The financial reform bill being debated in Congress has been controversial largely for the proposed creation of a consumer protection agency (Forbes). A lesser-known provision in the bill could result in greater repercussions for employers. Specifically, the bill would significantly expand the Sarbanes-Oxley (SOX) whistleblower protections (Restoring American Financial Stability Act of 2010), as follows:
- Ensure subsidiary coverage
A number of SOX whistleblower claims have been dismissed on the basis the purported whistleblower did not work for a “publicly-traded company,” even where the purported whistleblower may have been employed by a publicly-traded company’s subsidiary. The bill (Sec. 929A) responds to criticism of these decisions (WSJ) by expressly covering, not only publicly-traded companies, but also “any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company.”
- Extend the statute of limitations
The most common basis for dismissal of SOX claims has been employees’ failure to file with the DOL within the 90-day statute of limitations period. The bill (Sec. 922) addresses the concern that this time period is too short by creating a substantial six-year statute of limitations. In addition, an employee may file a complaint directly in federal court, bypassing the current DOL administrative process.
- Create a whistleblower bounty program and double damages
In an effort to encourage more “whistleblowers” to come forward, the bill (Sec. 924) would allow the SEC, in any action involving sanctions in excess of $1,000,000, to compensate whistleblowers with up to 30% of the amount of the sanctions. The amounts paid would be within the sole discretion of the SEC and not subject to judicial review. The bill also would provide for double back-pay damages to prevailing whistleblowers.
- Establish stronger anti-retaliation protections
Another criticism of SOX has been its “reasonable belief” requirement -- SOX only protects an employee who “reasonably believes” the information s/he reports constitutes securities, bank or wire fraud or a violation of an SEC rule or other federal law “relating to fraud against shareholders.” According to its sponsors, in response to concerns that too many cases are being dismissed for failure to prove “reasonable belief,” the bill (Sec. 922) would protect any employee who complains to the SEC, regardless of whether the employee reasonably believes the complained-of conduct violated the enumerated fraud provisions. This provision, in conjunction with the existing SOX provisions, would establish a two-tier system akin to Title VII’s participation and opposition clauses, under which a complaint to the SEC would be protected regardless of the validity or reasonableness of the complaint, while an internal objection would still be subject to SOX’s reasonable belief standard.
Employers will want to monitor the progress of these provisions in Congress.