Sarbanes-Oxley and whistleblowers: what happens when employees bring retaliation claims?

Publication: Employee Relations Law Journal

Publication Date: 22-JUN-06

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COPYRIGHT 2006 Aspen Publishers, Inc.

Companies facing whistleblower lawsuits under Sarbanes-Oxley are recognizing the high stakes" involved with these complaints employers found guilty of retaliation against whistleblowers may be required to pay damages, reinstate terminated employees to their former positions, and pay for the complainant's legal fees. Criminal sanctions may also be levied. This article focuses on the nuts and bolts" of what happens when employees.file whistleblower retaliation actions under Section 806 of the Sarbanes-Oxley Act, and includes an overview of some important whistleblower decisions.

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Under the Sarbanes-Oxley Act (SOX), no company or company representative may retaliate against an employee who has provided information, caused information to be provided, or otherwise assisted in an investigation of certain types of alleged fraudulent conduct. The ramifications, of which most employers are now aware, may include civil penalties under Section 806, as well as criminal penalties of up to ten years in prison under Section 1107. (1)

It has been over three years since SOX was passed. While criminal filings by the US Attorney's Offices largely remain unchartered territory, over 450 complaints have been filed under Section 806. The administrative law and federal court decisions covering this first three year's of experience with SOX and accompanying regulations (2) provide guidance for employers facing this new breed of discrimination claims.

COVERED RESPONDENTS

Section 806 applies only to publicly traded companies. (3) Employees of non-publicly traded subsidiaries of publicly traded companies may also be protected, provided that the complainant names the parent company. (4)

SOX does not specifically state whether it applies to US citizens overseas who work for a publicly traded foreign company, or for a privately held foreign subsidiaries of a publicly traded US company. (5) At least one court has held that SOX does not preempt a mandatory arbitration provision. (6)

Individuals may be liable. SOX bars retaliatory conduct by not only companies, but also any officer, employee, contractor, subcontractor, or agent of such company. (7)

PROTECTED ACTIVITY

Employees are protected under SOX as long as they held a reasonable belief that particular types of unlawful activity was occurring, regardless of whether such activity was actually occurring. Such employees are protected if they reported suspected violations to a supervisor or employee with authority to discover, investigate, or halt the alleged misconduct, (8) of any federal regulatory agency, law enforcement agency, or any member of Congress. (9)

Section 806 requires that the offense reported involve company activities that violate specific federal laws related to mail, (10)...

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