In response to the highly publicized corporate accounting scandals involving Enron, WorldCom and a host of other companies, President Bush recently signed into law the Sarbanes-Oxley Act, creating tougher new rules for auditing and financial disclosures at publicly traded companies and for protecting shareholders’ interests.
The new law also has some serious implications—including both civil and criminal liability—for managers and supervisors who retaliate against employees who blow the whistle on possible corporate transgressions. And, some provisions of the law also impact private companies. Here’s an overview of what you need to know and guidelines for protecting yourself against such retaliation claims.
Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.
New Whistleblower Protections
The act protects employees of public companies who disclose information or assist in an investigation into activities the employee reasonably believes violate federal securities laws or are a fraud against shareholders. The law covers employees who complain to a federal agency or to anyone at the company—including a supervisor—with authority to investigate or stop the misconduct.
Under the act, employers can’t retaliate against an employee for making this kind of complaint. Illegal retaliation includes termination, demotion, suspension, harassment or discrimination. What’s more, the company’s officers, employees, contractors, subcontractors or agents can be held personally liable for retaliating.The new law supplements but doesn’t supersede existing state laws or collective bargaining agreements that protect whistleblowers. So employers must still be careful to comply with those provisions, too.
Complaint Procedures Required
The Sarbanes-Oxley Act requires publicly traded companies to set up new internal complaint procedures allowing employees to confidentially and anonymously submit their concerns about corporate accounting or auditing matters.
Employee Lawsuits
An employee who claims retaliation under this law can either bring a lawsuit or file a complaint with the federal Department of Justice. An employee who ultimately prevails is entitled to back pay, compensatory damages, attorneys’ fees and reinstatement.
Broad Penalties Cover Private Companies As Well
Violations of the Sarbanes-Oxley whistleblower protections can also carry criminal fines of up to $250,000 plus 10 years in jail. Note that this new penalty applies to retaliation against any employee, whether at a public or private company, who has truthfully informed a law enforcement officer about any possible federal crime—not just securities fraud. For example, the penalty could apply to retaliation against an employee who blows the whistle on a workplace health-and-safety issue.
4-Point Protection Plan
Here are some immediate steps all employers can take to minimize the liability risk under the new law:
- Review your complaint procedures. Publicly traded companies must now have procedures for employees to confidentially and anonymously report accounting and auditing concerns. Be sure you have a comprehensive written complaint and investigation program that meets these guidelines.
- Reiterate your anti-retaliation policy. Take this opportunity to distribute your policy against retaliation to all employees. If you don’t already have such a policy, now is the time to adopt one.
- Train supervisors. Thoroughly instruct managers and supervisors on how to respond to and investigate employee complaints. Inform them that under the new law, they can be individually liable for big damages if they retaliate.
- Keep good documentation. Scrupulously document the legitimate reasons for any adverse action you take against an employee who has complained. Then, if an employee charges that you illegally retaliated, you’ll be able to demonstrate that you would have taken the same action if the employee hadn’t complained.