(Reuters) - A U.S. judge bolstered protection for corporate whistleblowers on Monday by ruling the Dodd-Frank law gave retroactive protection to employees of subsidiaries, not just people who work directly for the parent companies.
The decision concerned the Sarbanes-Oxley Act of 2002, adopted in the wake of Enron Corp’s collapse the prior year, which helped protect employees of publicly-traded companies against retaliation for whistleblowing.
Dodd-Frank amended that law in July 2010, as part of a series of financial reforms, to show that employees of subsidiaries should also be protected from any reprisals by their companies.
Addressing what he called a “novel question,” U.S. District Judge J. Paul Oetken in Manhattan said that amendment should apply retroactively to cases that predated Dodd-Frank, being “a clarification of Congress’s intent” concerning whistleblowers.
The decision is a victory for Phillip Leshinsky, who had worked for the non-public Caseta unit of Spanish technology company Telvent GIT, and sued over his alleged wrongful termination in July 2008.
Telvent employed about 6,100 people in roughly 30 units at the time, but the parent entity employed only about one dozen, according to Oetken. The French industrial company Schneider Electric SA (SCHN.PA) bought Telvent last year.
Leshinsky claimed he was fired in retaliation for objecting to the use of fraudulent information in connection with Caseta’s bid for a Metropolitan Transportation Authority contract in the New York City area.
A Telvent spokeswoman, a lawyer for Telvent and a lawyer for Leshinsky did not immediately respond to requests for comment.
Telvent has denied that Leshinsky was fired because of whistleblowing activity, and denied the existence of the alleged scheme to defraud the MTA, court papers show.
Without deciding the merits of the case, Oetken said Congress considered it important to protect whistleblowers in order to thwart financial fraud within “large, complexly structured” companies.
“In light of the fact that corporate malfeasance can — and often does — occur within subsidiaries of a public company, and that such malfeasance was precisely what precipitated the passage of Sarbanes-Oxley, it is certainly reasonable to infer that, in enacting whistleblower protections, Congress intended to protect the employees of a corporation’s subsidiaries in addition to employees of the parent itself,” Oetken wrote.
The judge also quoted from a U.S. Securities and Exchange Commission filing in an unrelated 2011 case.
In it, the regulator said “it seems quite unlikely” that Congress would distinguish between employees of parents and subsidiaries, “even though the consequences of his reporting misconduct would be exactly the same in both situations.”
The case is Leshinsky v. Telvent GIT SA et al, U.S. District Court, Southern District of New York, No. 10-04511.
Reporting By Jonathan Stempel in New York; Editing by Kim Coghill