Corporate Whistleblower Protection and the Sarbanes-Oxley Act

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 What Is a Whistleblower?

A whistleblower is an individual, who is typically an employee, who reports when their employer has broken the law to an outside agency. A whistleblower is protected by both federal laws and state laws.

An employer is not permitted to retaliate against the whistleblower for reporting their misconduct. A whistleblower cannot be terminated or otherwise mistreated or retaliated against.

In certain cases, the government may reimburse the whistleblowing employee for costs they incurred as a result of reporting their employer’s conduct.

Which Laws Protect Whistleblowers?

There are numerous federal laws as well as state laws which provide protections for whistleblowers. The False Claims Act is the main federal law which protects whistleblowers.

The False Claims Acts provides protections for employees who report instances which involve fraudulent or false reports which are made to the government. In addition, it protects the whistleblower from retaliation by their employer.

If an employee is terminated, they are required to prove certain elements in order to prove their termination was retaliatory, including:

  • The employee’s actions were protected under the False Claims Act;
  • The employer knew that the employee was providing assistance in the government investigation; and
  • The employee’s termination was in retaliation for their participation in protected activities.

The False Claims Act mainly includes the federal government as well as federal contractors. The Act also supplements the efforts of the government by authorizing and encouraging private citizens to initiate civil actions on behalf of the government.

In addition, there are also several states which have their own versions of the False Claims Act. It is important for an individual to check with their state or local government in order to determine if their state has a False Claims Act. In addition, an attorney can also provide advice regarding whistleblower protections in a specific state.

What is the Sarbanes-Oxley Act and How Does it Protect Whistleblowers?

There is a more recent law which provides protections for whistleblowers who are employed in a publicly traded company, including corporations. This law is entitled the Sarbanes-Oxley Act of 2002, which is commonly referred to as SOX.

Companies which are covered by SOX are those which are registered under the Securities Exchange Act as well as those which are required to file reports with the Securities and Exchange Commission. In addition, SOX governs actions which are made by agents or contractors of the corporation.

SOX was implemented in response to widespread fraud which was being practiced by many large corporations at the time. Most individuals associate SOX with issues including accounting issues and improper corporate governance.
SOX, however, also contains a major provision dealing with whistleblowers in corporate settings. An employee may file a claim under SOX against their employer who has violated the law.

Similar to other federal statutes, SOX also protects these whistleblowers from retaliation by their employer.

Which Specific Sections of the Sarbanes-Oxley Act Address Whistleblowing?

The Sarbanes-Oxley Act expanded upon the protections previously provided by the False Claims Act into the area of corporate organizations. SOX includes three major additions to the area of corporate whistleblowing laws, including:

  • Instituting reporting procedures;
  • Investigations; and
  • Criminal offenses.

Section 302 of the Sarbanes-Oxley Act requires a publicly held company to institute a venue for handling reports which are made by anonymous whistleblowers. This section requires an audit committee to establish and institute procedures for those employees who wish to report their employer’s questionable practices while remaining anonymous.

Section 806 of the Sarbanes-Oxley Act requires that any investigation which is conducted following a complaint being filed must not involve certain actions against the individual who acted lawfully in reporting evidence of the company fraud, including:

  • Threats of discharge;
  • Demotion;
  • Suspension; or
  • Harassment.

Section 1107 of the Sarbanes-Oxley Act makes it a criminal offense for an employer to retaliate against an informant. Pursuant to this section, retaliation against an informant may result in a prison sentence of up to 10 years and/or significant fines.

The Sarbanes-Oxley Act has been an integral part of updating whistleblower laws. A violation of this act may lead to strict penalties for the company or organization.

There is a new section which has been introduced into the federal penal code which deals with retaliation against whistleblowers. Retaliation is a criminal offense that is punishable by up to 10 years in prison as well as fines pursuant to Title 18, Section 1513(e) of the United States Code (USC).

What Kinds of Actions by the Employer Constitute Retaliation?

There are certain actions that may be taken by an employer which are considered to be retaliation if the employee’s lawful reporting was a contributing factor in the employer’s decision to take an unfavorable action against the employee. An unfavorable retaliatory action may include:

  • Discharging, laying off, or terminating the employee;
  • Placing the employee on a blacklist, or a do not hire list;
  • Demotion from a position;
  • Pay reductions or reductions in hours;
  • Withholding of wages, overtime pay, or promotions;
  • Denying benefits;
  • Not hiring or rehiring the employee;
  • Intimidating, harassing, or otherwise mistreating the employee; and
  • Reassignment to an unsuitable post or position.

What Remedies Does a Whistleblower have Under the Act?

An individual who has been retaliated against for whistleblowing may be entitled to various remedies, including:

  • Being hired or rehired;
  • Restoration of benefits that were previously denied;
  • Payment of back wages owed, plus interest;
  • Restoration to position of seniority;
  • Compensation for lost benefits such as retirement, vacation, or sick leave;
  • Special damages for losses indirectly caused by the retaliation, including emotional distress or damage to professional reputation;
  • Attorney’s fees and litigations expenses, which may include expert witness fees;
  • Affirmation, or letters of apology to the aggrieved employee; and
  • Other compensation that will help the employee be made whole again.

How Do I File a Claim if I Have Been Retaliated Against as a Whistleblower?

An aggrieved employee is first required to file a complaint with the Occupational Safety and Health Administration (OSHA) prior to being permitted to file a lawsuit in a civil court. Filing a complaint with OSHA has several requirements, including:

  • A written complaint must be submitted to OSHA within 90 days of the violation or when the employee became aware of the retaliation;
  • After receiving a complaint, OSHA will review it to determine whether an investigation is necessary;
  • After the investigation, OSHA will determine whether the employer is guilty and if a settlement can be reached in order to compensate the employee;
  • If an agreement cannot be reached after 180 days after filing the complaint, the employee may then sue in a state or federal court; and
  • OSHA decisions are final.

The individual who is filing the complaint with OSHA has 30 days to appeal any decisions. Appeals of OSHA decisions are heard before an administrative law judge or before OSHA’s review board.

Should I Hire an Attorney?

It is essential to have the assistance of an wrongful termination attorney for any whistleblowing issues you may be facing. As noted above, there are numerous laws which govern whistleblower protections.

Depending upon the industry in which you work, you may be able to file a whistleblower lawsuit under either SOX or the False Claims Act. It can be a very complex process to make a fraud claim against your employer.

Your attorney can assist you with all aspects of the claim filing process. Your attorney will assist you during any negotiations as well as represent you in court.


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