Law Increases Whistleblower Shields

Posted on Friday, July 13, 2018

Some of the most vivid memories of the 2002 corporate scandals were Enron's Sherron Watkins and WorldCom's Cynthia Cooper revealing the financial abuses that occurred at their companies.

Later that same year, the Sarbanes-Oxley Actwas passed containing new protections for "whistleblowers" like Watkins and Cooper.

Other Whistleblower Laws

Sarbanes-Oxley joins more than 50 federal laws with whistleblower protections, including:

The Occupational Safety & Health Act of 1970
The False Claims Act
The Surface Transportation Assistance Act
The Asbestos Hazard Emergency Response Act
The International Safety Container Act
The Energy Reorganization Act
The Clean Air Act
The Safe Drinking Water Act
The Federal Water Pollution Control Act
The Toxic Substances Control ActThe Solid Waste Disposal Act
The Comprehensive Environmental Response, Compensation and Liability Act
The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century
Corporate and Criminal Fraud Accountability Act of 2002
Pipeline Safety Improvement Act of 2002

Several states and local governments also have their own laws.


Sarbanes-Oxley adds to the growing number of laws that provide shelter to those who report suspected misdeeds committed by their employers. The wide-ranging law enables employees and others to freely report corporate irregularities they believe are a violation of SEC rules or other federal laws relating to fraud against shareholders.

Employees of publicly traded firms are protected from being discharged, demoted, suspended, threatened, harassed or discriminated against for providing such information.

Sarbanes-Oxley goes even further and requires that a corporation's audit committee set up:

"Procedures for the receipt,retention and treatment of complaints... regarding internal accounting controls or auditing matters." The law requires the audit committee to establish a procedure for employees to anonymously and confidentially report these matters.

Many corporations set up a toll-free number so that employees can report questionable accounting and auditing matters in a confidential, anonymous way.

Formal procedures for addressing internal and external complaints. A corporation is free to determine its own procedures for handling complaints.

Employees who believe their rights have been violated under the law can contact the local office of OSHA, which is the federal agency that generally investigates whistleblower complaints.

The law offers protection even if the whistleblower is proven wrong, as long as the employee believed the allegations were true. So it's critical that corporations thoroughly explain to OSHA investigators any policies and practices that may have led to actions against the employee, as well as the accounting and securities issues involved in the case.

If OSHA finds merit in the charges, it tries to negotiate a settlement between the company and the employee. If that fails, the agency refers the case to the Office of the Solicitor, which can consider filing a civil action in U. S. District Court.

Under the law, employees involved in lawsuits that are eventually successful receive:

Reinstatement with no loss of seniority status.

Back pay with interest.

Compensation for expenses such as litigation costs, expert witness fees and reasonable attorney fees.

This is in addition to any discrimination rights or privileges the employee has under other state or federal laws.

A Further Note: The law protects not only employees who file complaints but also contractors, subcontractors and agents of companies, as well as staff members who participate in proceedings or otherwise help investigators. In addition, the law requires attorneys for public companies to report suspected abuse. Criminal and civil penalties include substantial fines and up to 10 years in prison.

Corporations need to review their existing whistleblower policies and provide training to protect against claims of retaliation. Contact your attorney for more information.

Posted in Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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