are complaining about the exact same fraudulent conduct.”