Source: IT Business Edge
Date Published: 1/16/2007
With attorney Jason Zuckerman, who represents whistleblowers under the Sarbanes-Oxley Act and other whistleblower protection statutes before federal administrative agencies and courts.
Question: From what we've seen, the number of Sarbanes-Oxley whistleblower cases is increasing. Is that the case? Why?
Zuckerman: Four and a half years after Congress enacted Sarbox, employees have become more aware of their right to blow the whistle on fraud and securities law violations without suffering retaliation. There has also been a radical transformation of the popular image of whistleblowers. Prior to the corporate scandals that prompted Congress to enact Sarbox, whistleblowers were generally viewed as disloyal tattletales. Due to the critical role of whistleblowers such as Cynthia Cooper of Worldcom and Sherron Watkins of Enron in exposing corporate fraud, the term "whistleblower" is no longer pejorative, and instead connotes integrity and a willingness to heroically stand up for what is right.
Another reason that Sarbox cases may be
increasing is that the burden of proof
under Sarbox is favorable to employees.
If an employee can demonstrate by a
preponderance of the evidence that her
protected disclosure was a contributing
factor (not the sole factor) in the
employer's decision to take an adverse
employment action (termination,
suspension, harassment, blacklisting,
etc), the employer must then demonstrate
by clear and convincing evidence that it
would have taken the same adverse action
in the absence of complainant's
Question: Such cases are often viewed from the perspective or the employee claiming protection under Sarbox. What does a whistleblower case mean for employers? Who is held responsible — the supervisor or the corporation as a whole?
Zuckerman: Sarbox whistleblower cases are more challenging for employers than a typical employment discrimination or harassment claim. Judges typically permit very broad discovery concerning the whistleblower's disclosures both to assess the whistleblower's reasonable belief in the validity of the disclosures and the employer's motive to retaliate against the employee for making such disclosures. In essence, there is a case within a case, and the employee is entitled to obtain documents and depose witnesses concerning the misconduct about which she raised concerns to management. This can sometimes put employers in the difficult position of having to admit to violations of securities laws or other unlawful conduct. Whistleblower cases can also be challenging for employers because they can result in negative publicity and investigations by regulatory agencies.
Under Section 806 (the civil retaliation
provision), an employee can bring a
retaliation claim against both the
employer and the supervisor or manager
who retaliated against the employee. If
an employee prevails in a civil Sarbox
retaliation lawsuit, the employee is
entitled to reinstatement, back pay
(lost wages and benefits), and special
damages, including attorney fees and
costs. Oftentimes, it is difficult for a
whistleblower to be reinstated, so
judges typically award front pay in lieu
Section 1107, the criminal prohibition against retaliation, applies to any person who interferes with the lawful employment or livelihood of any person in retaliation for the person providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense. ... [Penalties include a fine and/or imprisonment for up to 10 years. This provision is extraordinary because a manager can literally go to prison for retaliating against a whistleblower. It sends a strong signal to employers about the importance of avoiding retaliation against whistleblowers.
Question: Generally, what would you recommend employers do to avoid or limit Sarbox whistleblower liability?
Zuckerman: I have six
recommendations. First, conduct prompt
and thorough investigations of employee
concerns regarding fraud or securities
law violations, and take appropriate
corrective actions. In my experience
litigating whistleblower retaliation
cases, sham investigations designed to
cover up wrongdoing or to "shoot the
messenger" damage the employer and
strengthen the whistleblower's case.
Concerned employees who suspect that
their concerns are not being taken
seriously will go outside the
organization and report misconduct to
someone who they believe will take the
concerns seriously, such as the media, a
regulatory agency, or law enforcement.
Accordingly, it is critical to conduct
an independent, credible investigation,
and if the concern prompting the
investigation was not raised
anonymously, the concerned employee
should be consulted during the
investigation and informed of the
Second, adopt a policy prohibiting retaliation. Third, train managers and supervisors about the rights of employees to blow the whistle without fear of reprisal and about the criminal prohibition against retaliation. Fourth, provide several options for employees to raise concerns, including the option of raising a concern anonymously. Fifth, take disciplinary action against employees who violate the company's policy prohibiting retaliation. Sixth, senior management should continually strive to foster a corporate culture of ethics and compliance, which entails more than just adopting a code of ethics. Enron had a code of ethics, but management obviously ignored it. Unfortunately, four and a half years after Sarbox was enacted, some publicly traded companies still just "don't get it." For example, several companies recently disclosed improper backdating of options, and some companies are still restating earnings due to accounting improprieties. Fortunately, it is becoming more apparent to corporate leaders that an ethical corporate culture makes business sense. Creating such a culture, however, takes sustained efforts, including training and workplace assessments.
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