(The article featured
below is a selection from SEC
Today, which is available to subscribers of that publication.)
Key Senators Dismayed by DOL's Narrow Application of
Sarbanes-Oxley Act's Whistleblower Provision
The Senate authors of the corporate whistleblower
protection provision in the Sarbanes-Oxley Act have sent a letter to Secretary
of Labor Elaine Chao expressing concern regarding what they described as
Department of Labor's overly restrictive interpretation of the provision that
has resulted in the exclusion of the employees of corporate subsidiaries from
the whistleblower protections. Senators Charles Grassley (R-IA) and Patrick
Leahy (D-VT) took direct issue with the DOL's position that subsidiaries are not
covered by section 806 of the Act.
The Senators asserted that the DOL's position
contradicts the spirit and goals of section 806 as well as the intent of
Congress, and asked Chao to explain the basis for the agency's stance. The
Senators also requested that the DOL temporarily suspend using an interpretation
of the provision that exempts employees of subsidiary corporations from the
whistleblower protections until they have received a response and supporting
documentation from the Secretary.
Section 806 consists of three sections. First, it
prohibits any retaliation against the whistleblower. Second, if the employer
takes illegal action in retaliation, the whistleblower employee can file a
complaint with the DOL. If there is no final agency decision within 180 days and
the delay is not shown to be due to the bad faith of the employee, the employee
may bring a case in federal court. Third, the Act requires the reinstatement of
the whistleblower, back pay with interest and all compensatory damages to make a
victim whole should the employee prevail.
The Senators expressed dismay at learning that DOL
has been using an overly restrictive interpretation of section 806 to dismiss a
majority of the complaints filed by employees of public companies who assert
that they have been fired or treated unfairly because they reported fraud. They
cited a Wall Street Journal report that, out of 1,273 complaints filed
with the DOL under this whistleblower protection provision since 2002, the
government has ruled in favor of the employee only 17 times and has dismissed
841 cases.
Many of these cases have apparently been dismissed on
the grounds that the employee worked for a corporate subsidiary, they noted,
because DOL takes the position that subsidiaries are not covered by the statute.
The Senators emphasized that, given the broad language of section 806, there is
simply no basis to assert that employees of subsidiaries of the companies
identified in the statute were intended to be excluded from its protections.
The authors of section 806 believe it violates
Congressional intent to restrict these important whistleblower protections to a
small minority of corporate employees or to give companies a loophole to
retaliate against those who would report corporate fraud by operating through
subsidiaries. These protections against abuses were intended as a safety valve
to protect the public and company shareholders, and to foster confidence in the
marketplace. Since Congress enacted the Sarbanes-Oxley Act as a direct response
to the fraud perpetrated by Enron through the misuse of its shell corporations
and subsidiaries, the Senators said it is unreasonable to argue that subsidiary
corporations are not covered by the whistleblower protection provisions of the
Act.
Whistleblowers are vital in promoting accountability
and transparency, according to the Senators, but they are extremely vulnerable
to retaliation. They need and deserve the protection of the law and vigilant
application of the law by federal agencies. The Senators reiterated their demand
for an explanation of DOL's position that the whistleblower protection
provisions do not apply to employees of subsidiary corporations given that this
stance contradicts the spirit and the goals of the statute as well as the intent
of Congress.
|