Sarbanes-Oxley
The Sarbanes-Oxley Act of 2002 provides a vastly re-worked framework for certain securities related activities, but also offers certain protections for employees who report improper activities by companies and corporate personnel. Also known as "SOX," the Act creates increased responsibilities for officers and directors of public companies, and the corporate reporting obligations of these companies and their outside auditors. These requirements and prohibitions include but are not limited to: 1) CEO/CFO certification of periodic reports filed with the SEC; 2) directors, officers and large shareholders are required to report on an accelerated basis certain stock transactions; 3) personal loans from companies to directors and officers are prohibited; 4) audit committees for public companies are subject to strict new requirements; and 4) a public company accounting board has been created.
SOX was created largely in response to the financial scandals involving large publicly traded companies that have been paraded in the press over the last several years, including but not limited to Enron, WorldCom, and Global Crossing.
Sox includes new federal "whistleblower" provisions which affect public traded employers (and may also to contractors, subcontractors, or "agents" of those companies), and purport to provide legal protections to employees. Primarily, these provision are intended to protect employees who report violations of federal corporate compliance laws. The federal Securities Exchange Act (SEA), administered by the Securities and Exchange Commission (SEC), imposes a wide variety of requirements on publicly traded companies, such as the filing of certain reports, and the whistleblower provisions of the Act generally are intended to protect employees who report violations of these types of requirements. The protections offered by SOX took effect July 30, 2002.
Section 806 of SOX offers the main protections regarding whistleblowing. This section prohibits discrimination and/or adverse action against employees for engaging activities protected under SOX. SOX allows employees who believe they have been retaliated against as a result of whistleblowing may file a complaint with the U.S. Department of Labor (DOL), which may result in the filing of a complaint includes, an investigation, and in ceratin circumstances, a hearing before an administrative law judge, and review by the Secretary of Labor's Administrative Review Board. SOX also includes a provision for criminal penalties for retaliation. Section 1107 provides for fines and imprisonment against a person who "knowingly, with the intent to retaliate," interferes with an employee's employment, because the employee provided truthful information relating to the commission of "any Federal offense" to a law enforcement officer. This is a broad provision which has yet to be interpreted fully in the courts.
Sox protects an employee against retaliation for any lawful act by the employee in he or she: (1) provides information (or assist in an investigation) regarding conduct that the employee believes constitutes a violation of certain provisions of the SEA, any rule or regulation of the SEC, or any provision of federal law relating to fraud against shareholders; or (2) files or participates in a proceeding regarding such violations. To be protected, the employee must "reasonably believe" that a violation occurred. An employee who proves a violation of SOX may recover damages, reinstatement, back pay, and compensation for any "special damages" sustained, such as litigations costs. There is no express provision for damages for emotional distress may or punitive damages against an employer.
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