WHISTLEBLOWER PROTECTIONS UNDER THE SARBANES-OXLEY ACT: A PRIMER AND A CRITIQUE

Fordham Journal of Corporate & Financial Law, 2007 by Watnick, Valerie

A. Overview

The whistleblower protections in Sarbanes-Oxley18 provide in § 806 l9 in pertinent part:20

§ 1514A. Civil action to protect against retaliation in fraud cases,

(a) Whistleblower Protection For Employees of Publicly Traded Companies. No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee -

(1) to 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 section 1341, 1343, 1344, or 1 348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by(A) a Federal regulatory or law enforcement agency;

(B) any Member of Congress or any committee of Congress; or

(C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or

(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.

Sarbanes-Oxley thus provides redress to an employee wronged under the Act in that an employee may bring an enforcement action by filing a complaint with the Department of Labor within 90 days of the alleged wrongful action21 by the employer.22 The employee, if successful, is entitled to such relief as is necessary to make him whole, including back pay, reinstatement,23 and compensatory damages.24 While the statute initially provided specifically that any action for relief would be governed by the burdens of proof previously applicable to the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century ("AIR 2 1")25 and initially adopted the rules and procedures from AIR 2 1,26 the Occupational Safety and Health Administration in December 2004 issued final rules and procedures for the specific handling of discrimination complaints under Sarbanes-Oxley.27

B. Procedural Framework for Whistleblower Proceedings Under Sarbanes-Oxlev

The rules and procedures detail the handling of a Sarbanes-Oxley complaint from inception to hearing and appeal.28 From the outset, the statute itself calls for an investigation, a preliminary order of reinstatement29 if there is a "reasonable cause" to believe the complaint has merit, and a hearing if requested by either party.30