Thank you for sharing!

Your article was successfully shared with the contacts you provided.
You are the general counsel for a large company. You have discovered that one of the employees, John Rankenfile, has information that his regional vice president has engaged in fraud and financial misconduct. Rankenfile is considering making a formal report. Having attended countless continuing legal education seminars on the governance and financial reporting aspects of the Sarbanes-Oxley Corporate Fraud and Accountability Act of 2002, you consider whether any of the act’s provisions may be implicated. By now, all lawyers are familiar with the genesis of Sarbanes-Oxley. Following a rash of egregious misconduct by large, publicly traded companies, Congress passed and President George W. Bush signed the act in the summer of 2002. While the act primarily was concerned with corporate governance and financial reporting, it contains significant provisions protecting whistleblowing employees that create civil (15 U.S.C. � 1514A) and criminal (15 U.S.C. � 1513(e)) liabilities. Due to the act’s recent enactment, courts have not had the opportunity to interpret these provisions. Nevertheless, this article will answer some questions, focusing primarily on the civil provisions that may arise when an employee’s complaint about an executive implicates Sarbanes-Oxley. � I work for a privately held company. Do the act’s provisions apply to me? In general, the Sarbanes-Oxley civil protections cover officers, employees, contractors, subcontractors and agents of publicly traded companies. However, depending on how courts define “contractor, subcontractor and agent,” companies that do business with public companies likely may be covered as well. In addition, the criminal provisions are not limited to publicly traded companies. And the criminal and civil provisions apply to individual officers and employees of covered companies as well as the companies themselves. � Rankenfile, an anti-tobacco activist, reports that he saw illegal Cuban cigars in our VP’s office. Is Rankenfile protected? The civil protections provided by Sarbanes-Oxley do not extend to all forms of corporate whistleblowing, but rather protect those employees who report fraud or financial misconduct. More specifically, Sarbanes-Oxley protects employees who provide information about actions they reasonably believe to be violations of the mail, wire or bank fraud statutes, federal securities laws, rules of the Securities and Exchange Commission or other fraud against shareholders. The civil provisions protect not only employees who report violations, but also those who participate in or cooperate with an investigation into misconduct. � Rankenfile reports a violation of SEC rules by one of his co-workers to his immediate supervisor. Is Rankenfile protected? The common concept of whistleblowing often involves an employee who reports misconduct to an organization outside of the company, usually a law enforcement or regulatory agency. While this type of whistleblowing is protected, the Sarbanes-Oxley civil protections are much broader. In addition to federal regulatory and law enforcement agencies, an employee may report to a member of Congress or congressional committee, a person with supervisory authority over the employee, or any other person who has authority to investigate, discover or terminate the misconduct. � We think Rankenfile may have filed a report solely to get even because he received a poor evaluation. What can we do? Sarbanes-Oxley prohibits an unusually broad range of activities. An employer cannot “discharge, demote, suspend, threaten, harass or in any manner discriminate against an employee in the terms and conditions of their employment” because of their protected activity. The inclusion of threats and harassment as prohibited conduct makes this statute much broader than the anti-retaliation provisions contained in other federal employment statutes. The civil provisions make no exception based on the intent of the employee or even the accuracy of the information provided. � Rankenfile is threatening to file a suit based on Sarbanes-Oxley. Should we be worried? Like other federal employment discrimination laws, an aggrieved employee must first attempt to pursue an administrative remedy before filing suit. Sarbanes-Oxley adopts the administrative scheme developed by Congress to protect whistleblowing airline employees (the Wendell H. Ford Aviation Investment and Reform Act, found at 49 U.S.C. � 42121). The Department of Labor (DOL) has issued an aptly named “interim final rule” (29 C.F.R. �� 1979.100-.114) outlining the administrative procedures. Under the administrative procedures, an employee must file a complaint with the DOL within 90 days of the alleged retaliatory act. The DOL will notify the employer after a complaint is filed. The employee must make a prima facie showing that he was retaliated against, at which point the employer can stave off an investigation by showing, through clear and convincing evidence, that it would have taken the same action regardless of the whistleblowing activity. Absent this showing, the DOL will conduct an investigation and issue a finding within 60 days of the complaint. If it finds that there was a violation, the DOL will provide appropriate relief through a preliminary order. The regulations go on to provide a complicated process that allows either party to appeal the initial determination first to an administrative law judge, then to the administrative review board and finally to the U.S. Circuit Court of Appeals in which the alleged violation occurred. If the DOL does not issue a determination within 180 days of the complaint, the employee can then file suit in U.S. district court seeking the same remedies that would have been available through the administrative process. Given the convoluted nature and typical backlog of administrative investigations, it is likely that this may become the norm. Under either route, the employee carries the burden of showing that his protected activity was a contributing factor in the unfavorable personnel action. SEEKING REINSTATEMENT � We’ve determined that Rankenfile was improperly discharged by our VP. Can Rankenfile seek reinstatement? The civil provisions provide that a prevailing employee “shall be entitled to all relief necessary to make the employee whole.” This includes full reinstatement, backpay with interest and any special damages, including litigation costs, witness fees and reasonable attorney fees. Although the issue has not been addressed in the context of the Sarbanes-Oxley provisions, in Hammond v. Northland Counseling Center (2001), the 8th U.S. Circuit Court of Appeals interpreted similar language under the False Claims Act (31 U.S.C. � 3730(h)) to include damages for emotional distress. Although the statute is silent as to the availability of punitive damages, earlier versions of the legislation, which would have allowed such damages, did not pass. This perhaps indicates that Congress did not intend for the statute to authorize punitive damages. � I have an aversion to small spaces and forced labor. Can I be subject to criminal liability under Sarbanes-Oxley? In addition to the civil protections for whistleblowers, Sarbanes-Oxley makes it a criminal offense to retaliate against anyone who provides “truthful information relating to the commission or possible commission of any Federal offense” to a law enforcement officer. The breadth of this statute may prove to be one of the most problematic parts of Sarbanes-Oxley. First, the statute applies to any individual, regardless of the status of his or her employer. Thus, employees of privately held companies and publicly traded companies are equally protected. In fact, the statute is not limited to the employment relationship. Second, the statute appears to incorporate the entire federal penal code. In other words, it extends the whistleblower protection beyond the fraud and financial realm. Thus, Rankenfile’s report concerning the VP’s possession of illegal Cuban cigars could fall within the scope of the statute’s protection. Finally, the statute specifically includes “interference with the lawful livelihood or employment of any person” as a prohibited act of retaliation. While Sarbanes-Oxley’s impact has been felt most strongly in the finance departments and board rooms of publicly held companies, the whistleblower protections outlined above should not be overlooked. The civil and criminal penalties provided in these anti-retaliation provisions should make the cautious general counsel advise his company to proceed with care whenever an employee’s allegations of corporate wrongdoing are involved. Bruce Griggs is the managing shareholder for the Austin office of Ogletree, Deakins, Nash, Smoak & Stewart. Griggs represents public and private employers in all aspects of labor and employment law, including federal and state litigation. Griggs is a 1989 graduate of the University of Virginia School of Law. Robert Chance is an associate with the Austin office of Ogletree, Deakins. An honors graduate of SMU Dedman School of Law, Chance represents employers in all aspects of labor and employment law. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.