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In the Sarbanes-Oxley Act of 2002, Congress commanded covered companies to conduct independent analyses, obtain disinterested advice in matters affecting corporate securities and implement corporate codes of ethics in order to improve the integrity of corporate accounting and financial reports. In support of the objective of increased accuracy and credibility in corporate reporting, Sarbanes-Oxley also created protections for employee whistleblowers who report securities or accounting fraud. So far, most whistleblower charges have not been upheld, but in one recent decision, an administrative law judge ordered reinstatement of a chief financial officer who was terminated after raising concerns about financial and stock-trading improprieties. Sec. 806 of Sarbanes-Oxley creates a civil action for employees of public companies subjected to retaliation for making disclosures concerning fraud against shareholders, including accounting violations and violations of Securities and Exchange Commission (SEC) rules. Title VIII of Sarbanes-Oxley, designated the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. 1514A, protects employees of publicly traded companies who make disclosures to federal agencies; members or committees of Congress; or supervisors, agents, employees or representatives of an employer with authority to investigate or terminate misconduct. Employers may not discharge, demote, suspend, threaten, harass or discriminate against such whistleblowers if the adverse action is motivated by an employee’s disclosure or assistance in an investigation of an alleged violation of federal securities fraud laws, or filing, participation in, or assistance with a federal proceeding involving fraud against shareholders. As long as the whistleblower reasonably believes a violation of federal law occurred, Sarbanes-Oxley protection applies whether or not there was actual fraud. The federal courts and U.S. Department of Labor (DOL) decision-makers consider whistleblower actions to involve more than a vehicle for merely vindicating employee individual rights. The U.S. Supreme Court observed that protection of whistleblowers is instrumental in achieving broader regulatory objectives because Congress recognized that employees are often best able to detect violations, yet fearing retaliation for cooperating with enforcement agencies, they need protection against retaliation for reporting violations. Brock v. Roadway Express Inc., 481 U.S. 252, 258 (1987) (explaining rationale for comparable whistleblower provision of the Surface Transportation Assistance Act). Thus, the DOL does not simply provide a forum for private parties to litigate their private employment discrimination suits, but is a vehicle for exposing perils to the public. See Beliveau v. U.S. Dep’t of Labor, 170 F.3d 83, 88 (1st Cir. 1999). Whistleblower protections are intended to promote a working environment in which employees can be free from the threat of employment reprisals for asserting violations of statutes protecting public interests, thus encouraging employees to aid in statutory enforcement by raising claims through protected procedural channels. See, e.g., Passaic Valley Sewerage Comm’rs v. U.S. Dep’t of Labor, 992 F.2d 474, 478 (1993), cert. denied, 510 U.S. 964 (1993). Under Sarbanes-Oxley, whistleblowers’ complaint procedures, a charging party may file a complaint with the U.S. secretary of labor within 90 days of the alleged discrimination. Proceedings are governed by the procedures and burdens of proof of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21), which protects workers against retaliation for reporting violations of federal law relating to air-carrier safety. Administrative procedures The secretary of labor has delegated investigation of Sarbanes-Oxley complaints to the Occupational Safety and Health Administration (OSHA), which, since 1972, has had jurisdiction over whistleblower cases under environmental protection, transportation and nuclear safety laws, including the Clean Air Act, 42 U.S.C. 7622; Clean Water Act, 33 U.S.C. 1367; Safe Drinking Water Act, 42 U.S.C. 300j-9(i); Toxic Substances Control Act, 15 U.S.C. 2622; Resource Conservation and Recovery Act, 42 U.S.C. 6971; Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, or Superfund law), 42 U.S.C. 9610); Surface Transportation Assistance Act, 49 U.S.C. 31105; AIR 21, 49 U.S.C. 42121; and Energy Reorganization Act, 42 U.S.C. 5851. Relief available under Sarbanes-Oxley includes reinstatement with seniority retroactive to date of termination, back pay with interest, special damages plus reasonable attorney fees, expert-witness fees and litigation costs. 18 U.S.C. 1514A(c). If the employer proves a complaint was frivolous or brought in bad faith, the administrative law judge (ALJ) may award up to $1,000 in attorney fees to the employer. 29 C.F.R. 1980.109(b). Although punitive damages are not available under Sarbanes-Oxley, the act expressly does not pre-empt other state and federal laws. In civil actions asserting Sarbanes-Oxley claims, other claims, such as state statutory claims and public policy wrongful discharge claims-which may allow recovery of punitive damages-may be joined in a single action. After the secretary receives a complaint, as long as the complaint states a prima facie case that protected activity contributed to an adverse action, the respondent must receive notice of the allegations contained in the complaint and the substance of the supporting evidence. Even when a complaint states a prima facie case, the charge must be dismissed if the employer presents “clear and convincing evidence” that the same adverse action would have been taken regardless of the employee’s alleged protected activity. 29 C.F.R. 1980.104(c), 1980.109(a). The employer may submit a response and present statements from witnesses, and the secretary must investigate the complaint and make a determination. Thus, under the burden of proof scheme, a Sarbanes-Oxley whistleblower prevails by showing that retaliation was a “contributing factor” in an adverse action, and employers are liable unless “clear and convincing evidence” demonstrates that they would have taken the same action even in the absence of whistleblowing activity. Early investigations From its enactment in July 2002 through November 2003, 169 alleged whistleblowers have filed charges with OSHA claiming protection under the Sarbanes-Oxley Act. In response to these charges, OSHA investigators completed 79 investigations, only two of which found merit in the charging party’s allegations, 77 concluded in favor of the employer, and the parties settled 16 of the claims before completion of an investigation. Charging parties have appealed 45 of the determinations made in OSHA investigations to ALJ proceedings. ALJs have ruled in seven cases, six times in favor of employers. (Four other cases have settled, and employees have withdrawn 14 additional claims; other charges are awaiting investigations.) See Remarks of Associate Solicitor for Fair Labor Standards Steven Mandel, D.C. B. Ass’n seminar, Dec. 9, 2003, reported in BNA Occupational Safety & Health Daily, Dec. 11, 2003. The Labor Department’s administrative review board has heard three appeals, and has upheld all ALJ rulings. Charging parties have withdrawn from the OSHA administrative process in seven of the 169 cases, and filed their claims in federal court: Two cases were withdrawn before OSHA completed its investigation, and five charges were removed after OSHA’s investigation concluded, but before the ALJ ruling. Under DOL procedures, when parties reach a settlement, approval is usually routine. A complication may arise, however, because settlement agreements, which parties may want to remain confidential, are subject to disclosure under the Freedom of Information Act. A strategy for circumventing the Freedom of Information Act disclosure problem involves filing the action in federal district court, terminating the administrative proceeding, entering into a settlement, then moving to dismiss the case. ‘Welch v. Cardinal’ Recently, in the first ruling against a defendant company under the Sarbanes-Oxley Act whistleblower provisions, an administrative law judge held that a whistleblower’s complaints about insider trading contributed to a bank holding company’s decision to terminate its chief financial officer (CFO). Welch v. Cardinal Bankshares Corp., DOL ALJ, No. 2003-SOX-14 (Jan. 28. 2004). The complaint alleged that Cardinal CFO David E. Welch was terminated for raising concerns that the company president tampered with internal financial controls, and because he had cautioned the president about engaging in stock transactions that appeared to be inappropriate. Although these actions occurred before the enactment of the Sarbanes-Oxley Act, shortly after its passage, Welch refused to certify a quarterly financial statement, and he claimed that his action was protected activity. Cardinal contended that it discharged the CFO for refusing to meet with the company’s attorney and outside auditor without an attorney present. Cardinal’s outside auditor testified that Welch’s concerns about stock trades and his complaints about the company’s internal financial controls were not well founded. Cardinal maintained that Welch’s activities were not protected because Welch could not reasonably have believed his accusations. The administrative investigation by OSHA found in favor of the company, so Welch appealed to the Office of Administrative Law Judges. The ALJ concluded that Cardinal’s explanation for the termination did “not ring true”; prohibiting the presence of counsel when Welch faced questioning about Cardinal’s financial accounting practices seemed arbitrary and merely served as a pretext for firing him. The proximity in time between the protected activity and the termination allowed the ALJ to draw an inference of unlawful discrimination, and accordingly, Welch had “carried his burden of proving by a preponderance of the evidence that his conduct was a contributing factor in his suspension and subsequent discharge.” For a remedy, the ALJ ordered the bank to reinstate the CFO with back pay and interest, and required Cardinal to purge from his personnel file all references to his termination. The ALJ also awarded litigation costs and expenses, including expert witness fees and reasonable attorney fees. OSHA’s interim final rule OSHA has adopted interim final regulations to govern the handling of Sarbanes-Oxley whistleblower complaints. See 68 Fed. Reg. 102, at 31860 (May 28, 2003). Although the DOL invited comments to the regulations, they are effective as of May 28, 2003, and are codified at 29 C.F.R. Part 1980. The procedural and remedial regulations contained in OSHA’s interim final rule raise several issues of concern. The regulation provides that on the basis of an investigation (not a hearing), a preliminary order can require reinstatement of the complainant while any hearing on the matter proceeds. The interim final rule also recommends that in cases that proceed to a hearing before an ALJ, claimants will be represented by their own attorneys, and counsel representing the DOL will intervene only in cases raising novel issues. When the secretary finds reasonable cause to believe retaliation has occurred, the secretary issues a preliminary order. If OSHA determines that preliminary relief is warranted, the employer is notified of this determination, provided with the substance of the relevant evidence upon which that determination is based and allowed 10 business days to respond to the evidence, meet with investigators and present legal and factual arguments why preliminary relief is not warranted. 29 C.F.R 1980.104(e). Within 30 days, objections to the preliminary order may be filed, along with a request for an ALJ hearing. Filing of objections suspends the preliminary order-except that preliminary reinstatement takes effect immediately. The power of OSHA to order reinstatement of a complainant before a full hearing on the merits of a complaint comes directly from Congress, which mandated that Sarbanes-Oxley whistleblower cases shall be governed under the rules and procedures contained in 29 U.S.C. 42121(b). Sec. 42421(b)(2)(A) provides that if the secretary concludes that there is a reasonable cause to believe a violation has occurred, a preliminary order must issue providing reinstatement, among other things, and while an employer may file objections to the preliminary order and request a hearing, the filing of objections does not suspend any reinstatement required by the preliminary order. Some exemptions Although the power of OSHA to order reinstatement in the preliminary order is clear, Congress has not directed that such relief necessarily should be ordered routinely. The interim regulation also recognizes that there will be circumstances in which preliminary reinstatement would be inappropriate even if OSHA found reasonable cause to believe a violation of the act occurred. A preliminary order of reinstatement would not be appropriate when the employer can establish that reinstating the complainant would pose a security risk. See � 1980.105(a)(1). The security risks exemption is based upon a decision of the U.S. Supreme Court, in which the court held that an employee’s own misconduct-resulting in an adverse action-is relevant in determining remedies because an employer has legitimate concerns about the operation of its business and workplace, and Congress has not sanctioned a general regulation of the workplace, but only a law prohibiting retaliation. McKennon v. Nashville Banner Publishing Co., 513 U.S. 352, 360-62 (1995). Whether the exception is as narrow as the “security risk” provided in the interim rule is likely to be a subject of litigation. The regulations also refer to an alternative to reinstatement employed by the Mine Safety and Health Administration, which it calls “economic reinstatement,” involving the enviable arrangement in which a complainant receives the same pay and benefits that he received prior to his termination, but does not actually return to work. OSHA involvement Under OSHA’s interim final regulations, the DOL will not prosecute Sarbanes-Oxley cases before an ALJ, though it may participate in significant cases involving important legal issues, multiple whistleblowers or egregious violations. The SEC may also participate in Sarbanes-Oxley whistleblower proceedings. In its discussion, in the interim rule, of who should represent complainants in cases in which the secretary finds reasonable cause, the department observed that in implementing its enforcement authority under whistleblower statutes, it does not always prosecute meritorious claims. In cases involving allegations of corporate fraud, the department asserts that complainants would be ably represented by private counsel, and OSHA’s participation should not be required (though OSHA could choose to participate as a party or amicus curiae at any time in important or novel cases). Accordingly, under the interim regulation, complainants would be represented by their own counsel and not OSHA attorneys. Review of ALJ decisions is available by filing a petition for review with the department’s administrative review board within 10 business days. If accepted for review, the ALJ decision becomes inoperative-except any reinstatement order remains in effect. 29 C.F.R. 1980.110. If there is a hearing, the secretary must still issue a final order within 120 days. Any party adversely affected by a final order may file an appeal in a U.S. court of appeals. In the absence of an appeal, an employee may also seek enforcement of the order in federal district court. Civil suit alternative If the DOL’s ALJ hearing and final decision by the secretary are not issued within 180 days of the filing of the complaint, a complainant may abandon the administrative proceeding and institute an action in federal court by giving 15 days’ advance notice of his or her intention to commence a case in court. However, federal court litigation may not be commenced if an employee’s “bad faith” caused the delay in the completion of the administrative process. In two recent cases, a federal judge in one case and an ALJ in the other permitted employees claiming retaliation to remove their claims from the DOL to federal district court because the administrative process had not finished within the statute’s 180-day time limit. See Stone v. Duke Energy Corp., No. 3:03-CV-256 (W.D.N.C. June 10, 2003); Willy v. Ameritron Properties Inc. No. 2003-SOX-0009 (DOL ALJ June 27, 2003). In federal civil actions, the burden of proof would apparently also follow the scheme under AIR 21-i.e., the employee presents a prima facie case that the protected activity was a contributing factor in the employer’s actions. If the evidence shows that the protected activity did contribute to the adverse action, the employee prevails unless the employer produces clear and convincing evidence that the adverse action would have been taken regardless of the protected activity. If the employer’s evidence clearly and convincingly shows the adverse action would have been taken regardless of the protected activity, then the employer prevails even if the protected activity was a factor in “dual-motive” decision making. See Trimmer v. U.S. Dep’t of Labor, 174 F.3d 1098, 1101 (10th Cir. 1999) (traditional burden shifting in employment discrimination litigation not appropriate; Energy Reorganization Act deters unmeritorious complaints); Stone & Webster Engineering Corp. v. Herman, 115 F.3d 1568, 1572 (11th Cir. 1997) (same). No guidance on interplay The interim final rule provides no guidance on the interplay between OSHA investigatory or hearing procedures and alternative methods for resolving disputes between employers and employees, such as grievance procedures in union collective bargaining agreements, or arbitration agreements in individual employment agreements or employee handbooks. The DOL has yet to issue its final rules, and the first cases interpreting Sarbanes-Oxley are just winding their way through the administrative and judicial processes. The coming months will begin to clarify the many questions that remain regarding the scope and enforcement procedures under the act. Stewart S. Manela is a partner in, and the employment practice group leader of, Washington’s Arent Fox. He is a fellow of the College of Labor and Employment Lawyers, management chair of the American Bar Association Employment Rights and Responsibilities Committee and an adjunct professor of labor law at George Mason University School of Law.

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