Essay About Sarbanes-Oxley Act And Federal Whistleblower Protection Laws

Sarbanes-Oxley Act Of 2002 Enacted
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Overview
The Sarbanes-Oxley Act significantly expands
existing federal whistleblower protection laws, and
public companies would be well advised to pay
special attention to these new protections for
corporate whistleblowers. Section 806 of the Act
prohibits an employer from engaging in retaliation or
discrimination against employees who report
suspected accounting or financial fraud, and
establishes a new system by which aggrieved
employees can bring an action for damages against
their employer before the Department of Labor or in
federal District Court.
The whistleblower provisions are an integral part of
the new law. Many of the questionable accounting
practices that gave rise to the Sarbanes-Oxley Act
came to light, at least in part, as a result of employees
who blew the whistle. Even before the scandals at
Enron and other companies broke, Congress had
embraced the policy of whistleblower protection as a
means to help federal regulators ferret out violations
and wrongdoing. In fact, the whistleblower
provisions of the Sarbanes-Oxley Act are patterned
after similar statutory schemes for protecting workers
in the airline and nuclear power industries.1
Experience has shown that whistleblower cases
can inflict serious damage on a companys
reputation as well as on the careers of accused
managers. Accordingly, companies should
consider taking a strategic approach to
implementing the new whistleblower provisions.
Below we summarize the key provisions and offer
some suggestions for employers.
Whistleblower Provisions of
Sarbanes-Oxley Act
Prohibition of Discrimination. Section 806 of the
Act establishes a system for whistleblower protection
for employees of publicly traded companies. That
provision provides that no public company or any
officer, employee, contractor or agent of such
company “may discharge, demote, suspend, threaten,
harass, or in any other manner discriminate against an
employee in the terms and conditions of employment
because of any lawful act done by the employee” (1)
to provide information or otherwise assist in an
investigation conducted by a federal regulatory or law
enforcement agency, Congress, or company personnel
regarding any conduct which the employee
“reasonably believes” constitutes a violation of SEC
rules and regulations or fraud statutes; or (2) to file,
testify, participate in, or otherwise assist in a
proceeding – pending or about to be filed – relating to
an alleged violation.
Virtually any personnel action taken against an
employee, including a demotion or suspension, can
potentially be actionable under this provision.
Moreover, if the experience under other
whistleblower statutes is applied in the Sarbanes-
Oxley context, the SEC and DOL will broadly
construe what actions of an employee are protected.
The Act does seek to avoid frivolous complaints by at
least requiring that the employee have a “reasonable”
belief that the practice constitutes a violation.
Civil Action by Employees. An employee who
believes he has been unlawfully discharged or
discriminated against may seek relief by filing a
Business & Finance
Alert
December 2002
Whistleblower Protection Requirements
of the Sarbanes-Oxley Act
complaint with DOL. The complaint must be filed
within 90 days after the date on which the violation
occurs. Congress provided that the procedural rules
governing the case, including the burdens of proof for
the employer and employee, will be those applicable
under the Air 21 statute for airline employees. 49
U.S. Code § 42121(b). For example, to prevail on a
complaint before DOL, the employee must
demonstrate that discriminatory reasons were a
“contributing factor” in the unfavorable personnel
action. Relief will be denied, however, if the
employer demonstrates by “clear and convincing
evidence” that it