On March 5, 2015, the Department of Labor’s Occupational Safety and Health Administration (OSHA) published a Final Rule, more than three years in the making, on procedures for handling whistleblower complaints under the Sarbanes-Oxley Act (SOX).
SOX, enacted in 2002, contains whistleblower protections for employees who report fraudulent activity and violations of certain Securities and Exchange Commission (SEC) rules and regulations. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) amended SOX to clarify that public companies, their subsidiaries and national credit rating agencies are covered employers under the law’s whistleblower provision and to extend the statute of limitations for filing a whistleblower complaint from 90 to 180 days.
OSHA enforces the whistleblower provisions of SOX. In November 2011, OSHA issued an Interim Rule to implement Dodd-Frank’s amendments and to set forth OSHA’s interpretations of SOX as amended. Last week, three years after the close of the notice and comment period, the Final Rule was published. The Final Rule is substantially similar to the Interim Rule, despite commenters’ concerns related to several key provisions.
Procedures Under the Final Rule
Statute of limitations. A covered employee who believes her employer took adverse action against her because she reported what she“reasonably believed”to be mail fraud, bank fraud, wire fraud or securities fraud has 180 days from the date of the alleged retaliation to file a complaint with OSHA.
Form of complaint. A covered employee’s complaint may be either oral or written, and the employee must show only that her protected activity was a contributing factor to the adverse action in order to trigger an OSHA investigation. When a complaint is made orally, an agency investigator will “reduce the complaint to writing.” Notably, the Final Rule, like the Interim Rule, lacks standards to ensure that the investigator acts in an entirely neutral capacity. During the notice and comment period, commenters expressed concern that without such standards, investigators will inevitably ask leading questions and expand the scope of the complaint to fill in gaps with the goal of avoiding dismissal based on the pleadings, shifting the role of the investigator from objective fact-finder to legal advocate In the Final Rule, OSHA rejected these concerns by stating that SOX does not require written complaints and that allowing oral complaints is consistent with whistleblower protection laws in other contexts.
Burden-shifting framework. If the complaint (as supplemented by interviews of the complainant) establishes a prima facie case that the protected activity was a contributing factor in the adverse action, the burden will shift to the employer to show, by clear and convincing evidence, that it would have taken the adverse action regardless of the protected activity. If the employer cannot make this showing, then OSHA’s investigation will continue. In this instance, too, the Final Rule reflects OSHA’s rejection of criticisms expressed during the notice and comment period to the effect that these standards set a low bar for complaining employees and a high bar for defending employers, increasing the likelihood of an investigation.
Preliminary order and reinstatement. After investigating a complaint, OSHA will issue written findings. If OSHA finds there is reasonable cause to believe that retaliation occurred, then the agency will issue a preliminary order, effective immediately, awarding all relief necessary to make the employee whole, including actual or economic reinstatement with the same seniority status that the employee would have had but for the retaliation, back pay with interest and compensation for any special damages sustained as a result of the retaliation, including litigation costs, expert witness fees and reasonable attorneys’ fees. The preliminary order will take effect immediately, regardless of whether the employer files an objection and requests a hearing. Employers will not be able to avoid preliminary reinstatement by establishing that the complainant is a security risk. During the notice and comment period, commenters criticized this rule as a violation of employers’ due process rights in that it does not provide circumstances under which preliminary reinstatement would be inappropriate. Additionally, in cases where the employer ultimately prevails, the employer cannot recover wages paid to the complainant during the reinstatement period, even if the reinstatement was purely economic. OSHA disagreed with these criticisms, stating that Congress intended to provide for preliminary reinstatement, including economic reinstatement in situations when OSHA deems physical reinstatement inadvisable because of a complainant’s medical condition or manifest hostility between the parties, or when the complainant’s position no longer exists.
Review. Following the issuance of a preliminary order, the complainant and respondent have 30 days to file objections and request a hearing before an administrative law judge. The filing of objections will stay any remedy in the preliminary order except for preliminary reinstatement. Following a hearing, OSHA has 120 days to issue a final order. The final order may be appealed within 60 days to the United States Court of Appeals for the circuit in which the violation occurred or the circuit where the complainant resided on the date of the violation.
Takeaways and Best Practices
Although OSHA’s Final Rule seeks to clarify and improve the procedures for handling SOX whistleblower complaints, many of its provisions will effectively make it easier for employees to file and prosecute whistleblower complaints and more difficult and expensive for employers to defend. Employers accused of whistleblower violations can expect increased defense costs due to the reinstatement requirement, the practical effect being that employers will have to pay to economically reinstate the complainant while at the same time paying another worker to fill the position left vacant by the complainant.
In light of this Final Rule and recent whistleblower-friendly Arbitration Review Board (ARB) decisions, including Sylvester v. Parexel International LLC and Menendez v. Halliburton, Inc., employers can expect an increased willingness on the part of plaintiffs’ attorneys and their clients to invest in whistleblower complaints. Some best practices to help avoid whistleblower liability include:
- Ensure policies are adhered to uniformly before a complaint of illegal behavior occurs. This gives the employer some recourse to legitimately discipline a complaining party when appropriate.
- Keep all complaints and claims by employees and resulting investigations as confidential as possible. Share information about the claim only on a need-to-know basis. If a decision maker can truthfully testify that she never knew about the protected activity, it is more difficult for the complainant to prove a causal connection.
- Be vigilant. To the extent managers and supervisors are aware of an employee’s protected actions, they should be reminded of the company’s policy prohibiting retaliation or reprisal against whistleblowers.
- Take prompt investigatory action. If the employer believes that any adverse treatment may be motivated in any way by an employee’s protected activity, the employer should investigate promptly and take remedial action if necessary.
- Consult with counsel prior to taking actions that may involve liability exposure under SOX. A copy of the Final Rule (80 Fed. Reg. 11865) can be found here.