SOX Guidance Just in Time for Spring Training: Department of Labor to Issue Final Rules Related to Whistleblower Retaliation Provisions of Sarbanes-Oxley and Dodd-Frank Acts.

Since 2002, corporate insiders who blow the whistle on fraudulent activity have been protected from retaliation under the whistleblower-protection provisions of the Sarbanes-Oxley Act. In 2010 many of these protections were expanded and enhanced by amendments contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Now, after a years-long process, the Department of Labor is set to release its final rules interpreting and applying many of Dodd-Frank’s amendments to Sarbanes-Oxley’s whistleblower provisions. Of the many important final rules, a few jump out as particularly significant for employees who have been terminated or otherwise retaliated against after blowing the whistle on corporate fraud.

A. The Complaint Procedure

In order to pursue a claim for retaliation, an employee must first submit a complaint to the Department of Labor’s Occupational Safety and Health Administration (OSHA). The complaint may be submitted by either the employee or his or her legal representative. OSHA will investigate the complaint and order relief for the employee if the claim is substantiated. If OSHA does not issue a final decision within 180 days of the filing of the complaint, the employee may initiate a civil action in federal court.

The new rules provide important context to the complaint process. First, while complaints are customarily submitted in writing, a complaint need not be written. It can be submitted in nearly any format, including in writing, electronically, or even orally. In addition, the complaint need not be submitted in English. OSHA uses the services of professional translators, and a complaint in any language is sufficient to trigger an investigation. As the comments to the new rules note, “[p]ermitting a complainant to file a complaint orally or in writing or in any language is consistent with the purpose of the complaint filed with OSHA, which is to trigger an investigation regarding whether there is reasonable cause to believe that retaliation occurred.”

B. The Standards of Proof

Consistent with the goal of affording maximum protection to corporate whistleblowers, the standards of proof used to substantiate a claim of retaliation under Sarbanes-Oxley are some of the most favorable found in any federal employment law.

The initial burden an employee must satisfy to substantiate his or her claim is to establish that a “protected activity” (i.e. whistleblowing) was a “contributing factor” in the employer’s decision to take adverse action against the employee. A “contributing factor” is any factor that, alone or in combination with other factors, affected in some way the outcome of the employer’s decision.

Sophisticated employers will invariably argue that some legitimate motivation other than the protected activity, like misconduct or poor job performance, actually motivated the employee’s termination. When this happens, many federal anti-discrimination laws require the employee to prove that the employer’s supposed justification is a “pretext” for discrimination, a difficult and sometimes burdensome task. But this is not required under the “contributing factor” standard of Sarbanes-Oxley. As the comments to the final rules make clear, “a complainant need not necessarily prove that the respondent’s articulated reason was a pretext in order to prevail because a complainant alternatively can prevail by showing that the respondent’s reason, while true, is only one of the reasons for its conduct and that another reason was the complainant’s protected activity.”

The comments also provide examples of situations that would satisfy the contributing factor standard: “Complainant’s burden may be satisfied, for example, if he or she shows that the adverse action took place within a temporal proximity of the protected activity, or at the first opportunity available to the respondent, giving rise to the inference that it was a contributing factor in the adverse action.”

C. Available Remedies

If a complaint is substantiated, Sarbanes-Oxley provides that the whistleblower is entitled to all relief necessary to make the employee whole. These remedies can include back pay with interest, compensation for special damages, litigation costs, attorney’s fees, and reinstatement with the same seniority status that the employee would have had but for the retaliation.

Additionally, in cases where reinstating a whistleblower to his or her former employment is impractical, the employee may be entitled to an awarded of “front pay” to make up for future lost wages. Previously, there had been some debate about whether an award of front pay was an available remedy under Sarbanes-Oxley. The new rules label this form of relief “economic reinstatement,” and suggest that it may be available, at a minimum, on a preliminary basis while an initial finding is under administrative review. Given the statute’s overall remedial purpose of making an employee “whole,” it is likely that further awards of front pay will be recognized by the courts and administrative agencies.