“[T]he first major whistleblower program in Canada was launched by the Ontario Securities Commission on July 14th of last year. While the OSC Whistleblower Program does not itself provide any protection against reprisals for whistleblowers, the Ontario Securities Act was amended in conjunction with the introduction of the Program to address whistleblower protection.
While massive awards paid out by regulators to whistleblowers continue to dominate headlines, a U.S. jury recently awarded a significant damages award to a former employee who alleged that his employer retaliated against him after he reported misconduct. Earlier this week, the former general counsel of Bio–Rad Laboratories Inc., Sanford Wadler, was awarded $8 million in damages ($2.96 million in back wages and $5 million in punitive damages) after a jury determined that Bio–Rad fired Wadler because he reported certain violations by Bio–Rad under the U.S. Foreign Corrupt Practices Act. Wadler’s lawyers have said that the back pay damages will be doubled, which would amount to over $10 million awarded in total.
Wadler’s report to U.S. law enforcement detailed the violations by the company’s Chinese sales team, such as the company delivering free products to distributors in China and failing to retain necessary sales records. As a result of the report, Bio–Rad paid $55 million to settle the FCPA offences in 2014.
The jury found that Wadler’s report to the company’s audit committee was protected under the Sarbanes–Oxley Act as whistleblower activity, and that Wadler’s whistleblower activities were a significant reason for his termination. The Sabanes–Oxley Act specifically provides a civil remedy against their employers to employees who are wrongfully discharged as a consequence of having reported misconduct. The jury found that Wadler was fired four months after releasing his report in February 2013. An unfavourable performance review of Wadler, who had decades of seniority at the company, was created a month after his termination, following a mostly positive review in late 2012.
Whistleblower protections under the Ontario Securities Act
As we have discussed before, the first major whistleblower program in Canada was launched by the Ontario Securities Commission on July 14th of last year. While the OSC Whistleblower Program does not itself provide any protection against reprisals for whistleblowers, the Ontario Securities Act was amended in conjunction with the introduction of the Program to address whistleblower protection. In particular, the new amendments to the Securities Act prohibit retaliation by employers against employees for reporting securities violations (as well as against employees who express their intention to report such violations). As we have previously outlined, reprisals as defined in the Act include, but are not limited to, doing or threatening to do any of the following:
(a) terminating the employee’s employment;
(b) demoting, disciplining or suspending the employee;
(c) penalizing the employee; or
(d) intimidating or coercing the employee in any manner related to his or her employment.
Reporting by in–house counsel
The Wadler case is particularly notable given that Wadler was the general counsel of Bio-Rad when he reported the misconduct. Generally speaking, the anti-reprisal provisions under the Ontario Securities Act extend to in–house counsel who report wrongdoing, just as they extend to all other employees. However, notably, in–house counsel who report misconduct under the OSC’s Whistleblower Program are generally ineligible for a whistleblower award, except in the following circumstances:
- when at least 120 days have elapsed since in–house counsel provided the information through the company’s appropriate internal channels or, at least 120 days have elapsed since in-house counsel received the information, if in the circumstances in-house counsel received the information they became aware that one or more of the individuals in the appropriate internal channels were already aware of the information;
- in–house counsel has a reasonable basis to believe that disclosure of the information to the OSC is necessary to prevent the subject of the whistleblower submission from engaging in conduct that is likely to cause or continue to cause substantial injury to the financial interest or property of the entity or investors; or
- in–house counsel has a reasonable basis to believe the subject of the whistleblower submission is engaging in conduct that will impede an investigation of the misconduct.
The jury’s decision in the Wadler case highlights the importance not only of robust internal systems and controls to detect problems before they come the attention of regulators, but also the need to ensure that employees who report misconduct are properly protected in accordance with securities laws.
By: Geoffrey Grove and Vanessa Cotric, Osler, Hoskin & Harcourt LLP
Latest posts by Occasional Contributors (see all)
- Finance is doing a consultation on whether to increase the disbursement quota for Canadian registered charities - September 27, 2021
- Many charities with March 31 year ends need to file their T3010 by September 30 - September 13, 2021
- Reminder from Corporations Canada re: AGMs in 2021 for CNCA corporations - September 1, 2021