Don't slay the bearer of bad news. That's the message
Congress sent companies when it finally hammered out a law last
summer to curtail corporate misconduct. While the Sarbanes-Oxley
Act of 2002 got plenty of media attention, chances are you
haven't heard about this provision protecting whistle-blowers,
which applies not only to publicly held companies, but also to
those who advise them. Corporate scandals and the Time
Persons of the Year brought whistle-blowers into the limelight, but
the need for you to pay attention to their rights will continue
long after the attention has died down.
Suppose an employee suspects his or her company is playing fast
and loose with its financial reports. Being an upright citizen, he
or she reports those suspicions to the federal government. The
supervisor catches wind of this and fires the employee. Under the
new provisions, that supervisor and company officers could face
criminal fines or even jail time for such an action. It doesn't
matter whether the employee's suspicions were correct; the key
is reasonable belief that there are federal fraud violations.
The law is tied to existing definitions of fraud. It covers bank
fraud; securities fraud; fraud by wire, radio or TV; and
garden-variety frauds and swindles. Retaliation includes not only
termination of the employee, but also demotion, suspension,
harassment and other forms of discrimination. "You cannot take
any deleterious actions that would affect the person's
job," says Philadelphia attorney Anita B. Weinstein of law
firm Cozen
O'Connor. "That includes failure to consider [the
employee] for promotion."
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What's really unusual about the act is its scope. The
provisions apply not only to officers of the company and the
employee's supervisors, but also to contractors, subcontractors
and "agents of the company." If your business provides
consulting services to a publicly held company, and you advise
clamping down on the snitch, you could land in jail with those who
follow your advice.
While it's apparent why Congress took this tack, given the
shady dealings of Enron and Arthur Andersen, it stands on fresh
legal ground. "It's so broadly written that we have to
wait for the courts to come down on who it applies to,"
Weinstein says.
There are other laws in the books protecting employees who sound
the alert on toxic dumping and such, but they're limited to
officers and supervisors. Never before has a law threatened
criminal sanctions against third parties who advise the company.
Sanctions may include fines of up to $1 million and up to 10 years
in jail--and, of course, public humiliation of a criminal
conviction, which doesn't exactly build investor
confidence.
Meanwhile, the whistle-blower can win reinstatement and
compensatory damages. On the other hand, if a court finds that the
whistle-blower filed a frivolous complaint, the employer can
recover attorney fees of up to $1,000.
So, if your company is publicly traded, don't discriminate
against employees who notify the authorities about possible fraud,
even if it's not true. Have a procedure in place to receive
retaliation complaints and an audit committee to review them--both
required by the act. And if your business is advising the big guys,
watch what you say.
Steven C. Bahls, dean of Capital University Law School in
Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane
Easter Bahls specializes in business and legal topics.