The United States Department of Labor has issued a Final Rule regarding procedures for handling employee whistleblower retaliation claims under the Sarbanes-Oxley Act of 2002 (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  SOX and Dodd-Frank provide that an employee is protected from retaliation by an employer for providing information or assisting in an investigation regarding conduct that the employee reasonably believes is a violation of either the securities, bank, mail or wire fraud statutes or any SEC rule or regulation. 

The Final Rule, issued on March 5, 2015, does not significantly alter the Interim Final Rule, which has been in effect since November 3, 2011. 

Background

SOX was designed to protect investors by enhancing public disclosure, ensuring corporate responsibility and improving the transparency of financial reporting.  SOX’s whistleblower provision aims to protect employees who report fraudulent activity and violations of SEC rules and regulations, which may harm innocent investors.  Dodd-Frank amended and clarified SOX’s whistleblower provision by, among other things, expanding the statute of limitations for filing a complaint from 90 to 180 days and expanding the definition of covered employer to include company subsidiaries and affiliates, and nationally recognized statistical rating organizations.  The Interim Final Rule implemented Dodd-Frank’s modifications temporarily until the Final Rule could be issued. 

Differences between the Interim Final Rule and the Final Rule

The Final Rule was issued last week after the Labor Department solicited and considered five stakeholder comments.  The Final Rule does not differ substantially from the Interim Final Rule, despite the fact that commenters raised a number of issues including, among other things: (i) concerns about confidentiality and information sharing between parties; (ii) the allowance of oral complaints and complaints in languages other than English; (iii) the absence of a procedure for employers to recover the costs of reinstating an employee should an employer ultimately prevail in an appeal; and (iv) the lack of standards regarding the issuance of preliminary reinstatement orders.

One of the substantive comments that was incorporated into the Final Rule dealt with information sharing between parties.  Unlike the Interim Final Rule, the Final Rule incorporates procedures for the parties’ filings to be shared with one other and clarifies the policies regarding information sharing during the investigation phase. 

On the other hand, contrary to some commenters’ recommendations, the Final Rule includes a provision to allow complainants to complain orally to the Occupational Safety and Health Administration (OSHA), in addition to being able to submit written complaints.  When an oral complaint is made, an OSHA investigator will reduce the complaint to writing, and later supplement it with interviews of the complainant, if necessary. 

Likewise, the Final Rule did not adopt the recommendation of commenters who sought to have employee reinstatement stayed pending an employer appeal.  Specifically, where OSHA determines that there is a SOX violation and orders that the employee be reinstated, the employer may file an objection within 30 days.  However, filing an objection will not stay a reinstatement order and the employer must reinstate the employee while waiting for a hearing with an Administrative Law Judge.  In addition, the Final Rule did not include language to allow an employer to recover the costs of reinstating an employee should the employer ultimately prevail in an appeal.

Finally, OSHA declined to insert language into the Final Rule that reinstatement of a whistleblowing employee is not appropriate where the company establishes that the complainant is a security risk, despite commenters recommending the inclusion of such language.  OSHA noted that “Congress intended that employees be preliminarily reinstated to their positions if OSHA finds reasonable cause to believe that they were discharged in violation of Sarbanes-Oxley” and also stated that the Final Rule “provides sufficient safeguards for these situations…where preliminary reinstatement is inappropriate.” 

Takeaways

Employers in the financial services industry would be wise to familiarize themselves with SOX’s whistleblower provisions.  Should an employer know or suspect that an employee has engaged in a SOX-protected activity, it should ensure that the employee does not suffer any adverse action − including termination, demotion, discipline or suspension—that the employee would not have otherwise experienced. 

If in doubt as to the appropriate action to take, employers would be well advised to consult with counsel.