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Corporate Wrongdoing Legislation Gives Employees Whistleblower Protection

Corporate Wrongdoing Legislation Gives Employees Whistleblower Protection
  • September 17, 2002

The corporate fraud scandals of recent months have prompted federal legislation to give added rights to employees who blow the whistle on corporate wrongdoing at publicly traded companies. The Sarbanes-Oxley Act, signed by President Bush on July 30, protects employees who disclose information or participate in an investigation or proceeding related to alleged violations of securities laws, SEC rules, and federal laws pertaining to shareholder fraud. Among other things, the law also strengthens the criminal penalties and certain "blackout period" notice provisions under the Employee Retirement Income Security Act.

Retaliation Prohibited

Employers or their agents may not discriminate against or harass employees who provide information or participate in an investigation or "proceeding" related to violations of several specific securities-related statutes, federal law pertaining to fraud against shareholders, or any SEC rule. The protection is afforded to employees when, during the course of the investigation or proceeding, they provide information to a member of Congress, a federal agency, or an internal company official, such as the employee's supervisor(s) or anyone responsible for investigating such alleged misconduct.

Enforcement Provisions and Remedies

The law gives an individual who reasonably believes misconduct has occurred a 90-day time period after the violation occurs to file a complaint with the federal Department of Labor. Once filed, the DOL has a strict timetable to complete its investigation, issue a preliminary order, consider objections, hold a hearing and render a final order. An appeal from a final order must be filed with the appropriate federal appeals court within 60 days of the date of the order. If the DOL does not issue a final order within 180 days and provided such failure is not the fault of the complaining employee, he or she may file a civil action in federal court.

Under the statute, an employee filing a DOL complaint or a lawsuit may be entitled to make-whole relief, including reinstatement with full seniority status and back pay with interest, as well as "special damages" such as litigation costs and attorneys' fees. The statute does not provide for punitive or emotional distress damages, nor is there a provision for recovering front pay. The rights created by the statute are in addition to other available federal and state rights and remedies, as well as any collectively bargained rights.

Beyond the DOL

As mentioned above, if the DOL fails to act within the prescribed time period after a complaint is filed, the employee may file suit against the employer in federal court. However, in addition to the statutory remedies for harassment, in some states, like California, terminated employees may have grounds to bring a state law claim for wrongful termination. The claim would allege the termination violated the public policy embodied in the statute.

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