The Sarbanes Oxley Whistleblower protections were put in place following the spectacular crash of Enron, which vaporized retirement savings and added millions to unemployment lines. When Congress enacted the Sarbanes Oxley Act (SOX), they incorporated a robust clause meant to include a ‘corporate code of silence’. Congress gave whistleblowers an early warning system to stop corporate scandals.
Congress spent months looking at the Enron scandal as they proved the question: “Why didn’t anyone see this earlier?” The documents congress reviewed showed that both Enron employees and employees of the energy trader’s accounting, Arthur Andersen, tried to sound the alarm. Testimony showed the flag wavers were shut down by retaliation, up to and including getting fired. Essentially, there was no legal protection for any whistleblowers. Even Enron executive, Sherron Watkins, tried to stop the fraud and was terminated.
Enter Sarbanes Oxley Whistleblower Act
A decade and a half after Congress wrote and implemented SOX, whistleblowers are still the best source of detecting fraud. But they still face retaliation. A new survey by the Ethics Resource Center revealed half of the employees see misconduct annually, first-hand. Twenty percent of the employees who report misconduct experience retaliation.
At the same time, some SOX whistleblowers have received substantial rewards. Recently, a former in-house attorney for a biotech business recovered $11 million in a SOX case which alleged the company terminated him for revealing Foreign Corrupt Practices Act violations.
Filing a Claim
A person subject to retaliation in violation of SOX must file within 90 days of the employer’s unlawful action. The Secretary of Labor then conducts an investigation and issues their order. If the investigation shows ‘reasonable cause’ to suspect a violation happened, the secretary then issues an order instructing relief. Either party, the employer or the whistleblower, may appeal. If the order is appealed, the Department of Labor conducts a hearing and issues their decision within 120 days.
If the department doesn’t publish its final decision within six months of the complaint’s filing, the whistleblower can file an action to start a de novo review in the servicing U.S. District Court.
Burden of Proof
As in any proceeding of its nature, the employee has the burden of proving their activity was a ‘contributing factor’ to the company’s retaliation. If the employee can show proof, the offending business must show ‘clear and convincing’ information that it would have exercised the same personnel action if the whistleblower had not spoken out.
Remedies and Penalties
Violators are subject to both civil and criminal remedies. Civil remedies would include:
- Back pay and
- Special damages such as litigation costs.
Criminal penalties could include:
- Fines, and
- Imprisonment up to ten years
The criminal penalties can also be levied against the specific individual within the offending business who directed the retaliatory action against the whistleblower.
Employees have not been allowed to waive their right to a Department of Labor proceeding by signing a mandatory arbitration agreement. The statute’s language does permit waiver of federal court lawsuits though.
Many thanks to Boris Dzhingarov for his contribution. A graduate of University of National and World Economy with major in marketing,he writes for several sites online including Semrush, Tweakyourbiz and Socialnomics.net. Boris is the founder of Tech Surprise and MonetaryLibrary.