SOX Applied to Employee Working Overseas

Laura Effel and Johan Lubbe
June 5, 2008 — 825 views  

As the contingent of globally mobile employees increases, the issue of whether American law, including the Sarbanes-Oxley Act, applies to American employees while working overseas is receiving greater attention by the courts. Generally, there are two key inquiries:

  1. Does the law apply directly to the employees, typically because a sufficient connection exists between the unlawful conduct and the United States?
  2. Although the unlawful conduct occurred in the foreign jurisdiction, does American law apply extraterritorially?

The presumption followed by the courts in interpreting American statutory law is that the legislation applies only to conduct that occurred in the United States (or, in the case of state law, in the specific state). However, American legislation will often cover conduct on foreign soil (i.e., apply extraterritorially) if the lawmakers expressly determined to extend the law beyond U.S. borders.

A few federal workplace laws apply extraterritorially by express legislative intent: Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Foreign Corrupt Practices Act of 1977 and the American with Disabilities Act of 1990.

No express legislative intent applies the whistleblower protection provisions of the Sarbanes-Oxley Act of 2002 extraterritorially, but the issue has received recent attention in the federal courts.

In one federal case, the court permitted a former employee working in France to proceed with a SOX whistle-blowing claim against the Bermuda parent company, Accenture LTD, and its U.S. subsidiary, Accenture LLP. O'Mahony v. Accenture Ltd and Accenture LLP, 07 Civ. 7916 (S.D.N.Y. Feb. 5, 2008).

O'Mahony brought her claim in federal court after the Secretary of Labor failed to make a final decision within 180 days. The Occupational Safety and Health Administration had dismissed her claim for lack of jurisdiction, holding that the Sarbanes-Oxley Act did not apply outside the United States, and an administrative law judge affirmed the dismissal. O'Mahony had appealed the ALJ's decision to the Administrative Review Board when the case was filed.

The defendants requested the federal court to dismiss the claims for lack of jurisdiction, arguing that the whistle-blower protection provisions of SOX do not apply extraterritorially. In denying the defendants' motion to dismiss, the court provided a narrow opening for claims involving foreign employees when the claims have sufficient nexus to the United States. The court specifically ruled that it was not applying SOX's whistle-blower protections extraterritorially.

In this case, plaintiff Rosemary O'Mahony had been a partner in the company's U.S. subsidiary from 1984 through August 2004 and then a partner and employee of the company's French subsidiary, working in France, for more than two years. She began working in France as an expatriate employee of the U.S. subsidiary part time in 1992 and then full time in 1993. According to her complaint, she complained that her employer defrauded the French government by failing to pay social security payments on her behalf following a five-year exemption under the bi-lateral Totalization Agreement between the U.S. and France. After filing an internal complaint, she was demoted in November 2004 with a corresponding reduction in pay. She alleged that the conduct (fraud) occurred in the U.S. and that executives of the U.S. subsidiary made the decisions to defraud and to demote her in the United States. The court agreed that the alleged U.S.-connected conduct was sufficient to directly (as oppose to extraterritorially) apply the SOX whistle-blower provisions under these circumstances and refused to dismiss the claims.

The court also denied dismissal of the claims against the Bermuda parent company but noted that the issue of jurisdiction over the Bermuda company would remain an issue through trial. In order to prevail at trial, the court said, the plaintiff would have to prove a sufficient basis for holding the parent company responsible for the conduct of the U.S. subsidiary.

The court distinguished this case from Canero v. Boston Scientific, 433 F.3d 1 (1st Cir. 2006), the first case that considered the extraterritorial application of the SOX whistle-blower protection provisions. In Canero, the plaintiff was a resident of Brazil and an employee of a Latin American subsidiary of a U.S. company. He was paid exclusively by the Latin American subsidiaries. He accused the parent company of firing him in retaliation for telling the defendant about fraudulent activities in its Latin American subsidiaries. The court held that a foreign employee complaining of misconduct abroad by overseas subsidiaries could not bring a SOX claim against the U.S. parent company. In O'Mahony, by contrast, the court found that the suit was by a U.S. employee against her U.S. employer.

Foreign employees of foreign subsidiaries of U.S. companies remain generally governed by the laws of the country where they are employed. Nevertheless, direct participation in management of foreign subsidiaries by U.S. companies bears the risk of having the Sarbanes-Oxley Act apply to potential whistle-blowing claims.

Jackson Lewis attorneys are available to answer inquiries regarding SOX and other workplace laws.

Laura Effel and Johan Lubbe

Jackson Lewis LLP