• Whistling on Time
  • May 19, 2003
  • Law Firm: McGlinchey Stafford, PLLC - New Orleans Office
  • In enacting the Sarbanes-Oxley Act of 2002, Congress recognized that "although current law protects many government employees who act in the public interest by reporting wrongdoing, there is no similar protection for employees of publicly traded companies who blow the whistle on fraud and protect investors. With an un-precedented portion of the American public investing in these companies and depending upon their honesty, this distinction does not serve the public good." Further, "corporate employees who report fraud are subject to the patchwork and vagaries of current state laws, even though most publicly traded companies do business nationwide."

    The effect of the legislation is sweeping reforms of public accounting and financial reporting obligations of publicly-held companies. It changes handling of pension and retirement plans, addresses document retention and destruction, and creates new protections for corporate whistleblowers.

    Passed in July of 2002, the act is aimed at reining in corporate wrongdoers and providing oversight to the accounting industry. The act applies to all domestic public companies and privately-held companies whose debt securities are publicly traded, as well as foreign companies registered under Section 12 of the Securities Exchange Act of 1934. Under the law, employees who feel they have experienced discrimination or retaliation for protected whistleblowing activity may file a claim within 90 days with the DOL, which triggers an investigation.

    For employers, the most pressing section involves both civil and criminal liability for companies that discriminate and retaliate against whistleblowers. The act also has a provision that allows parties to take claims to federal court if the Labor Department does not resolve their claim in 180 days. That provision was created, according to Stephen M. Kohn of the National Whistle-blower Center in Washington D.C., because of DOL's history of slow claims resolution.

    Early in March of this year the Labor Department sent its proposed regulations for implementing the Sarbanes-Oxley provisions to the Office of Management and Budget. Until DOL's regs are approved and implemented, the department is operating under procedural provisions from another whistleblowing statute known as the Aviation Investment and Reform Act of the 21st Century. Those procedures, which were incorporated into Sarbanes-Oxley, provide for investigation to be conducted by the Occupational Safety and Health Administration, which has responsibility for 13 other whistleblower provisions.

    If OSHA finds probable cause that the claimant was harmed, it can demand reinstatement. Losing parties at the investigation level can appeal within 30 days of the decision. The outcome of that hearing can be appealed to DOL's Administrative Re-view Board, which has 135 days to reach a decision. Given the time limits, attorneys are speculating that DOL will not be able to meet the requirements, leaving whistleblowers free to go to federal court.

    OSHA already has more than 50 complaints filed under the act, with 10 claims currently before administrative law judges, according to an agency spokesman. The initial Sarbanes-Oxley investigations are taking longer to complete than the average investigation because of unfamiliarity with the new law, and despite the increase in charges, the office has not had an increase in the number of investigators.

    Problems with productivity continue to plague the administrative review process, however, and although a new board has pledged to reduce backlog and resolve new cases within a year, their schedule falls well short of Sarbanes-Oxley time frames.