Some of the most vivid memories of the 2002 corporate scandals were Enron’s Sherron Watkins and WorldCom’s Cynthia Cooper revealing the financial abuses that occurred at their companies. Later that same year, the Sarbanes-Oxley Act was passed containing new protections for “whistleblowers” like Watkins and Cooper.
Sarbanes-Oxley Act
Sarbanes-Oxley adds to the growing number of laws that provide shelter to those who report suspected misdeeds committed by their employers. The wide-ranging law enables employees and others to freely report corporate irregularities they believe are a violation of SEC rules or other federal laws relating to fraud against shareholders.
Formal Procedures
Employees of publicly traded firms are protected from being discharged, demoted, suspended, threatened, harassed or discriminated against for providing such information. Sarbanes-Oxley goes even further and requires that a corporation’s audit committee set up the following:
“Procedures for the receipt, retention and treatment of complaints… regarding internal accounting controls or auditing matters.”
Many corporations set up a toll-free number so that employees can report questionable accounting and auditing matters in a confidential, anonymous way. However, a corporation is free to determine its own procedures for handling complaints.
OSHA
Employees who believe their rights have been violated under the law can contact the local office of OSHA, which is the federal agency that generally investigates whistleblower complaints. The law offers protection even if the whistleblower is proven wrong, as long as the employee believed the allegations were true. So it’s critical that corporations thoroughly explain to OSHA investigators any policies and practices that may have led to actions against the employee, as well as the accounting and securities issues involved in the case.
If OSHA finds merit in the charges, it tries to negotiate a settlement between the company and the employee. If that fails, the agency refers the case to the Office of the Solicitor, which can consider filing a civil action in U.S. District Court. Under the law, employees involved in lawsuits that are eventually successful receive:
- Reinstatement with no loss of seniority status.
- Back pay with interest.
- Compensation for expenses such as litigation costs, expert witness fees, and reasonable attorney fees.
This is in addition to any discrimination rights or privileges the employee has under other state or federal laws.
A Further Note
The law protects not only employees who file complaints but also contractors, subcontractors, and agents of companies, as well as staff members who participate in proceedings or otherwise help investigators. In addition, the law requires attorneys for public companies to report suspected abuse. Criminal and civil penalties include substantial fines and up to 10 years in prison.
Corporations need to review their existing whistleblower policies and provide training to protect against claims of retaliation. Contact your attorney for more information.
Other Whistleblower Laws
Sarbanes-Oxley joins more than 50 federal laws with whistleblower protections including the following:
- The Dodd-Frank Act
- The Occupational Safety & Health Act of 1970
- The False Claims Act
- The Surface Transportation Assistance Act
- The Asbestos Hazard Emergency Response Act
- The International Safety Container Act
- The Energy Reorganization Act
- The Clean Air Act
- The Safe Drinking Water Act
- The Federal Water Pollution Control Act
- The Toxic Substances Control ActThe Solid Waste Disposal Act
- The Comprehensive Environmental Response, Compensation and Liability Act
- The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century
- Corporate and Criminal Fraud Accountability Act of 2002
- Pipeline Safety Improvement Act of 2002
Several states and local governments also have their own laws.
Financial Reward for Whistleblowers
The Dodd-Frank Act established financial rewards for whistleblowers in some cases. This news story explains more: