On May 20, 2010, the Senate passed the Restoring American Financial Stability Act of 2010 (S. 3217) (RAFSA). The RAFSA contains liberal whistleblower protection provisions for employees of companies that offer or provide consumer financial products or services. These provisions significantly expand the whistleblower protections in the Sarbanes-Oxley Act of 2002 (SOX). The Senate Bill may be accessed here.
The House companion bill, the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173), passed in December 2009, and may be accessed here. The House and Senate versions of the respective bills contain substantially similar whistleblower protection provisions. Conference is currently underway to resolve the differences so that the final version can be submitted to the President. This process is expected to take at least several weeks.
New Whistleblower Protections
The RAFSA provides for the creation of a new “Whistleblower Program,” which will be administered by the Securities and Exchange Commission (SEC). The RAFSA also allows the SEC to issue monetary rewards to individuals who provide original information leading to monetary sanctions of over $1,000,000 in judicial or administrative actions. The SEC has discretion to issue a reward of 10% to 30% of the amount recovered.
In addition, the RAFSA’s whistleblower provisions are substantially more favorable to whistleblowers than SOX’s whistleblower provisions in four respects:
- The RAFSA expressly applies to subsidiaries of publicly traded companies whose financial information is included in the publicly traded parent companies’ consolidated financial statements. By contrast, the text of SOX provides that it only applies to publicly traded companies. Likewise, the RAFSA covers certain statistical rating organizations.
- Covered whistleblowers have the following lengthy periods of time to file complaints: up to 6 years after the alleged retaliation occurred; or 3 years after the complainant knew or reasonably should have known of facts material to a violation, so long as the complaint is filed within 10 years of the violation. SOX, by contrast, has a 90-day filing deadline.
- A whistleblower who provides information to the SEC’s Whistleblower Program may proceed directly to federal court. By contrast, to pursue a claim under SOX, a whistleblower must exhaust administrative remedies through the U.S. Department of Labor (starting with a complaint to OSHA).
- A prevailing whistleblower may recover double backpay, as well as other substantial remedies including reinstatement. This is twice the amount of backpay that could be recovered under SOX.
What Should Employers Do?
Given the likelihood that the RAFSA will be passed in the near future, it is important for employers to take concerted measures to: (i) encourage employees to lodge complaints internally (as opposed to externally) where appropriate, so that the company has a chance to take appropriate remedial measures before third parties become needlessly involved; (ii) swiftly investigate and address any alleged unethical conduct; and (iii) ensure that employees are not actually retaliated against and do not mistakenly perceive that they are retaliated against for engaging in protected activity.
This requires employers to foster a culture of integrity and accountability and demonstrate that complaints of unlawful or unethical conduct will not engender unfavorable personnel actions. Employers should begin by instituting complaint hotlines, establishing other channels for lodging complaints through a code of conduct and anti-retaliation policy, and training managers to be receptive to complaints. These steps should be taken both at publicly traded companies and at private subsidiaries and affiliates whose financial information is included in publicly traded companies’ consolidated financial statements.