United States: New Litigation Risk: Foreign-Based Employee Permitted To Sue
Under Sarbanes-Oxley

Special counsel Frances Phillips Taft (fphillipstaft@faegre.com) is a dual-qualified attorney (U.S./UK) with a fellow in international practice. A member of Faegre & Benson's international employment practice, she focuses on international pensions, employee benefits and executive compensation matters.

In a groundbreaking decision, the U.S. District Court for the Southern District of New York held on February 5, 2008, that it had subject matter jurisdiction and permitted a foreign employee working overseas for a U.S. company to sue her employers in the United States as a whistleblower under Title VIII of the Sarbanes-Oxley Act of 2002. The decision, in O'Mahony v. Accenture Ltd. and Accenture LLP, may open the door for employees working overseas to file litigation in the United States.

U.S. companies with foreign operations should understand the potential ramifications of this decision as it relates to international benefits. These companies may also face new liabilities in foreign jurisdictions in which they do business—as well as in the United States.

Background Facts in O'Mahony

In O'Mahony v. Accenture Ltd., the plaintiff, Rosemary O'Mahony, was a partner and employee of Accenture LLP, the U.S. subsidiary of Accenture Ltd., a Bermuda-based company listed on the New York Stock Exchange. An Irish national, she worked in the United States for Accenture LLP from 1984 to 1992, when she moved to France on an expatriate assignment for Accenture LLP. O'Mahony resided in France from that point forward. In September 2004, she was made a partner and an employee of Accenture SAS, Accenture Ltd.'s French subsidiary, where she worked until October 2006.

While employed by the U.S. subsidiary in France on her expatriate assignment, O'Mahony alleged in her lawsuit, she had informed various executives of the company's responsibility to pay French social security contributions owed on her behalf. By the time O'Mahony moved to the French company, Accenture SAS, those contributions had accrued to approximately $3.7 million.

Following her transfer to the French subsidiary, O'Mahony alleged, the Accenture LLP global financial director in New York told her that the company's tax partner, who was also based in the United States, had determined that the company's interests would be better served by not making the French social security contributions. This was to be achieved by affirmatively concealing from French authorities the length of O'Mahony's residency in France.

The plaintiff allegedly objected to this decision and advised the U.S. entity that she would not be a party to tax fraud. Shortly thereafter, in November 2004—just two months after O'Mahony was hired by Accenture SAS—the Accenture LLP global business operations director in New York allegedly made the decision to reduce O'Mahony's level of responsibility, which resulted in a significant reduction in compensation.

O'Mahony filed a complaint on March 24, 2005, with the U.S. Department of Labor Occupational Safety and Health Administration (DOL), claiming that Accenture LLP and its subsidiaries had violated Section 1514A(a)(1) of the Sarbanes-Oxley Act by retaliating against her because of her objections to the fraudulent scheme that evaded payment of social security contributions due in France for U.S. employees on secondment to France. On May 9, 2005, the DOL issued a letter setting out its findings and dismissed the complaint on the ground that "each of the alleged elements of her complaint occurred in France" and that the DOL lacked jurisdiction over the claim because Section 1514A of the Sarbanes-Oxley Act did not apply extraterritorially.

O'Mahony then filed an objection and requested a hearing with the Office of Administrative Law Judges. The administrative law judge upheld the dismissal of the DOL complaint, and O'Mahony filed a petition for review with the Administrative Review Board. On August 15, 2007, O'Mahony notified the Administrative Review Board of her intent to file an action in the U.S. District Court because the board did not render a decision within the requisite 180 days from the date when O'Mahony's DOL complaint was filed.

The U.S. District Court Action

The federal court action was filed in the U.S. District Court on September 7, 2007. The court reversed the DOL dismissal of O'Mahony's claim. Significantly, the court rejected the defendants' argument that the anti-retaliation and whistleblower protection provision of the Sarbanes-Oxley Act does not cover employees outside the United States.

Section 1514A(a)(1) of the Sarbanes-Oxley Act provides whistleblower protection to employees who:

In O'Mahony, the District Court noted—quoting its own 2006 ruling in Fraser v. Fiduciary Trust, Int'l—that in order to state a claim under Section 1514A, the plaintiff must show by a preponderance of the evidence that "(1) he engaged in protected activity; (2) the employer knew of the protected activity; (3) he suffered an unfavorable personnel action; and (4) circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action."

Defendants moved to dismiss the claim, relying primarily on the appellate court decision rendered in Carnero v. Boston Scientific Corp., on the ground that Section 1514A does not apply extraterritorially, that is, "beyond the territorial jurisdiction of the United States."

Facts of Carnero and O'Mahony Distinguishable

In the Carnero case, Ruben Carnero, a citizen of Argentina and resident of Brazil, sued Boston Scientific Corporation (BSC), the U.S. parent of the plaintiff's former Latin American employers, under Section 1514A. Carnero, the plaintiff, alleged that BSC terminated him in retaliation for informing BSC about fraud occurring at two of BSC's Latin American subsidiaries.

In Carnero, the court held that a foreign employee complaining of misconduct abroad by overseas subsidiaries could not bring a claim under Section 1514A against the U.S. parent company. The court found that, under the facts of the case, "§ 1514A does not reflect the necessary clear expression of congressional intent to extend its reach beyond the nation's borders."

The court reasoned that the text of Section 1514A was silent as to its extraterritorial application—legislative history indicated that Congress gave no consideration to the possibility of its application outside the United States. On the other hand, in sharp contrast to Congress's silence on this matter in Section 1514A, it expressly provided in other provisions of the Sarbanes-Oxley Act for extraterritorial enforcement.

The court in the O'Mahony decision, however, distinguished the holding of Carnero and highlighted three notable factual differences in the O'Mahony matter.First, the plaintiff in Carnero was a foreign employee—employed and compensated exclusively by Latin American subsidiaries of a U.S. corporation. Unlike the plaintiff in Carnero, O'Mahony, in contrast, was employed and compensated by a U.S. subsidiary of a foreign corporation. She worked in the United States from 1984 through 1992, and was compensated by Accenture LLP, the U.S. subsidiary of Accenture Ltd., from 1984 through 2004. Because O'Mahony was employed within the United States until 1992 and compensated by a U.S. company until 2004, the court ruled, concerns raised in Carnero that the United States was interfering with the employment relationship of a foreign employer and its employees were not applicable. Until 2004, the employment relationship was between a U.S. employer and its employee.

Second, in Carnero, the alleged wrongful conduct that gave rise to the plaintiff's claim occurred in Latin America. In contrast, the allegations of wrongdoing in O'Mahony involved employees of defendants located in the United States, with the alleged fraud likewise occurring in the United States. Specifically, Accenture LLP perpetrated the alleged fraud by deciding in the United States not to pay French social security contributions owed on O'Mahony's behalf pursuant to the United States' social security agreement with France, and then acting upon that decision in the United States by not making the payments in question.

Finally, the third distinction made by the District Court was that in Carnero, the plaintiff brought an action against the U.S. parent company for the alleged misconduct abroad by its Latin American subsidiary. In O'Mahony, though, the action was brought against the foreign parent and its U.S. subsidiary for the alleged misconduct of the U.S. subsidiary in the United States.

Because the facts of Carnero and the O'Mahony case were so distinguishable, the court noted that the Carnero decision offered limited guidance to the court when rendering its decision. Rather, in O'Mahony, the court focused on the location of the alleged adverse decision, rather than the location of the work site or nationality of the employee. It held that since the alleged decisions to avoid paying French taxes and to retaliate against O'Mahony were made by executives in the United States, the issue of extraterritorial jurisdiction did not apply.

The court also found that sufficient facts were asserted that, if proven, would constitute a violation of Section 1514A. Relying on its earlier decision (in Fraser), the court noted that four factors are required to prove a violation under Section 1514A of the Sarbanes-Oxley Act. O'Mahony, the court said, had sufficiently alleged (and must eventually prove) those four: (1) that she engaged in a protected activity; (2) that Accenture LLP knew of the protected activity; (3) that she suffered an unfavorable personnel action; and (4) that circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action.

Conclusions

For multinational employers, the decision in O'Mahony demonstrates that U.S. courts may be willing to find a sufficient nexus with the United States and extend subject matter jurisdiction to whistleblowing complaints brought by foreign nationals employed in foreign jurisdictions if the decision to retaliate against the complainant or the decision to commit the alleged fraud is made by executives in the United States. In light of the ruling and precedent, it is therefore prudent for executives and officers of multinational corporations to review the parameters of Section 1514A(a)(1) of the Sarbanes-Oxley Act and note its potential scope.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.