On February 13, 2020, a U.S. Department of Labor administrative judge ruled that an American attorney working for Morgan Stanley in Hong Kong was not protected by the anti-retaliation provisions of the Sarbanes-Oxley Act (“SOX”). Garvey v. Morgan Stanley, No. 2017-SOX-00030. This ruling further solidifies the September 2019 decision by DOL’s Administrative Review Board to reverse the Obama era position on “extraterritoriality” and greatly narrow the circumstances in which Americans working abroad are protected under SOX.

The complainant in this matter, Christopher Garvey, is a U.S. citizen who during the relevant period worked in Hong Kong as an attorney for a foreign subsidiary of Morgan Stanley. Morgan Stanley is a U.S. company headquartered in New York.

Garvey alleged that when he became aware that his employer was violating the Foreign Corrupt Practices Act and other securities laws, he reported the violations internally on several occasions. He further alleged that in response to his internal disclosures, Morgan Stanley constructively discharged him in early 2016 by, among other things, punitively conditioning any further promotions on the approval of the supervisor whose misconduct he had disclosed.

Garvey argued in his complaint to DOL that Morgan Stanley’s adverse action violated Section 806 of SOX, 18 U.S.C. §1514A, which bars public companies and their subsidiaries from retaliating against an employee because of lawful actions taken to report what the employee reasonably believes is a violation of federal securities laws. SOX protects whistleblowers who disclose such violations internally or to federal authorities.

Morgan Stanley contended that Garvey’s complaint should be dismissed because SOX anti-retaliation protection does not apply extraterritorially, i.e., outside the United States. That argument is rooted in the Supreme Court’s 2010 decision in Morrison v. National Australia Bank, 561 U.S. 247, which held that U.S. securities laws generally apply only domestically unless the statute expressly provides otherwise. Moreover, DOL’s Administrative Review Board (ARB), which rules on appeals from decisions by DOL’s administrative law judges, declared in two September 2019 decisions that SOX extraterritoriality decisions would henceforth turn primarily on whether or not the employee was employed within the United States. See Hu v. PTC, Inc., ARB No. 2017-SOX-00019 (Sept. 18, 2019); Perez v. Citigroup, Inc., ARB No. 2017-0031 (Sept. 30, 2019). This was a reversal of DOL’s earlier, more expansive position on extraterritoriality, a change that apparently reflects the more restrictive views of the new ARB members appointed by the Trump Administration.

Garvey opposed Morgan Stanley’s request for dismissal on the ground that the specific facts of his case established a close nexus to the United States. Garvey emphasized that he was a U.S. citizen, he worked for a subsidiary of a US company, the work he performed was not tied to his location in Hong Kong, and Morgan Stanley’s decision to retaliate against him was made in New York. Garvey also argued that Morgan Stanley’s FCPA violations harmed US investors and that recognizing his SOX claim would not conflict with the laws in Hong Kong or any other foreign country.

Garvey’s arguments fell on deaf ears at the Department of Labor. ALJ Applewhite’s February 13 order dismissed Garvey’s complaint, noting that under DOL’s current interpretation the SOX anti-retaliation provision “does not apply extraterritorially.” ALJ Applewhite concluded that the “key factor” when deciding whether a retaliation claim is domestic or extraterritorial is “the location of the employee’s permanent or principle worksite.” In contrast, the ALJ determined that an employee’s citizenship, the location of conduct other than the employment activities, and even the impact of the employer’s securities violations in the United States are, as stated in the Hue decision, “less critical, if not irrelevant.”

The Garvey ruling, in combination with the Hue and Perez decisions last Fall, makes clear that under the current Administration, the Department of Labor is not hospitable to SOX anti-retaliation claims by employees who worked outside the US at the time of the retaliation. While DOL acknowledges certain potential exceptions (e.g., claims arising on US military bases abroad or in US territories), whistleblowers employed abroad generally cannot expect DOL to support a SOX retaliation claim absent unusual and compelling circumstances.

Whistleblower Aid

The foregoing discussion is provided by Whistleblower Aid for general information purposes and is not intended to be, and should not be, taken as legal advice. For guidance on how to contact Whistleblower Aid, see https://whistlebloweraid.org/contact#whistleblower-contact.