The Sarbanes-Oxley Act of 2002 (“SOX”) is a federal law that established new standards for public companies and created whistleblower protection for employees who disclose information that could show a violation of federal securities law, SEC rules, or any federal law related to fraud against the shareholders. Given its diverse civil, criminal and administrative provisions, SOX could be considered one of the most important whistleblower protection laws.
Unlike most whistleblower laws, SOX’s whistleblower protection provisions are not limited to providing a legal remedy for wrongfully terminated employees. In addition to containing employment-based protections for employee whistleblowers, the law contains other provisions directly relevant to whistleblower protection:
- SOX requires that all publicly traded corporations create internal and independent “audit committees,” and must also establish procedures for employees to file internal whistleblower complaints.
- SOX sets new ethical standards for attorneys who practice before the Securities and Exchange Commission (SEC). It requires attorneys, under certain circumstances, to blow the whistle on their employer or “client.”
- SOX criminalizes retaliation against whistleblowers who provide “truthful information” to a “law enforcement officer” about the “commission or possible commission of any Federal offense.” This provision of SOX is not limited in its application to publicly traded corporations; it covers every employer nationwide.
- Section 3(b) of SOX contains an enforcement provision which states that a violation by any person of SOX shall be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934. This grants jurisdiction to the SEC to enforce every aspect of SOX, including the various whistleblower-related provisions.
In addition to these provisions, SOX contains an employee protection provision that permits whistleblowers to file a complaint before the U.S. Department of Labor alleging unlawful retaliation.
Civil Protections:
Section 806 of SOX protects from retaliation employees of covered companies who report any conduct that the employee reasonably believes constitutes a violation of:
(1) federal criminal law provisions prohibiting mail, wire, bank or securities fraud;
(2) any rule or regulation of the Securities and Exchange Commission; or
(3) any provision of federal law relating to fraud against shareholders.
The statutory definition of protected whistleblowing is very broad. It covers reports to government officials, reports to supervisors, and participation in SEC or shareholder legal proceedings. Protected activity covers a wide range of conduct, including contacts with the news media. Also, an auditor aggressively doing his or her job is protected under the anti-retaliation provision, even if he or she never filed an allegation of corporate wrongdoing with the SEC.
Discrimination complaints must be filed with the Occupational Safety and Health Administration (“OSHA”) within 180 days of when the employee learned of the alleged discrimination. Once a case is filed, OSHA reviews the allegations in the complaint to determine whether the claim should be investigated. Either an employee or employer may appeal the investigative findings. If appealed, the parties are entitled to an on-the-record hearing before the DOL’s Office of Administrative Law Judges (OALJ). The ALJ’s decision is appealable to the DOL’s Administrative Review Board (“ARB”). ARB orders are reviewable in the U.S. Courts of Appeal for the circuit in which the violation arose.
The DOL must complete its adjudication of a whistleblower case within 180 days. If the DOL does not complete its final adjudication, an employee may continue to have his or her case heard within the DOL or may seek a trial in federal district court.
Criminal Provisions:
SOX protects employees of both public and private companies who make truthful reports to a “law enforcement officer,” where such reports relate to the possible commission of a federal offense:
Whoever knowingly, with the intent to retaliate, takes any action harmful to any person … for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both.
This provision has very significant implications. The law covers disclosures for any violation under federal law. It is not limited to employee reports of criminal corporate fraud.
To learn more about your rights under SOX and your whistleblower protections, contact a Dallas Employment Lawyer today for a consultation.