Over the past two years, we have seen the approach that the Administrative Review Board (ARB) has taken with respect to the scope and coverage of Dodd-Frank In almost every instance, the ARB has expanded the scope and coverage of the anti-retaliation coverage of the statute. We have been waiting to see whether the federal courts will follow suit.
Recently, a federal court did just that, extending anti-retaliation coverage to non-public entities before the effective date of Dodd-Frank. Because Dodd-Frank amended Sarbanes-Oxley, the question of whether those amendments will have retroactive effect is an important one. The amendments were expansive, as in the case of extending coverage of the anti-retaliation protections to employees of non-publicly traded subsidiaries or affiliates of publicly-traded companies in certain instances. In July, a federal judge in New York decided that those provisions of Dodd-Frank apply retroactively. The judge determined that Dodd-Frank only clarified Sarbanes-Oxley and thus could apply to alleged retaliation at a non-public subsidiary of a publicly-traded company that took place before Dodd-Frank was enacted.
The New York decision highlights the importance of making sure that companies have in place at their non-public subsidiaries and affiliates the same Sarbanes-Oxley compliant structures, policies, and procedures that they have in place at their publicly-traded entities, and that those structures, policies, and procedures work. It is critical, as explained in earlier posts, that each covered entity has—and continuously improves—a culture of compliance and a robust and effective anti-retaliation policy and practice. Appropriate, timely, and effective communication between and among compliance functions at parents, subsidiaries, and affiliates is also essential so that each of the affected entities is aware of issues of concern and potential exposure.
Although the decision by the New York case involved a foreign subsidiary whose financial information was included in the consolidated financial reporting of the publicly-traded company, the facts in that case did not raise an issue of the extraterritorial application of Sarbanes-Oxley. On that issue, at least, both the ARB and the courts have been restrained in expanding coverage. A recent federal district court case from Texas continued that restraint in refusing to give the anti-retaliation provision of Dodd-Frank extraterritorial effect, rejecting a claim from an employee who alleged retaliation arising from events that occurred primarily outside of the United States. As is the case under the law developed under Sarbanes-Oxley, whether the statute will reach conduct outside the United States depends on a fact-intensive analysis of each case, but the absence of an express provision requiring extraterritorial application in Dodd-Frank biases the outcome against application. That said, employers are best served by working to enforce a culture of compliance throughout their affiliated entities, whether inside or outside the United States.
Margaret H. Campbell is a shareholder in the Atlanta office of Ogletree Deakins, and she co-chairs the firm’s Ethics Compliance, Investigations and Whistleblower Response Practice Group.