Corporate Counsel Connect collection

March 2016 edition

SEC whistleblower report; Director overboarding; Additional time for ACA compliance

SEC whistleblower report

A recent SEC report reminds regulated companies to implement measures to anticipate and investigate whistleblower complaints promptly and effectively.

The SEC’s 2015 Annual Report on the Dodd-Frank Whistleblower Program highlights that the SEC:

Received nearly 4,000 whistleblower tips and paid more than $37 million to whistleblowers in 2015.
Issued several noteworthy whistleblower awards, including the issuance of the first awards:

based on a report of retaliatory misconduct; and
to a former company officer whose company failed to take adequate action after receiving an internal report.

Awarded almost half of its whistleblower payments to the employees of the companies on which those employees reported wrongdoing. Eighty percent of those employees first raised their concerns internally or understood that others at the company were aware of the wrongdoing before they filed a complaint with the SEC.
Initiated its first enforcement action against an employer based on the use of confidentiality agreements that allegedly impeded whistleblower reports.

The 2015 report suggests that, in fiscal year 2016, the SEC will continue to:

Rely on the rising number of whistleblower tips to generate leads for potential enforcement actions.
Focus on agreements that deter employees from communicating with the SEC.
Proactively enforce the Dodd-Frank Act’s anti-retaliation provisions and file amicus briefs in private whistleblower litigation to support broad application of those provisions.

The contours of the Dodd-Frank Act’s anti-retaliation provisions are unsettled. Several recent decisions have broadly interpreted the scope of their protections, including applying them to internal reports, although others decline to do so (for example, compare the Second Circuit’s Berman v. Neo@Ogilvy, LLC decision with the Eastern District of Virginia’s Puffenbarger v. Engility Corp. decision).

In light of the 2015 report and recent caselaw, and to best protect against whistleblower claims, in-house counsel should ensure that their companies’ compliance programs:

Adequately deter misconduct.
Promote internal reporting of potential wrongdoing.
Do not deter (in a confidentiality agreement or otherwise) employees from reporting to the SEC.
Prohibit retaliation against whistleblowers.
Provide for prompt investigation and remediation of potential wrongdoing.

For more information on the whistleblower protections available to employees, see Practice Note, Whistleblower Protections Under Sarbanes-Oxley and the Dodd-Frank Act.

Director overboarding

Public companies should evaluate their policies on limiting outside board memberships in light of upcoming changes to ISS’s and Glass Lewis’s proxy voting guidelines.

Under their revised guidelines announced in November 2015, both ISS and Glass Lewis will recommend against any director who sits on more than six public company boards in 2016, with that cap to be lowered to five boards beginning in 2017. ISS and Glass Lewis will also recommend against any director who is the CEO (for Glass Lewis, any executive officer) of a public company while sitting on more than two other public company boards, with Glass Lewis lowering its cap to just one other board in 2017.

While ISS’s and Glass Lewis’s current guidelines on director overboarding will not be tightened until 2017, in-house counsel should act now to:

Consider adopting a formal written policy on overboarding if the company does not yet have one.
Review the company’s overboarding policy to make it at least as restrictive as ISS’s and Glass Lewis’s guidelines.
Ensure the company follows its overboarding policy when identifying and recruiting new directors.
Ensure the company’s policies require directors to give prompt notice of any changes in their outside board service. Companies should not have to wait for the annual directors’ and officers’ questionnaire to update this information.
Consider polling significant shareholders on their views on overboarding, as their policies may be more restrictive than ISS’s and Glass Lewis’s guidelines or the company’s existing policy.

Reducing overboarding can also assist in improving board diversity and refreshment over time. These issues have attracted significant investor interest and media attention in recent years.

For more information on the latest proxy voting guidelines of ISS and Glass Lewis, see Legal Update, ISS Releases 2016 Proxy Voting Guideline Updates and Legal Update, Glass Lewis Releases 2016 Proxy Guidelines.

Additional time for ACA compliance

Employers should be aware of delays and extensions involving two key provisions under the Affordable Care Act (ACA).

The Consolidated Appropriations Act of 2016, enacted in December 2015, included a two-year delay in the effective date of the ACA’s 40% excise tax on high-cost health coverage (a revenue provision known as the Cadillac Plan Tax). The excise tax, which applies to coverage that exceeds certain annual dollar limits, will now take effect for tax years beginning in 2020.

Also in December 2015, the IRS announced extensions of the early 2016 due dates for ACA information reporting, including statements provided to individuals. The extensions apply to ACA reporting requirements added to the Internal Revenue Code that require:

Large employers to file and provide annual information returns and employee statements regarding health coverage offered (or not offered) to full-time employees.
Health insurers, employers with self-insured coverage, and others to file information returns and provide statements regarding minimum essential coverage.

Specifically, the extensions delay the deadlines for several new forms and statements, including 2015 Forms 1095-B, 1095-C, 1094-B, and 1094-C. The extended deadlines:

Vary depending on whether the forms are submitted electronically.
Range from several weeks, for certain requirements, to a few months for others.

Employers and other reporting entities that fail to meet the extended due dates are subject to penalties. Although the extensions offer employers additional time to collect the information required for the forms and to test systems and procedures for 2015 reporting, employers should not be lulled into thinking they have significant additional time to comply.

For more information on these ACA requirements, see Practice Notes, Cadillac Plan Excise Tax Under the ACA and ACA Information Reporting: Forms 1095-C and 1094-C (Overview).

About Practical Law

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