The Sarbanes-Oxley Act and Whistleblower Protections
The Sarbanes-Oxley Act, commonly known as Sarbanes-Oxley, is a federal law enacted to establish higher standards for public company boards, management, and public accounting firms. Its primary goal is to promote business ethics and prevent fraud within the corporate sector. One crucial aspect of Sarbanes-Oxley is the protection it offers to whistleblowers, individuals who report fraudulent activities or ethical violations within their organizations.
Requirements for Public Companies
Under Sarbanes-Oxley, public companies are mandated to adopt a business ethics code and establish an internal reporting procedure to handle employee reports of fraud or ethical misconduct. This procedure ensures that whistleblower reports are appropriately reviewed and addressed. Both the corporation as a whole and individual employees can be held accountable under this law. Sarbanes-Oxley is enforced through administrative, civil, and criminal means, ensuring that violations are appropriately dealt with.
Applicability and Liability
Sarbanes-Oxley applies to a wide range of companies. It covers all domestic public companies and non-public companies that have publicly traded debt securities. Furthermore, certain sections of the law also apply to companies that conduct business with publicly traded companies, even if they themselves are not publicly traded. It’s worth mentioning that subsidiaries of covered public companies can be held liable if they retaliate against whistleblowers under specific circumstances.
Protection for Whistleblowers
One of the notable provisions of Sarbanes-Oxley is its protection for whistleblowers working in covered companies. Whistleblowers are safeguarded when they disclose information that they reasonably believe demonstrates a violation of federal securities law, rules set by the Securities and Exchange Commission (SEC), or any federal law related to shareholder fraud.
Summary
In summary, Sarbanes-Oxley is a federal law that establishes higher standards for public companies and aims to prevent fraud and unethical practices. It provides protections for whistleblowers who report violations within their organizations. By requiring companies to have an internal reporting procedure and imposing liability on both corporations and individuals, Sarbanes-Oxley ensures accountability and promotes a more ethical business environment.
Whistleblower Protection Against Retaliation under Sarbanes-Oxley
Sarbanes-Oxley, specifically Section 806 codified at 18 U.S.C. § 1514A, provides crucial protection for employees of public companies who face retaliation due to their disclosures relating to mail, wire, bank, or securities fraud. This section establishes a civil cause of action for whistleblowers. To pursue a whistleblower claim, you must file a written complaint with any office of the Occupational Safety and Health Administration (OSHA), which operates under the Department of Labor, within 180 days of experiencing retaliation from your employer.
Elements to Prove in a Sarbanes-Oxley Claim
To succeed in a Sarbanes-Oxley claim, you need to demonstrate three key elements:
- Engagement in Protected Activity: You must show that you are an employee engaged in protected activity.
- Adverse Employment Action: You need to establish that a covered employer has taken adverse employment action against you.
- Causal Connection: The adverse employment action must be at least partly a result of the protected activity.
Deadline for Filing Complaints
To preserve your rights under Sarbanes-Oxley, it is crucial to file your complaint within 180 days of the alleged violation or from the date you became aware of the violation.
Definition of “Employee” and Protections
The definition of an employee for the purpose of whistleblower protection includes present or former employees, supervisors, managers, officers, and certain types of independent contractors working for a covered business. Former employees are protected if the protected activity occurred during their employment. Independent contractors are protected based on the level of control exerted by the covered company over their work.
Attorney-Client Privilege and Whistleblower Disclosures
Contrary to previous beliefs, even in-house attorneys can disclose information without violating attorney-client privilege. Privileged information can be admitted in a whistleblower proceeding to establish that the attorney was engaged in protected activity.
Definition of Protected Activity
Protected activity, as defined under Sarbanes-Oxley, is limited to internal complaints to supervisors, complaints to regulators, or complaints made in connection with an investigation into the company’s violation of federal rules related to shareholder fraud. Complaints solely focused on violations of state regulations, without any reference to potential federal regulation violations, do not qualify as protected activity under Sarbanes-Oxley.
Reasonable Belief and Articulation of SEC Violations or Fraud
While the employee can be mistaken in their belief, they must demonstrate that their belief was reasonable. Merely reporting a concern about a practice is insufficient; the employee must clearly articulate a reasonable belief that a specific practice constitutes an SEC violation or fraud that impacts shareholders to receive protection.
Adverse Employment Actions Covered
Adverse employment actions covered by Sarbanes-Oxley include termination, demotion, suspension, threats, harassment, or discrimination against an employee for lawfully providing information or assisting in an investigation regarding fraud or violations of SEC rules.
Remedies in a Successful Sarbanes-Oxley Action
In the event of a successful Sarbanes-Oxley action, you may be entitled to remedies such as reinstatement, back pay, attorneys’ fees and costs, as well as special damages, including non-economic damages like compensation for emotional distress.
Additional Resources for Whistleblower Protections under Sarbanes-Oxley
For further information on whistleblower protections under Sarbanes-Oxley, the following authoritative sources can provide valuable insights:
- U.S. Department of Labor – Whistleblower Protection Program
- Website: Whistleblower Protection Program
- Securities and Exchange Commission (SEC) – Whistleblower Program
- Website: SEC Whistleblower Program
- American Bar Association (ABA) – Section of Labor and Employment Law
- Cornell Law School Legal Information Institute – Sarbanes-Oxley Act
- Whistleblower Protection Blog
- Website: Whistleblower Protection Blog
- Provides analysis and updates on whistleblower rights and legal developments.
- Harvard Law School Forum on Corporate Governance – Whistleblower Protections
These sources offer reliable and comprehensive information that can further enhance your understanding of whistleblower protections under Sarbanes-Oxley.