Under the act, an employer may not discharge, demote, suspend, threaten, harass, discriminate or take any adverse employment action against an employee whistleblower for reporting or participating in an investigation of a suspected act of fraud against shareholders. If an employer violates the act, a host of remedies is available to the employee, such as having employment reinstated and receiving back pay with interest and compensatory damages that may include special damages in the form of litigation costs, expert witness fees and reasonable attorney's fees.
While the act's focus is on publicly traded companies, private companies are not immune. For example, a private company that is a subsidiary of a covered publicly traded company may be within the act's scope.
An employee does not have to do much to come under the act's protection -- it is automatic after providing an employer or the federal government information about conduct the employee reasonably believes violates the fraud provisions of the U.S. Code Title 18, any Securities and Exchange Commission rule or regulation or any federal law relating to fraud against shareholders. An employee must only have a "reasonable belief" about the company's perceived wrongdoing. Even if that belief is entirely wrong, the employee still is protected from adverse action by the employer.
The employee must only demonstrate that the whistleblowing activity was a contributing factor -- not the only factor -- to any adverse employment action taken against him or her. And a "contributing factor" does not mean "significant," "motivating," "substantial" or "predominant;" rather, it requires only that it affects the decision to take the adverse action.
Once an employee makes that showing, the employer must come forward with its position and prove by clear and convincing evidence that the same adverse employment action would have been taken even if the employee had not engaged in the whistleblowing activity.
With the weight of the act on employers' shoulders, it might be expected that charges alleging retaliation due to whistleblowing would be successful, but so far, that hasn't been the case. Of the nearly 200 charges filed since the act was implemented in July 2002, only two were found to have merit.
Does this mean that companies can forget about the act? No, because at least one employee successfully challenged his employer under the act. In that case, the company was held liable for terminating the employment of its CFO because of his protected whistleblowing activity, which included his refusal to certify a quarterly financial statement. The employee showed that his protected conduct was a factor in terminating his employment based on the short time between the activity and his termination date.
The company's attempt to show that the timing had nothing to do with the employee's protected activity was rejected because it was not believable. As a result, the company had to reinstate the CFO, provide him lost pay with interest and reimburse him for his litigation costs, expert fees and reasonable attorney's fees.
Given the risks and rewards associated with the Sarbanes-Oxley Act, employers are well-advised to review the act and its possible application before taking any adverse action against employees who raise issues regarding accounting and securities practices. Daniel L. Bell is a partner with Brouse McDowell. He specializes in employment law. Reach him at (330) 535-5711 or firstname.lastname@example.org.