Foreigners Denied Whistle-Blower Protections

Foreign whistle-blowers who work for overseas companies can’t be protected from retaliatory firings for disclosing conduct that happens abroad, a federal appeals court held.

The U.S. Court of Appeals in Manhattan found in a case involving Siemens AG that an employee who worked in Taiwan and reported alleged bribery to others in the company couldn’t take advantage of the anti-retaliation provisions of the 2010 Dodd- Frank Act.

According to his complaint, Liu Meng-Lin, a Taiwan citizen, discovered that Siemens employees were indirectly making improper payments to officials in North Korea and China in connection with the sale of medical equipment in those countries. He reported the payments to his superiors and alleged that Siemens progressively restricted his authority as a compliance officer, demoted him and ultimately fired him.

The court in its Aug. 14 decision said Liu didn’t claim that any of the conduct at issue occurred within the “territorial jurisdiction of the United States.”

The court found that the Dodd-Frank protection from retaliatory firings couldn’t apply to Liu because the conduct hadn’t occurred domestically and the law wasn’t specifically written to be applied to foreign companies. The fact that Siemens, a German company, listed a class of stock on an American exchange was insufficient for jurisdiction.

Siemens tried to argue that the law wouldn’t protect an employee who had only reported misconduct internally, the court said. Without deciding the issue, the court said in a footnote that it would “assume without deciding that internal reporting is sufficient to qualify for the statute’s protection.”

David Mair, a partner at New York’s Kaiser Saurborn & Mair PC who represented Liu, said in an e-mailed statement, “The court’s decision that Dodd-Frank whistle-blower protection does not apply extraterritoriality is very disappointing and establishes a fundamental loophole in the protection afforded by Congress to those who expose violations of U.S. securities laws at multinational companies.”

Siemens associate general counsel Eric Liebeler argued the case. Partners Brant Bishop and Ragan Naresh of Kirkland & Ellis LLP represented Siemens in the litigation as well.

A Siemens spokeswoman, Camille Johnston, said in an e- mailed statement that the company was pleased with the ruling, that the company’s investigation showed Liu’s “accusations against the company to be meritless,” and that his firing was performance related.

The case is Liu v. Siemens AG, No. 13-4385-cv, U.S. Court of Appeals for the Second Circuit (Manhattan).