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This summer, the federal government issued final regulations for what may prove to be the most important anti-discrimination law passed in many years, the whistleblower provisions of the Sarbanes-Oxley Act of 2002. The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) released the long-awaited regulations on Aug. 24. 29 C.F.R. Part 1980, 69 Fed. Reg. 52104 (Aug. 24, 2004). While these regulations may have arrived quietly, their impact on business cannot be underestimated. Indeed, the Sarbanes-Oxley whistleblower laws may well have as much effect on business practices in the 21st century as did the civil rights laws in the 20th. Business groups’ concerns about the regulations Several business groups and consumer watchdog organizations-among them the Society for Human Resources Management (SHRM) and the U.S. Chamber of Commerce-had previously filed comments with OSHA concerning the interim regulations, which were promulgated in May 2003. In issuing its final regulations, OSHA, which was given enforcement and investigatory authority over Sarbanes-Oxley’s whistleblowing provisions, largely rejected the business groups’ comments. However, the comments as well as OSHA’s responses serve to highlight numerous unresolved concerns regarding this statute and the unique risks that it poses to businesses. Chief among these concerns are the relative ease with which whistleblower complaints may be filed under the act; the vague definition of wrongful conduct provided by the statute and the regulations; the potential international reach of the statute; and the lack of any effective method to discourage frivolous filings. Indeed, OSHA’s citation to the statute’s maximum penalty of $1,000 in reasonable attorney fees for frivolous or bad-faith complaints would be comical if it did not underscore the extraordinary risk that this statute imposes. The Sarbanes-Oxley Act was enacted on July 30, 2002. It was passed largely in response to the corporate scandals epitomized by the Enron debacle, in which publicly traded companies jeopardized the assets of shareholders by, among other things, permitting unchecked internal abuse of accounting procedures. Title VIII is designated as the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. 1514A. Section 806, commonly known as the act’s whistleblower provisions, provides a cause of action to employees of public companies who allege that they were retaliated against for disclosing any conduct that the employee reasonably believes violates “any provision of Federal law relating to fraud against shareholders.” Any employee who makes such a disclosure to any supervisor or any other person working for the employer who has “authority to investigate, discover, or terminate misconduct” is protected. Also protected is disclosure of allegedly fraudulent conduct to a federal regulatory or law enforcement agency, a member of Congress or any committee thereof. Id. � 1514A(a)(1). Thus, the whistleblower provisions provide very broad protection to employees of public companies for internal and external complaints of allegedly fraudulent conduct. The first concern discussed by OSHA in addressing the comments of the various organizations deals with the fundamental issue of whether OSHA is the correct entity to investigate these claims. SHRM and the U.S. Chamber of Commerce commented that Sarbanes-Oxley “is different from other whistleblower provisions administered by OSHA, because it involves complex securities laws and other financial and accountancy laws and practices.” 69 Fed. Reg. 52104. OSHA responded that the act is by no means the only one with whistleblower protection that it enforces. Certainly, private employers that are subject to the provisions of the Occupational Safety and Health Act and its whistleblower provisions are familiar with OSHA and that statute. But whistleblower claims under that act are rare, and constitute a small percentage of those that OSHA hears. The other laws under its jurisdiction to which OSHA refers are far less familiar; they are an array of environmental protection, transportation and nuclear safety laws. Of course, private employers are very well aware of laws prohibiting retaliation for engaging in lawful conduct. Most of them of any size have long implemented policies and procedures designed to prohibit unlawful retaliation against employees who assert that they have been discriminated against, in violation of federal, state or local laws, on the basis of their protected status, such as their race, gender, religion, age or disability. A body of case law developed over the many years that these laws have been in place has established certain guiding principles-among them, that courts will not act as a “super board of directors,” or second-guess legitimate business decisions of companies, so long as these decisions are not tainted by unlawful discrimination or retaliation. However, in the brief period that Sarbanes-Oxley has been in effect, at least one decision of an OSHA administrative law judge calls into question the degree to which those principles will be regarded in these cases. In Welch v. Cardinal Bankshares Corp., No. 2003-SOX-15 (Jan. 28, 2004), OSHA found a violation of the act’s whistleblower provisions when the chief financial officer of the respondent company was fired after he insisted on tape-recording internal meetings with senior management of his employer, and on having his attorney present during meetings at which he felt that he might be subject to discipline. While a full discussion of Welch is outside the scope of this article, this decision seems to give short shrift to well-established management prerogatives, as well as case law, upon which businesses have long relied in making decisions regarding appropriate discipline of employees. In its comments, SHRM also expressed a general concern “about the broad nature of activity protected” by the whistleblower provisions. Under the regulations, the employee must first establish a prima facie case of retaliation. This is similar to the burden under Title VII of the Civil Rights Act: The employee must show that he or she engaged in a protected activity or conduct; that the employer knew, “actually or constructively,” that the conduct occurred; that the employee suffered an unfavorable personnel action; and that the circumstances “were sufficient to raise the inference that the protected activity was a contributing factor in the unfavorable action.” 69 Fed. Reg. 52114. Once the employee establishes a prima facie case, the burden shifts to the employer-not, as under Title VII, to merely articulate a nondiscriminatory reason for its conduct, but to prove, “by clear and convincing evidence, that it would have taken the same unfavorable personnel action in the absence of the complainant’s protected behavior or conduct.” 29 C.F.R. 1980.104(c). SHRM’s concern, as described by OSHA, was that the broad nature of activity evidently protected under the whistleblower provisions “might generate complaints based on actions taken in the normal course of business.” 69 Fed. Reg. 52105. Related to this concern was SHRM’s observation that the “clear and convincing” standard is higher than that imposed by other discrimination laws. OSHA answered with the pronouncement that if the respondent “establishes that the disclosures at issue in a complaint involve activities that occur in the normal course of business, an employee’s belief might not be reasonable under [the reasonable-person] standard.” Id. If the employee’s belief fails to meet that standard, then there is no violation of Sarbanes-Oxley. This observation is of little comfort to employers. The issue of whether allegedly wrongful conduct reflects a company’s usual course of business cannot be expected to end the inquiry. Undoubtedly, to meet its burden under the clear-and-convincing standard, the respondent would be required to establish something beyond a mere showing that the conduct was routine. As for the concern that whistleblower claims might be brought simply for “nuisance value,” OSHA observed that the statute imposes a “safeguard to prevent” this conduct: namely, an award of reasonable attorney fees up to $1,000 for a complaint determined to be frivolous or brought in bad faith. Id. at 52107. Regulations provide for remedy of reinstatement A final comment worth noting involves the extraordinary remedy provided by the regulations: a preliminary order of reinstatement, which may be granted upon OSHA’s determination of reasonable cause to believe that a violation has occurred. This relief may be rewarded before any hearing is held on the allegations. 29 C.F.R. 1980.104(e). However, OSHA acknowledged that a preliminary order of reinstatement would not be appropriate if the employee is, or has become, a security risk. Further, in appropriate circumstances, OSHA may order “economic reinstatement” in lieu of actual reinstatement: that is, the employee will receive equivalent pay and benefits, while not actually returning to work. 69 Fed. Reg. 52108. SHRM and the Chamber of Commerce urged that the regulatory exceptions to reinstatement be broadened; SHRM further said that preliminary reinstatement is unnecessary because of the act’s make-whole remedies. OSHA responded that “the purpose of interim relief, to provide a meritorious complainant with a speedy remedy and avoid a chill on whistle blowing activity, would be frustrated” if an employee had to wait for exhaustion of the administrative process. Sarbanes-Oxley whistleblower jurisprudence is only beginning to be developed. To guard against liability, businesses need to review and strengthen their internal compliance policies, encourage employees to bring to their attention claims of wrongdoing and prohibit retaliation against employees who do so in good faith. Philip M. Berkowitz is a partner in the New York office of Nixon Peabody, where he represents companies in employment-related matters.

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