Corporate Whistleblower Protection and the Sarbanes-Oxley Act
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What Is a Whistleblower?
A “whistleblower” is someone, usually an employee, who reports an employer who has broken the law to an outside agency. Whistleblowers are protected by federal and state laws. Employers may not retaliate against them for reporting misconduct. Whistleblowers may not be fired or otherwise mistreated, and in some instances the government may reimburse them for costs incurred as a result of reporting.
Which Laws Protect Whistleblowers?
Whistleblowers are protected by a variety of state and federal laws. The main federal law that protects whistleblowers is the False Claims Act. The False Claims Act allows employees to report instances involving fraudulent or false reports made to the government. It also protects informers from retaliation by their employer. The False Claims Act deals mainly with the federal government and federal contractors. Several states also have their own versions of False Claims Acts. Check with your local or state government to see if your state has a False Claims Act.
What Is the Sarbanes-Oxley Act and How Does It Protect Whistleblowers?
A newer law provides protection for whistleblowers who are employed in a publicly traded company such as a corporation. This law is called the "Sarbanes-Oxley Act of 2002," commonly referred to as “SOX”.
Companies covered by the Act are those that are registered under the Securities Exchange Act and those that are required to file reports with the Securities Exchange Commission. The Act also covers actions made by contractors or agents of the corporation.
SOX was implemented in response to widespread fraud being practiced by large corporations at the time. Most people associate SOX with issues such as improper corporate governance and accounting issues. However, SOX also contains a major provision which deals with whistleblowers in a corporate setting. Employers can file a claim under SOX against an employer who has violated the law. Like other federal statutes, SOX also protects such whistleblowers from employer retaliation.
Which Specific Sections of the Sarbanes-Oxley Act Address Whistleblowing?
The Sarbanes-Oxley Act expanded the protection provided previously by the False Claims Act into the area of corporate organizations. SOX provided three major additions to the area of corporate whistleblower law:
- Instituting Reporting Procedures- Section 302of the Act requires publicly held companies to institute a venue for handling reports made by anonymous whistle-blowers. This section requires audit committees to establish and institute procedures for employees who wish to report questionable practices while remaining anonymous
- Investigations- Section 806 of SOX requires that any investigation conducted after a complaint is filed must not involve any threats of discharge, demotion, suspension or harassment against a person who has acted lawfully in reporting evidence of company fraud
- Criminal Offense- Section 1107 of the Act makes it a criminal offense for employers to retaliate against informants. According to this section, retaliating against an informant can result in significant fines and/or a prison sentence of up to 10 years
The Sarbanes-Oxley Act has been instrumental in updating whistleblower laws. Violations of the act can lead to strict penalties for the organization. A new section has been introduced in the federal criminal penal code dealing with retaliation against whistleblowers. Title 18, section 1513(e) of the U.S. Code (USC) also makes retaliation a criminal offense punishable by fines and up to 10 years in prison.
What Kinds of Actions by the Employer Constitute Retaliation?
An employee’s actions are considered to be retaliation if their employee’s lawful reporting was a contributing factor in the decision to take “unfavorable” action. Unfavorable retaliatory action can include:
- Discharging or laying off (firing) the employee
- Placing the employee on a blacklist (“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 person
- Intimidating, harassing, or otherwise mistreating the employee
- Reassignment to an unsuitable post or position
What Remedies Does a Whistleblower have under the Act?
A person who was retaliated against for whistleblowing may be entitled to the following remedies:
- 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 (such as emotional distress or damage to professional reputation)
- Attorney’s fees and litigations expenses such as expert witness fees
- “Affirmation”- letters of apology to the aggrieved employee
- 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?
Aggrieved employees must first file a complaint with the Occupational Safety and Health Administration (OSHA) before they are allowed to file suit in a civil court. Filing a complaint with OSHA requires:
- A written complaint must be submitted to OSHA within 90 days of the violation (when the employee became aware of the retaliation).
- After the complaint is received, OSHA will review the complaint to determine whether an investigation is necessary
- After investigations, 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
- OSHA decisions are final and the person filing the complaint has 30 days to appeal any decisions. Appeals are heard before an administrative law judge or before OSHA’s review board
Should I Hire an Attorney?
There are several laws covering whistleblower protection. Depending upon the industry in which you work, you may file a whistleblower lawsuit under either the False Claims Act of SOX. Making a fraud claim against you employer is a trying and complex process, so it is essential that you consult with an employment attorney experienced in such matters.
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Last Modified: 12-12-2014 04:22 PM PST
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