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Sarbanes-Oxley Whistleblower Provision Should Not Be Applied Retroactively, ALJ Decides

By James A. Prozzi
  • March 3, 2003

A U. S. Department of Labor Administrative Law Judge has issued what appears to be the first decision under the employee protection provision of the Sarbanes-Oxley Act of 2002. While the recommended decision and order deal entirely with procedural issues, it is an important development not only as the first "Section 806" case, but because the ALJ has recommended against retroactive application of the employee protection provision to conduct occurring before the Act became law. (Gilmore v. Parametric Technology Corp., USDOL Case No. 2003-SOX-00001, 2/05/03).

Section 806 of the Sarbanes-Oxley Act extends protection to employees who "blow the whistle" on their employers about alleged securities law violations or fraud against shareholders. Only employees of publicly traded companies subject to certain Security Exchange Act requirements are entitled to this employee protection, and only if they provide the information to their employers, federal agencies, or Congress.

In a case that is all about timing, the employee was discharged on July 17, 2002. The Sarbanes-Oxley Act, including Section 806 entitled "Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud," was signed into law on July 30, 2002. On September 30, 2002, the employee filed the Section 806 complaint with the Labor Department.

After the complaint was denied by the Occupational Safety and Health Administration -- the DOL agency charged with processing employment discrimination complaints under Sarbanes-Oxley -- the employee filed an appeal with the DOL Office of Administrative Law Judges. The only issue before the administrative law judge was whether the Act should be applied retroactively to determine whether the discharge on July 17, thirteen days before the Act became law, was in violation.

Reviewing the law on retroactivity for new federal statutes, the ALJ determined that the employee protection provision of Sarbanes-Oxley does not overcome the strong presumption again retroactive application. Congress did not, either expressly nor implicitly, intend to make conduct that occurred prior to July 30, 2002 unlawful. The ALJ found no basis for doing so, even though, as prescribed by the Act, the complaint was filed on September 30, within the statute's 90-day time period for alleging wrongful conduct. According to the ALJ's decision, the Act confers "new and increased liability upon employers" and "the remedies imposed on employers by Sarbanes-Oxley are new and different" from existing laws regarding whistleblowers.

Additionally, the ALJ rejected the employee's argument that retroactive application of the Act would not result in "manifest injustice" to the employer on an "issue of great national concern." The complaint offered no support to show the employer would not suffer manifest injustice, according to the law judge. Furthermore, the retroactive application of a statute with a much broader remedial scheme than was previously available may be "manifestly unjust," as the U. S. Supreme Court noted in a 1994 decision on retroactive application of federal laws to prior conduct. Accordingly, the ALJ recommended the case be dismissed.

Recommended Order Sent to Administrative Review Board

Recommended orders on complaints filed under Section 806 of the Sarbanes-Oxley Act are subject to review by the Administrative Review Board, a body created by the Secretary of Labor to act on the Secretary's behalf. The DOL has yet to promulgate the implementing regulations for the review process under Section 806. As such, the ALJ forwarded his recommended decision to the Review Board on his own. Presumably, once the regulations have been promulgated, the process will require a request for review by one of the parties to the matter.

OSHA's Role in the Matter

As part of the Department of Labor, the Occupational Safety and Health Administration has been given the responsibility to receive, review, and investigate Section 806 complaints. In this case, OSHA denied the complaint after review, and the complainant filed an appeal with the Office of Administrative Law Judges. As this case demonstrates, review of the ALJ's recommended order is with the Administrative Review Board. Any appeal of a final order of the Administrative Review Board is to the federal appeals courts.

OSHA has prepared a Fact Sheet, which is posted on the agency's website. It provides basic information about the Sarbanes-Oxley whistleblower protection provision, including information on how to file a complaint and what relief is available.

Jackson Lewis attorneys are available to assist employers with questions concerning Section 806 of the Sarbanes-Oxley Act.

©2003 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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