Employment Obligations -- How the New Corporate Accountability Law Will Impact Employment Practices 

July, 2002 - Terry S Boone

Most of the attention about the Sarbanes-Oxley Act of 2002 (Act), now awaiting President Bush’s signature, has been focused on the reform of public accounting firms and the financial reporting obligations of publicly held companies. However, the Act has other provisions that potentially impact a much broader range of employers. The legislation will be implemented at various times following the President’s signature, but employers should begin preparing for the following changes: 1. New cause of action. Employees who provide information about actions they reasonably believe to be violations of securities law, rules of the Securities and Exchange Commission, or other federal laws relating to fraud against shareholders will be protected. The report may be made to a federal regulatory or law enforcement agency, Member of Congress or congressional committee, or a person with supervisory authority over the employee or other person working for the employer who has the authority to investigate, discover or terminate the misconduct. Although styled the Whistleblower Protection for Employees of Publicly Traded Companies, the act potentially extends farther as it covers not only publicly traded companies, but also their officers, employees, contractors, subcontractors and agents. At a minimum that would seem to make officers and employees liable in their individual capacities, and potentially cover companies who do business with publicly traded companies, depending on how contractor and subcontractor are ultimately defined. The Act incorporates the administrative scheme only recently enacted to protect employees of airline companies who provide air safety information. Under the new law, the employee must file a complaint with the Department of Labor within 90 days of the alleged retaliatory act. Unless the employer can show by clear and convincing evidence that the employer would have taken the same action notwithstanding the protected activity, the DOL must investigate and issue its findings. The company and employee then have 30 days to file objections and request a hearing, or the determination becomes final and not subject to judicial review. If a hearing is requested, it is to be held expeditiously. Within 120 days after the conclusion of the hearing, the DOL is to issue a final order. If there is a violation, the employee is entitled to reinstatement, back pay with interest, and compensation for special damages sustained as a result of the retaliation, including litigation costs, expert witness fees, and reasonable attorney fees. (The DOL can actually order reinstatement based on its initial conclusion. Filing objections and a request for hearing will not automatically stay the reinstatement order.) Judicial review is only available through an appeal to the Circuit Court of Appeals. If the order was adverse to the employer, the appeal does not stay the Order unless ordered by the court. Under the new Act -- but not the airline whistleblower statute -- if the DOL has not issued a final decision within 180 days of the employee’s complaint, the employee is permitted to file suit in the appropriate district court and may obtain the same remedies as can be awarded by the DOL. 2. Criminal penalties for employment actions. One of the most potentially dangerous sections of the Act provides that anyone who intentionally retaliates against any person for providing truthful information to a law enforcement officer relating to the commission or possible commission of any Federal offense is subject to a fine and/or imprisonment of not more than 10 years. It is particularly important in the employment context as the Act specifically includes interfering with the lawful livelihood or employment of any person as an example of prohibited conduct. Although obviously it should be the rare case, this arguably makes individuals involved in termination decisions that could be related to any of the broad range of federal crimes, face potential criminal liability.


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