What employees associated with public corporations should know about the Sarbanes-Oxley Act of 2002

WHAT IS THE SARBANES-OXLEY ACT?

On July 29, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (SOX) following political outrage at recent corporate accounting scandals (Enron, Worldcom) that caused billions of dollars of loss to its shareholders. SOX applies to public corporations and was designed to protect the public from corporate mismanagement. The Act contains some important protections for whistleblowers.

WHAT KIND OF EMPLOYERS DOES SOX COVER?

SOX covers employers that are required to file reports and that have a class of securities registered under the Securities and Exchange Act of 1934.

Usually, employees of non-publicly traded subsidiaries are allowed to bring Sarbanes-Oxley claims against their employer if the complainant names both the subsidiary and the parent company.

Also, individuals may bring claims against private employers that serve as agents, contractors, or subcontractors of publicly traded companies.

WHAT EMPLOYEES ARE COVERED BY SOX?

Section 806(a)(1) protects employees who "provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of" specified federal securities and antifraud laws.

        An employee must "reasonably believe" that the information reported constitutes a violation of the federal mail, wire, bank, or securities fraud statutes, any rule or regulations of the SEC, or any federal law relating to fraud against shareholders. So, an erroneous complaint of an employee may be protected, as long as the employee "reasonably believed" that the conduct violated one of the enumerated laws.

        To be covered, the employee must provide the information or assistance to a federal regulatory or law enforcement agency, any member of a committee of Congress, or anyone "with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover or terminate misconduct)."

Section 806(a)(2) protects employees who "file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with knowledge of the employer) relating to an alleged violation" of the enumerated federal provisions.

WHAT KIND OF RETALIATION IS PROHIBITED BY SOX?

Employers are prohibited from retaliating against employees who engage in protected conduct. Prohibited types of retaliation specifically include discharge, demotion, suspension, threats, harassment, or any other form of discrimination.

HOW DO YOU FILE A COMPLAINT?

The complainant first must file a complaint with the Department of Labor within 90 days of the alleged violation (i.e., the date "when the discriminatory decision has been both made and communicated to the complainant").

The Occupational Safety and Health Administration (OSHA) within the Department of Labor is required to give written notice to the employer and other named parties of the complaint. The employer has 20 days to submit written materials and statements to OSHA, and request a meeting to present its position.

WHAT ARE THE REQUIREMENTS OF A COMPLAINT?

The complainant must make a prima facie showing that:

(1) the employee engaged in protected conduct

(2) the employer knew or suspected (actually or constructively) that the employee engaged in the protected conduct

(3) the employee suffered an unfavorable personnel action, and

(4) the protected conduct was a "contributing factor" in the challenged personnel action; otherwise OSHA must dismiss the complaint.

After a prima facie showing by the complainant, if the employer shows by "clear and convincing evidence" that it would have taken the same action in the absence of the protected activity, OSHA will terminate its proceedings. If the employer fails to make this showing, OSHA must, within 60 days of the filing of the complaint, conduct an investigation to determine whether there is reasonable cause to believe that the complaint is meritorious.

If OSHA determines that there is reasonable cause to believe that the complaint is meritorious, it must notify the charged party of the finding and issue a preliminary order curing the alleged violation, including restoring the employee to his or her prior position.

CAN YOU MAKE OBJECTIONS?

Within 30 days of the initial determination by OSHA, either party may file objections and request a hearing before a Department of Labor administrative law judge. All relief ordered by OSHA (other than reinstatement) is put on hold while the complaint is being litigated before an administrative law judge.

CAN YOU APPEAL?

The administrative law judge’s decision becomes the final decision of the DOL, unless a party appeals the decision to the DOL’s administrative review board. Final orders of the administrative review board may be appealed to the Court of Appeals for the circuit where the alleged violation occurred or where the complainant resided at the time of the alleged violation.

CAN YOU FILE IN DISTRICT COURT?

If a final order has not been issued within 180 days of the date that the complaint was filed with DOL, and the complainant is not responsible for the delay, the complainant may withdraw his administrative complaint and file an action in federal district court for de novo review. The same standards and burdens of proof that apply in proceedings before OSHA apply to district court proceedings.