Dodd-Frank Retaliation Protections Do Not Apply Outside of US, Federal Appeals Court Rules

Author: Marta Moakley, XpertHR Legal Editor

August 19, 2014

The retaliation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) do not apply outside the US, the 2nd Circuit Court of Appeals has ruled in Liu v. Siemens, AG. With this decision, the 2nd Circuit has joined the 5th Circuit in determining that, although other Dodd-Frank provisions do apply outside of the US, the retaliation provisions do not.

Liu, a former employee of Siemens, AG, a German corporation, disclosed his concerns regarding alleged corrupt conduct under the Foreign Corrupt Practices Act through internal complaint procedures. The former employee, a resident of Taiwan, worked as a Division Compliance Officer for Siemens, AG's wholly owned subsidiary Siemens China Ltd. After relaying his concerns to superiors, the employee was demoted and ultimately fired.

The employee filed a claim in federal court claiming that he was retaliated against for engaging in activities protected by Dodd-Frank's whistleblower provisions. Dodd-Frank's Section 78u-6(h)(1) prohibits an employer from discharging or in any way discriminating against "a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower. . . in making disclosures that are required or protected" under the Sarbanes-Oxley Act of 2002 (SOX), the Dodd-Frank Act or any other law, rule or regulation subject to the jurisdiction of the Securities and Exchange Commission (SEC).

The lower court dismissed Liu's claims, ruling that Dodd-Frank's anti-retaliation provision was not intended to reach extraterritorially.

The 2nd Circuit agreed with the lower court's reasoning. Specifically, the appellate court held that:

  • Legislation is presumed to apply only domestically unless there is evidence to suggest Congress intended otherwise;
  • There is no evidence that Congress intended the whistleblower provisions to apply outside of the US; and
  • The facts in the employee's complaint concern activities, employment actions and parties outside of the US.

The facts of the employee's complaint involved a foreign national disclosing a foreign corporation's corruption that occurred outside the US. The only connection to the US centered on Siemens AG's being listed on the New York Stock Exchange - and this proved too tenuous a link for the appeals court to extend Dodd-Frank's reach.

The 2nd Circuit did not reach the question of whether Liu's internal reports of corruption would have triggered Dodd-Frank's whistleblower protections, leaving open the question of whether an employee needs to report concerns directly to the SEC in order to receive protection as a whistleblower under the law. However, the appeals court included the following in a footnote: "We thus assume without deciding that internal reporting is sufficient to qualify for the statute's protection."

In another 2nd Circuit decision affecting whistleblowers issued this month (Nielsen .v. Aecom Technology Corp), the appeals court affirmed a lower court's dismissal of an employee's SOX retaliation lawsuit because the employee's claims did not include information that would sufficiently show that the employee reasonably believed that his claims regarding the employer's failure to review fire safety designs could have amounted to fraud (e.g., mail, wire or securities) under SOX's whistleblower provision. However, the 2nd Circuit did reject a previously applied legal standard that an employee's subject of whistleblowing must "definitely and specifically" relate to one of the listed categories of fraud or securities violations listed in the law. Rather, an employee need only "reasonably believe" the conduct he challenged constituted an offense listed in the statute.