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DISABILITY DISCRIMINATION — 7/20/07

SOX whistleblower provision doesn’t apply extraterritorially

Finding no reason to depart from the First Circuit Court of Appeals decision in Carnero v Boston Scientific (87 EPD ¶42,193 (2006), cert denied, 126 SCt 2973 (June 26, 2006)), the Department of Labor's (DOL) Administrative Review Board (ARB) has ruled that the whistleblower provision in Section 806 of the Sarbanes-Oxley Act of 2002 (SOX) does not apply extraterritorially. In other words, SOX Section 806 does not protect employees who work exclusively outside of the United States (Ede v The Swatch Group Ltd, DOL ARB, Dkt No 05-053, June 27, 2007).

A DOL Administrative Law Judge (ALJ) dismissed the SOX complaint of two employees who alleged that one was fired and the other forced to resign for complaining about fraud committed by their employer. The ALJ concluded that Section 806 did not protect the employees because they both worked exclusively outside of the United States. After the ALJ's decision and while the employee's appeal to the ARB was pending, the First Circuit issued its decision in Carnero. In that decision, the First Circuit ruled that Section 806 does not extend to foreign citizens working outside the United States for foreign subsidiaries of companies covered by SOX. The First Circuit was the first federal appellate court to address this issue. The appellate court found that the relevant provisions, structure and legislative history, as well as other factors, supported its conclusion that SOX's whistleblower provisions were not meant to apply extraterritorially.

Addressing the employee's appeal, the ARB found that substantial evidence supported the ALJ's findings that: (1) the employees worked solely for foreign subsidiaries of the employer in Switzerland, Hong Kong and Singapore; (2) they never worked for the employer within the United States; and (3) their SOX complaint was grounded in adverse actions that occurred outside the United States. Citing the Carnero decision, the ARB affirmed the ALJ's dismissal of the complaint.

For more information on this and other topics, consult CCH Employment Practices Guide or CCH Labor Relations.

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