Whistleblower Protections and Rewards under the Sarbanes Oxley Act
What Is The Sarbanes-Oxley Act Or “SOX”?
Congress passed the Sarbanes-Oxley Act (also commonly referred to as SOX), to address significant securities and accounting frauds that triggered the collapse of two multibillion dollar publicly traded companies, ENRON and WORLDCOM, in 2001-02. The law created new requirements for governing internal controls, reporting, and accounting procedures, among other reforms. It also required publicly traded companies to establish independent Audit Committees, and confidential employee concerns programs. For the first time, the law also provided whistleblower protections for corporate employees.
Does The SOX Have A Qui Tam Provision?
No. SOX did not directly include a whistleblower reward provision. Its whistleblower law was limited to providing on-the-job protections against retaliation. However, rewards are available to employees who report SOX violations to the U.S. Securities and Exchange Commission.
Can I Obtain A Whistleblower Reward For Reporting SOX Violations?
How Can I Obtain A Whistleblower Reward Under SOX?
When Congress passed SOX, they explicitly incorporated all of its provisions into the Securities and Exchange Act. They included a provision allowing the SEC to enforce every provision of SOX pursuant to its authorities under the Exchange Act. In other words, a violation of SOX is a violation of the Securities and Exchange Act.
The Dodd-Frank Act, which does contain an explicit whistleblower qui tam or reward law, provides for paying whistleblowers compensation for any violation of the securities laws. Thus, a whistleblower who identified violation of SOX must apply for an award using the rules governing the Dodd-Frank Act. FAQs regarding this reward process, and other laws that may qualify you for a reward, are linked here.
What Protections Does SOX Provide For Whistleblowers?
The Sarbanes Oxley whistleblower law is primarily an anti-retaliation law and is used to provide job protection and employment-type remedies similar to other anti-retaliation laws.
Can I File Both A Dodd-Frank Act And A SOX Whistleblower Case?
Yes, the two laws are not mutually exclusive. However, they both have very different filing procedures, and you must be very careful to follow the mandatory rules governing each program.
Filing a SOX case does not qualify you for a reward. You must apply for a whistleblower reward through the Dodd-Frank Act program.
Regarding employment matters, you must file a SOX retaliation case with the U.S. Department of Labor within 180-days of the date you learn about an adverse action. A DFA retaliation case can be filed within six years of an adverse action but is filed directly in U.S. District Court. At the filing stage, you cannot join a DFA and a SOX retaliation case together. However, after exhausting remedies within the Department of Labor, the SOX case can be filed in federal court. At this time, the two laws can merge, and you can join the federal court filings with the SOX filing.
What Is A Protected Activity Under A SOX Retaliation Case?
Congress broadly defined protected activities under SOX. Whereas the DFA provides employment protections for persons who report directly to the SEC, SOX covers numerous agencies or internal corporate entities for which an employee may make a disclosure of potential securities frauds, including those to:
- Compliance programs
- Audit Committee
- Federal Law enforcement agencies
- Federal regulatory agencies
- Testimony in SEC proceedings
- Initiating SEC proceedings
If I Have A Mandatory Arbitration Agreement, Should I Use SOX?
If you want to avoid mandatory arbitration, you should file your retaliation case under SOX. The statute states: “No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” Thus, SOX provides a statutory exception and permits whistleblowers who signed arbitration agreements to file their cases in the Department of Labor and avoid mandatory arbitration.
How Do I File A SOX Retaliation Claim?
A Sarbanes Oxley whistleblower case must be filed with the U.S. Department of Labor within 180-days of your first learning about the retaliation you are seeking to remedy. The deadline commences to run upon notice of the adverse action, not when the adverse action is effectuated. The case is filed directly with the U.S. Department of Labor (“DOL”). You do not need to serve a copy of the complaint with your employer. The DOL will serve the complaint.
What Procedures Does The DOL Follow In SOX Cases?
The DOL has extensive rules discussing its procedures under SOX.
Additionally, the Sarbanes Oxley whistleblower law references subsection (b) of the Airline Safety Whistleblower Law and incorporates by reference the procedures outlined in that statute. Thus, it is essential to look at the airline whistleblower law when studying how the SOX law operates.
Also, the DOL has specific rules of procedures for engaging in discovery and conducting hearings in whistleblower cases. They are similar to the Federal Rules of Civil Procedure but contain numerous differences. Most of these differences are favorable to the whistleblower, and also reduce costs and the complexity of getting a case to trial.
What Happens Once You File A Case Under SOX?
The first stage of a Sarbanes Oxley whistleblower case is investigatory. The DOL OSHA division is required to investigate the merits of a case and report its findings.
The OSHA investigation can be highly significant. First, OSHA gathers evidence that can be very important, should a case go to trial. Second, the OSHA investigation helps both parties understand the relative merits of a case and can facilitate a settlement. Third, if OSHA rules in favor of an employee, that employee should be able to obtain preliminary relief pending the final determination of a case. That preliminary relief can include a temporary order for reinstatement.
Can The OSHA Findings Be Appealed?
Yes. Either the employee or employer can appeal an OSHA determination. The appeal is heard de novo, meaning the findings of OSHA have no impact whatsoever on the next phase of a Sarbanes Oxley whistleblower case (which is a trial on-the-merits). In most circumstances, the OSHA determination cannot even be introduced as evidence, and a judge cannot rely on its findings in making a merits-decision.
The procedures for appealing an OSHA decision are set forth in the DOL rules. You must appeal the OSHA determination within 30 days. You must file the appeal with the U.S. DOL Office of Administrative Law Judges. Those ALJs are required to follow the procedures set forth in 29 C.F.R. Part 18 when managing pre-trial discovery, the hearing, and other litigation matters.
When Can I Remove My Case To Federal District Court?
As long as the whistleblower did not engage in activity to purposely delay the DOL’s investigation or adjudication of a case, a claim can be removed at any time after the expiration of 180 days. The case can be removed at any stage of the DOL process, including the investigatory stage, the trial stage, or the administrative appeals stage. But removal must happen before the DOL issues a final order.
What Is A “Final Order” Of The DOL In A SOX Case?
To remove a Sarbanes Oxley whistleblower case to federal court, you must file a removal notice before the DOL issues a final order. A final order is a final decision of the DOL’s Administrative Review Board or “ARB.” This final order is issued after OSHA has concluded its investigation, the Administrative Law Judge has issued a recommended decision, and the ARB issues a final order on the merits. This process can take years.
However, at various stages of the process, the failure to file an internal administrative appeal will, as a matter of law, result in a “final decision” of the DOL.
When OSHA issues its preliminary determination at the end of an investigation, that preliminary determination will automatically become of “final order” of the DOL unless either party appeals it to an ALJ within 30 days. Failure to file this administrative appeal will result in the OSHA decision becoming final and non-reviewable in court.
Likewise, when an ALJ issues a recommended decision, either after a hearing or in response to a motion to dismiss or a motion for summary judgment, that recommended decision becomes the final order of the DOL unless you file an appeal with the ARB. To file an appeal with the ARB the losing party must submit a detailed “Petition for Review” setting forth the grounds for the appeal within ten business days of the date of the ALJ decision. Failure to file this administrative appeal will result in the ALJ decision becoming final and non-reviewable in court.
An employee can monitor the DOL process and use those procedures to his or her advantage prior to seeking removal to federal court. The key to this tactic is making sure that an appeal is properly filed at each initial stage of the DOL process (i.e. if you are interested in eventually filing in federal court, you must file an appeal of the OSHA determination and the ALJ determination, once those rulings are issued. The removal notice should be filed after the internal administrative appeal is filed).
Are There Advantages In Removing A Case To Federal Court?
Yes. Many attorneys are more comfortable in federal court, and you will have a right to a jury trial. Also, once in federal court, you can join your case with other potential causes of action. For example, many states have laws that prohibit retaliation against whistleblowers. These laws are often common law remedies, such a breach of contract, intentional infliction of emotional distress, or the “public policy exception to the at-will doctrine.” By joining common law claims with the statutory SOX claims, you can increase the amount of damages as well as your chances of winning one of the newly added causes of action.
You can also join a Dodd-Frank Act retaliation case with the SOX case once a case is removed to federal court. The DFA permits the payment of double-back-pay, a remedy not recognized under SOX.
When your Sarbanes Oxley whistleblower case is in federal court, it is easier to subpoena third-party witnesses.
Are There Disadvantages To Removing A Case To Federal Court?
Yes. There are numerous reasons to adjudicate your case within the Department of Labor. The DOL procedures are more informal and less costly than federal court procedures. Also, the DOL Administrative Law Judges are well-trained in whistleblower retaliation law, and the legal precedents within the Department of Labor are often as good, if not significantly better, then those in federal court.
For example, the DOL has excellent case-precedent on one-party taping. Thus, if you taped your employer and obtained evidence of retaliation on-tape, you may want to consider keeping your case within the DOL. The DOL also has good case law regarding communications with the press or public interest advocacy groups, whereas some courts have held that such communications are not protected. As with taping, communications with the news media, or other legal issues, it is possible to compare the case precedent developed within the DOL with the precedent that may be applicable in the local federal courts and make an informed decision as to the merits of a removal.
Also, the removal procedures permit a whistleblower to evaluate the quality of the judges that may hear a case. All of the decisions of the DOL ALJ’s are published on-line. Thus, a whistleblower can review the prior decisions of his or her judge before making a removal decision.
Costs are a big issue. The DOL cannot “sanction” an employee above $1000.00 for misconduct, and costs are never shifted to an employee. Additionally, trial transcripts can be obtained through the Freedom of Information Act at a reduced price.
Discovery procedures are more user-friendly within the DOL, but if a third-party subpoena is absolutely needed, you may have to remove the case to federal court.
The hearing process is much more informal, and hearsay evidence is generally admissible. The flexible and relaxed hearing procedures reduce costs and often make it far easier for employees to introduce the evidence they need to prevail in a case.
Finally, information obtained during the DOL process can be used at a federal court hearing. For example, discovery conducted during a DOL investigation or hearing can be used in federal court, as can witness testimony obtained during a hearing before a DOL ALJ. Thus, a whistleblower to take advantage of many of the DOL procedures, and still be able to remove a case to federal court, if needed.
What Are My Remedies In A SOX Case?
If you prevail in a SOX case, the DOL is required to grant you the standard relief available in most employment cases. This relief includes a full “make whole” remedy that can be crafted around the specific terms and conditions of the job and/or benefits you lost. This includes reinstatement, back pay, payment for lost benefits, special damages, attorney fees, expert witness fees and costs. Front pay may also be available. The DOL has the authority to issue “affirmative relief,” such as requiring a company to post an apology for the retaliation or other forms of injunctive-type relief.
Compensatory damages for loss of reputation or emotional distress should be available. But punitive damages are not available under SOX. Rewards are not available under SOX but can be applied for under the procedures set forth under the Dodd-Frank Act.
If I Lose My SOX Case, Can I Appeal?
Whether or not your case is heard in the Department of Labor or the U.S. District Court, you can appeal your case to the U.S. Court of Appeals. You can also appeal a denial from the appeals court to the U.S. Supreme Court, but those appeals are rarely heard or granted.
However, failure to exhaust administrative remedies will result in the inability to file an appeal.
What Steps Must I Take To Exhaust Administrative Remedies?
If you are a Sarbanes Oxley whistleblower, you must initially file SOX cases with the Department of Labor within 180 days of notification of the adverse action under review. If you initially file a SOX case in federal court, the court must dismiss the action for failure to exhaust administrative remedies.
After 180-days an employee, who did not intentionally delay the administrative proceedings before the DOL, can remove his or her case to federal court. At that stage, the employee has exhausted his or her administrative remedies.
When a case is pending with the DOL, four steps are required to exhaust administrative remedies and permit an employee to appeal a final decision of the Department of Labor. First is the initial timely filing with the DOL. Second, the decision rendered by the OSHA division as a result of the initial investigation must be timely appealed to the DOL Office of Administrative Law Judges. Third, an ALJ decision must be timely appealed to the DOL Administrative Review Board. Fourth, an adverse decision by the ARB must be appealed to the U.S. Court of Appeals for the Circuit in which the cause of action arose within 60 days of the final ARB decision.
What Is The Essential Information I Should Review In Preparing A SOX Case?
The Whistleblower Law Library:
30 rules on Whistleblower, Qui Tam, and Whistleblower Rewards Law. Special Pro Bono Resource Contains the Key Statutes and Judicial Decisions Cited in The New Whistleblower’s Handbook. Read The Rules