Gov. Davis has approved legislation taking aim at corporate corruption. The new laws, modeled on the federal Sarbanes-Oxley Act, protect employees who blow the whistle on possible corporate transgressions, create steep new fines for not disclosing corporate financial fraud, and add an important new workplace posting requirement. Here’s an overview of what you need to know about the new provisions, which take effect Jan. 1, 2004.
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Extra Protections for Whistleblowers
The legislation beefs up existing Labor Code whistleblower protections by making it illegal to retaliate against an employee who: 1) discloses a possible state or federal law violation to a government agency, 2) refuses to participate in an activity that would result in a violation of state or federal law, or 3) exercised whistleblower rights in a former job. These retaliation protections apply to the reporting of just about any violation of state or federal law, not just securities or financial fraud.
Violations carry a new civil penalty of up to $10,000. And the existing Labor Code provisions—which remain in effect—make all whistleblower violations misdemeanors, allow employees to sue your company for damages, and hold you responsible for the actions of your managers, supervisors, and other employees. What’s more, to avoid damages and penalties under the new law, you must demonstrate that you would have taken the adverse action in the absence of the employee’s report—a heavy burden for employers.
Whistleblower Hotline
The legislation directs the Califor- nia attorney general to set up a hotline to receive whistleblower reports so employees can contact the state about possible violations more easily.
New Poster Required
All employers will have to prominently display a notice detailing employees’ rights and employer responsibilities under the whistleblower law along with the hotline phone number. The lettering of the notice must be larger than 14-point type.
State agencies currently required to display a workplace whistleblower rights notice can meet the new posting requirement by adding the hotline number to their existing posters.
Million-Dollar Penalties
The legislative package also creates a staggering new civil penalty of up to a million dollars for a publicly traded corporation or limited liability company that knows of internal misconduct and doesn’t report it. In general, the fine applies if: 1) the company knows that an officer, director, manager, or agent made or intends to make an oral or written false statement or omission to affect the market value of the company’s stock, and 2) the company doesn’t notify the appropriate government agency and shareholders in writing within 30 days of learning about the misconduct. The penalty can be avoided if the company abates the misconduct before the 30-day reporting period is up.
Take Action Now
Here’s what you can do to minimize your liability risk under the new laws:
- Review and reissue your anti-retaliation policy. Make sure you have an antiretaliation policy barring all conduct prohibited by the whistleblower law. Distribute the policy to all employees.
- Train managers and supervisors. The misconduct of managers and supervisors could have expensive consequences for you, so thoroughly instruct them on their legal obligations.
- Keep good documentation. Scrupulously document your legitimate reasons for acting adversely against an employee who has complained.
- Comply with new posting requirement. Prominently display the new whistleblower poster in a location with easy employee access. When the attorney general issues the hotline number, we’ll provide subscribers with a sample notice that meets the new requirements.