Sarbanes-Oxley Creates New Cause of Action For Employee Securities Fraud "Whistleblowers"
Criminal penalties for corporations and supervisors that retaliate against employees who report suspected crimes may be the most serious and sweeping new protection in the Sarbanes-Oxley law (new 18 U.S.C. § 1513), but it is not the only employee protection provision that companies need to worry about. All employers of publicly traded companies should also be aware of new Section 806 of the Sarbanes-Oxley act passed on July 31, 2002. It adds a new section 1514A to the federal criminal code, Title 18, to protect employees against retaliation. The new law provides that publicly-listed companies required to file reports under the Securities Exchange Act of 1934, and their officers and employees, contractors, subcontractors and agents, may not "discharge, demote, suspend, threaten, harass, or in any other manner discriminate against any employee in the terms and conditions of employment" because of that employee's providing of information or assistance in an investigation into possible violations of federal criminal financial fraud, mail fraud, or violations of the federal securities laws. The information or assistance must be provided in connection with a federal regulatory or law enforcement investigation or Congressional investigation. It also includes internal investigations by supervisors. The law also protects an employee who participates in a proceeding as a witness or otherwise.
In order to enforce this protective law, new Section 1514A provides that an employee who is discharged or otherwise discriminated against may file a complaint with the Secretary of Labor. The Labor Department then may follow its existing statutory rules and procedures for investigating employers' violations of federal labor laws, and may provide for an array of remedies including back pay and reinstatement. If the Department of Labor has not issued its final decision within 180 days following the filing of the complaint (and assuming the delay is not caused by the employee's bad faith), the employee may bring a civil action in federal district court. The court may order reinstatement, back pay with interest, compensatory damages and attorneys' fees.
The breadth of this new law is such that it should be carefully understood by employers. Its provisions should be explained to supervisors and included in a company's policy statements against discrimination. Any form of action against a reporting employee could be considered unlawful retaliation under this new law.
For further information, contact Tom Patton (202) 454-2840.