When a train whistle blows, notice is given that the train is rapidly approaching and to stand clear of the tracks. While numerous federal and state statutes provide notice to offenders that their conduct is improper and subjects the offender to fines and criminal sanctions, whistleblower statutes also provide a system to protect those individuals who report wrongful conduct to authorities. In recent years, whistleblowers not only received legal protection, but under selected statutes, may be awarded up to 30% of the award recovered by the federal government. Illustrative whistleblower protection statutes include the Family and Medical Leave Act, 29 U.S.C. §2615, the Labor Management Relations Act, 29 U.S.C. §301, and the Uniformed Services Employment and Reemployment Rights Act of 1994, 38 U.S.C. §4301.
The general public and prospective jurors are becoming more familiar with the punitive aspects of whistleblower statutes. For example: "Nine people are to share more than $150 million for helping to uncover a massive health care fraud, the Justice Department revealed this week." Fingerot, Financial Times, June 27, 2003. Newsweek Magazine selected 3 whistleblowers as their "persons of the year." With rewards available to many whistleblowers and the extraordinarily prompt federal response to the public outcry about corporate misconduct, employers need to listen for the whistleblower's complaint and respond cautiously to avoid claims to which civil and criminal penalties attach.
Background of the Sarbanes-Oxley Act
In response to the misconduct of companies such as Arthur Andersen, Enron, and World Com, the federal government acted swiftly and sweepingly to pass federal legislation, specifically the Sarbanes-Oxley Act of 2002, Public Law 107-204; the Act was signed on July 30, 2002. This legislation not only increases the requirements to disclose information to the Securities and Exchange Commission, but also provides whistleblower protection to employees who report a reasonable belief that a company subject to the SEC regulations has engaged in any of a number of fraudulent activities, including federal mail fraud, wire fraud, securities law fraud, bank fraud, or violation of SEC or other federal regulations prohibiting fraud against shareholders. Sarbanes-Oxley applies only to publicly traded companies under the jurisdiction of the SEC.
The Act was drafted, in part, to encourage timely disclosure of perceived corporate wrongdoing, bolstered by protection from corporate or individual retaliation for "blowing the whistle." The scope of protection against retaliation is significantly broader than the protection under Title VII of the Civil Rights Act of 1964 for other employment-related claims. This article will address the protections provided to the Sarbanes-Oxley whistleblower, the types of corporate conduct violative of the whistleblower protections, the consequences of taking wrongful employment actions against the whistleblower, and recommendations to minimize liability.
Employee Report of Perceived Misconduct
The Sarbanes-Oxley Act provides an employee with several persons and offices to which he or she can submit a good faith report of corporate wrongdoing, including supervisors, law enforcement personnel, the SEC, and/or Congress. (A report to Congress could arise if an employee were involved with a congressional investigation and disclosed her concerns about corporate financial management.) Once a report of alleged corporate misconduct is received, the corporation/employer, agents, and related third parties may not act in a retaliatory manner towards the reporter.
Should the reporter believe he or she has been subject to retaliation or discrimination for reporting to a designated source, she may file a complaint to seek redress for the conduct violating the Act. A complaint may also be filed on behalf of an employee, with the employee's consent.
The whistleblower protection provisions of Sarbanes-Oxley are now codified at 18 U.S.C. §1514A. That section states that no publicly-traded company, or its officers, employees, etc. may "discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee" because the employee has provided information or otherwise assisted "in an investigation regarding any conduct which the employee reasonably relieves constitutes a violation" of SEC rules or other federal law relating to fraud against shareholders. The scope of prohibited conduct under Sarbanes-Oxley is further delineated in 29 C.F.R. §1980. It prohibits behavior by an employer that "intimidates, threatens, restrains, coerces, blacklists, or in any other manner discriminates against an employee in the terms and conditions of employment because of any lawful act done by the employee."
Suspect Behavior by the Employer
When an employee complains of workplace misconduct, such as sexual harassment or race discrimination, it is not uncommon for an employer to separate the alleged wrongdoer from the alleged victim during the investigation into the complaint; the employer may even see the separation as a remedy to the complaint. In this setting, such conduct may not be the wisest approach. Corporations subject to Sarbanes-Oxley must set aside this "practice as usual" as a common first response and determine whether separating the whistleblower from the alleged wrongdoer will give rise to a cause of action for retaliation or discrimination under the Act.
Since the Act is very inclusive about the types of actions that may not be undertaken in response to an employee's disclosure, caution should be exercised before taking any of these illustrative actions: changing the employee's work site, or shift, line of reporting, decreasing authority, changing supervisors, subjecting the employee's performance to greater scrutiny not applied to other employees, etc. The Act does not preclude an employer from interviewing the whistleblower about the allegations and asking what action, if any, the whistleblower thinks would be appropriate to address the situation. If an employee is concerned about retaliation and expresses that he or she can no longer work with the alleged wrongdoer, the employee may be transferred or relocated physically or assigned to a different supervisor. However, if the change is made, the employer is precluded from advising other staff who do not have a "need to know" why the change was made, to protect the employee from being subject to further retaliation and/or a feeling of being ostracized.
How and Where to Blow the Whistle
The whistleblowing employee's complaint should be filed with the Occupational Safety and Health Agency area director who may be contacted in writing by mail, fax, hand delivery, or e-mail. 29 C.F.R. §1980.103. The complainant may secure the names and addresses of the appropriate contact person by checking http://www.osha.gov.
The employee must file the complaint within 90 days of the alleged discriminatory action. In Delaware State College v. Ricks, 449 U.S. 250, 258 (1980), the court considered the timeliness of a professor's filing of a complaint with the EEOC. The Ricks court held that date for determining the limitations period "is upon the time of the discriminatory acts, not upon the time at which the consequences of the acts became most painful." 49 U.S.C. at 258, 101 S. Ct. 498. In another case in which the court analyzed the period of limitations relating to filing an EEOC claim, the court in Amini v. Oberlin College, 259 F.3d 493, 450, 2001, concluded "The proper focus for purposes of determining the commencement of the 300 day limitation period is on the discriminatory act itself and when it was communicated to the plaintiff." See also, 29 C.F.R. §1980.103.
There is no specific complaint form provided by the statute. Per 29 C.F.R. §1980.109, the employee should include sufficient information in the complaint to establish these prima facie elements of a claim:
(1) The employee engaged in a protected activity or conduct;
(2) The "named person" (the company or its representatives) knew or suspected,
actually or constructively, that the employee engaged in the protected activity;(3) The employee suffered an unfavorable personnel action; and
(4) The circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the unfavorable action.
Investigation of a Whistleblower Complaint
After an employee has blown the whistle, the Department of Labor, through OSHA, handles the subsequent investigation and prosecution, if any, of the alleged misconduct. The complaint must be investigated within 60 days of receipt of notice to determine if reasonable cause exists for the allegations. Reasonable cause means finding that "protected behavior or conduct was a contributing factor in the unfavorable personnel action alleged in the complaint." 29 C.F.R. §1980.104.
Once the DOL receives a complaint, a copy is forwarded to the named person and a response is requested. If the named person establishes 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," an investigation will not be undertaken. 29 C.F.R. §1980.104. The named person may also request a meeting with the investigator within 20 days of receiving the complaint to present evidence of its position.
As Sarbanes-Oxley is a new statute, with only a limited number of complaints yet filed, there are few decisions or guidelines addressing the investigation of the complaint. The investigator assigned the complaints sends written confirmation of receipt to the complainant. If the complaint sets forth a prima facie claim, the investigator will request an interview with the complainant. The investigator commonly requests documents to be produced at the interview and the names and addresses of other witnesses. The interviews may be tape-recorded and a copy of the recording provided to the complainant.
If the investigator concludes that the evidence supports a finding of wrongdoing, DOL will again contact the named person, advise of this determination and the supporting evidence, and extend the named person 10 business days to provide any additional written evidence. The named person may also meet with the investigator and submit legal authority to establish why preliminary relief should not be granted. 29 C.F.R. §1980.104.
If reasonable cause is found, the DOL may order injunctive relief. When the investigation is completed within the 60-day period after the filing, written findings are to be prepared stating whether reasonable cause exists to believe that the Act was violated. When warranted, a preliminary order granting relief to the whistleblower will be issued. 29 C.F.R. §1980.105. Reinstatement, if ordered, is effective immediately upon receipt of the order. If no violations are found, the parties will be so notified. Both the employer and employee may object to an order, and trigger a hearing by an administrative law judge. If there are no objections to the order, the order is final 30 days after receipt by the named person. The DOL's initial determination is due 180 days from receipt of the complaint. The parties may seek additional reviews of the initial order by requesting a hearing before an administrative law judge and, may seek appellate review with a federal court of appeals. Enforcement of a DOL order may be sought in federal district court. 49 U.S.C. §42121(b).
Scope of Liability
The scope of liability under Sarbanes-Oxley is far more expansive than other discriminatory causes of action under Title VII. The complainant may pursue actions against any officer, employee, contractor, subcontractor, or agent of the company who retaliated against the whistleblower. 18 U.S.C. §1514A(a). Vicarious liability is also recognized, which may expand the scope of liability to outside counsel advising the corporation on how to handle the investigation and respond to the whistleblower's concerns.
Damages and Penalties
If the company or its representative (the "named person") violates the Ac t by engaging in retaliatory conduct towards the whistleblower, the wrongdoer must make the complainant "whole." The damages that may be recovered include reinstatement to the former position with the same seniority status the employee would have had but for the discriminatory act, back pay with interest, and compensatory damages for any special damages, including reasonable attorneys' fees, litigation costs, and expert witness fees if the whistleblower prevails. 18 U.S.C. §1514A(c)(2). Federal and state claims and remedies are not supplanted. Punitive damages are not recoverable.
The Act creates criminal sanctions only when the whistleblower provides truthful information to a law enforcement officer. The criminal penalty provisions consider intentional retaliation to be "any action harmful to any person" who reported "any Federal offense." 18 U.S.C. §1513(e). The penalties are significant and include fines, imprisonment up to 10 years, or both. § 1107(e) of the Act. See also the Federal Sentencing Guidelines 18 U.S.C. The criminal penalties arguably apply to persons acting in their individual capacity, on behalf of a corporation or in the role of a consultant such as outside counsel or a human resources consultant.
Preventing Claims of Retaliation
Employers governed by the Sarbanes-Oxley Act should be proactive in advising employees about the whistleblower provisions of the Act through policies, training sessions, and postings of a summary of the Act at the job site. A system for reporting perceived misconduct should be established, made known to the employees, and implemented in a uniform manner. In order to provide the best defense should a complaint of retaliatory conduct be alleged, employers are encouraged to take the steps outlined below.
- Employers must have an anti-retaliation provision in their manuals and employee handbooks.
- If a compliant of an alleged misconduct or retaliation in the workplace is received, draft a letter to the whistleblower to acknowledge that the company received a report of an alleged violation and will investigate the allegation.
- Evaluate the appropriateness of having the whistleblower remain at his or her position, work site, or under the current manager or supervisor, if the allegations flow directly from their alleged misconduct.
- In many retaliatory situations, employers may transfer the complaining employee or otherwise reassign the supervisor who is the subject of a retaliation complaint made by the employee. However, courts are split over whether such a transfer constitutes an adverse employment action. To date, courts in general hold that a transfer alone is not adverse, if the working conditions are generally similar and there is no adverse difference in pay. Be cautious when considering a transfer.
- If transferring is not appropriate, consider whether an assignment to a supervisor/manager who is unaware of the complaint is an acceptable remedy. The new supervisor/manager should be ignorant of the earlier report since adverse employment actions cannot constitute retaliation if the actor responsible for the adverse employment action was unaware of the "protected conduct."
- Conduct an unbiased investigation of the retaliation complaint, preferably by an outside firm.
- Limit communication regarding the complaints and the investigation and its conclusion to those with a "need to know."
- Consider a moratorium on pending adverse actions against the whistleblower if you are aware that a lawful report of an alleged material violation has been made. Postponing a demotion, termination, or other adverse action may protect the employer from a retaliation complaint.
- Always maintain a paper trail of management deliberations and actions. There should always be records reflecting the deliberation and decision-making bases of adverse actions occurring prior and subsequent to the report of alleged material violations.
- Review and retain all retrievable e-mails to and from the complainant and the alleged wrongdoers and any other knowledgeable employees to assess the gravity of the alleged action.
- When advising employees that a complaint has been received and an investigation will be undertaken, have each employee sign a statement acknowledging that he or she has been advised that retaliatory conduct will not be tolerated.
Conclusion
Rather than waiting for the whistle to be blown, corporations should adopt the "Dinah won't you blow your horn" approach of encouraging prompt communication of perceived business practice irregularities. The corporation should also publish and follow guidelines for prompt investigations. Finally, great caution should be exercised when responding to the whistleblower's complaint or any unrelated concerns raised about the whistleblower's conduct.