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Department Of Labor Establishes Rules For Expeditiously Handling Employee Whistleblower Complaints Under Sarbanes-Oxley

1.12.2004

In July 2002, Congress enacted the Corporate and Criminal Fraud Accountability Act of 2002, or Title VIII of the Sabanes-Oxley Act of 2002 ("Sarbanes-Oxley"). The Act specifically prohibits a publicly traded company, including officers, employees, contractors, subcontractors, or agents of the company, from discharging, demoting, suspending, threatening, harassing, discriminating or retaliating against an employee with regard to his or her terms and conditions of employment because the employee has filed a complaint or participated or assisted with an investigation into securities fraud. While this protection is similar to other federally enacted retaliation provisions, Sarbanes-Oxley creates more liberal protections than Title VII, including an immediate reinstatement provision that protects the employment of an alleged whistleblower.

The Department of Labor recently established rules and procedures for handling these employee whistleblower complaints under Sarbanes-Oxley. The procedures, time limitations and standards of proof that govern whistleblower retaliation claims are slightly different than those under other anti-retaliation statutes. The following is a brief summary of the new procedures which apply only to publicly traded companies.

First, an employee who reasonably believes he/she has been discriminated against in violation of Sarbanes-Oxley must file a detailed written complaint with the OSHA area director in the location where the employee resides or was employed, within ninety (90) days from the date of the alleged discriminatory act. The employee may file a complaint against the employing entity, as well as any individual who engaged in the retaliatory conduct.

Once the complaint is filed, the Department of Labor ("DOL") notifies the company and/or charged employee, and the Securities and Exchange Commission ("SEC") of the allegations and evidence. The Complaint will be dismissed and no investigation will commence unless the complainant meets his/her initial burden of proving that protected behavior or conduct was a contributing factor in the unfavorable personnel action alleged in the complaint. To meet this burden, the complainant must show that (1) he/she engaged in activity protected under Sarbanes-Oxley; (2) the named person knew or suspected, actually or constructively, that the employee engaged in the protected activity; (3) the employee suffered an unfavorable personnel action; and (4) the circumstances were sufficient to raise the inference that the protected activity was a contributing factor to the unfavorable action.

If the complainant meets the burden of proof, the Area Director will commence the investigation and issue written findings within 60 days of the filing of the complaint. The Preliminary Order will either dismiss the complaint or order relief for the complainant. Once the Preliminary Order is served, the employee and the defendants have 30 days to file written objections with DOL's Chief Administrative Law Judge ("ALJ") and request a hearing. This action will stop any remedy except preliminary reinstatement. If neither side asks for a hearing within 30 days, the Preliminary Order becomes final and is not subject to any judicial review.

The ALJ's decision is final unless one of the parties appeals to the Administrative Appeal Board within 10 days. If the board grants review, it must issue a decision within 120 days after the conclusion of the ALJ's hearing. Within 60 days of the final order, a party may file an appeal in a federal court of appeals.

Although Sarbanes-Oxley does not apply to privately owned companies, all employers should be interested, and keep watch on, the number of complaints filed under these new regulations, since the existence of these procedures may focus attention on retaliation claims, and increase the number of retaliation claims under other statutes which do apply to privately held companies.

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