The new Taxpayer First Act signed into law on July 1st apparently bars any employer from requiring arbitration of tax-related whistleblower disputes. The new law also establishes an independent office for resolving taxpayer disputes. Well-established SCOTUS jurisprudence holds that the Federal Arbitration Act will prevail over another federal statute unless the latter expressly bars predispute arbitration agreements (“PDAA”) (see Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018)). By contrast, we covered in SAA 2019-23 (Jun. 12) United States ex rel. Markus v. Aerojet Rocketdyne Holdings, Inc., No. 2:15-cv-2245 WBS AC (E.D. Cal. May. 8, 2019), where the Court found that the False Claims Act – 31 U.S.C. § 3729 et seq. – does not expressly bar arbitration of a wrongful termination claim made by a whistleblower employee, and thus enforced an FAA-covered PDAA.
A New Class of Protected Whistleblowers
A good example of a federal law expressly barring PDAAs is Dodd-Frank, which in 18 U.S.C. §1514A(e)(2) prohibits enforcement by publicly-traded companies of PDAAs for whistleblower claims asserted under Sarbanes-Oxley. Joining the club is the Taxpayer First Act – H.R. 3151 – which passed both houses of Congress and was signed into law July 1 by President Trump. Nestled in the text of this omnibus bill is section 1405, which contains the following language: “Nonenforceability of certain provisions waiving rights and remedies or requiring arbitration of disputes: (A) Waiver of rights and remedies: The rights and remedies provided for in this subsection [whistleblower protection] may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement. (B) Predispute arbitration agreements: No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this subsection.”
Protections Seems to Go Way Beyond Just IRS Employees
When we first heard about the new law we thought it protected only IRS employees, but that’s apparently not the case. Section 7623 of the Internal Revenue Code of 1986 is amended as follows: “(d) Civil action to protect against retaliation cases: (1) Anti-retaliation whistleblower protection for employees: No employer, or any officer, employee, contractor, subcontractor, or agent of such employer, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment (including through an act in the ordinary course of such employee's duties) in reprisal for any lawful act done by the employee …” blowing the whistle on IRS misconduct (emphasis added). Sure seems to cover any employer. The amendments “apply to disclosures made after the date of the enactment of this Act.”
New Dispute Resolution Office for Taxpayer Disputes
The amended law in Section 1001 amends IRS Code section 7803 to establish a new Independent Office of Appeals, the purpose of which is to: “resolve Federal tax controversies without litigation …” arising out of taxpayer deficiency notices. The Office is headed by a Chief of Appeals who reports directly to the Commissioner. Rules are to be promulgated, and it’s not clear what form of alternative dispute resolution will be used. These changes also went into effect July 1.
(ed: *We think we’re right about the statute intending to cover “any employer.” By contrast, the SOX whistleblower protection PDAA ban is limited to publicly-traded companies and their affiliates and agents. **If enacted, it would seem that a securities industry employee who blows the whistle on a tax-related matter would be relieved from a PDAA.) (SAC Ref. No. 2019-26-01)
