posted on Friday, April 14, 2006 2:20 PM
by
Lou Michels
Whistle blowing while you work
I've already posted a couple of items regarding the Sarbanes-Oxley whistleblower dilemma facing publicly traded companies. A recent ABA teleconference on the subject provides more cause for stomach acid overflow by employers.
The main problem is that the law is not well developed and SOX claims can vary wildly in terms of validity. One area of dispute is the "reasonableness" of the belief by a plaintiff that the conduct being reported constitutes a SOX violation. To state a claim, SOX does not require that the employee's belief be correct, but only "reasonable." The plaintiff's bar is arguing that reasonableness is in the eye of the beholder and that if an employee believes he's looking at a potential SEC or SOX violation, then that should be enough. The danger, of course, is that such a broad definition of reasonableness effectively makes employees the definers of their own litigation, an almost impossible standard for an employer to defend against.
Adverse employment action under SOX is also a problem because it is clear that the concept is broader than it is under Title VII. Specifically, an adverse action under SOX could be considered to be any act that might diminish the likelihood of an employee’s reporting bad behavior. Obviously, this could include everything from outright termination to suggestive raises of an eyebrow during the course of an interview. Again, an almost impossible standard for the average employer to meet.
Finally, even though the Sarbanes-Oxley process typically begins with the Department of Labor, the quick move to federal court that is available under SOX opens up a variety of pressure points against a publicly traded employer. Not the least of these is that copies of SOX complaints are routinely sent to the Securities and Exchange Commission and available to investors and stockholders. Obviously, an insider claim that a company is engaging in fraud or other activity that might cause the shareholders concern can be a powerful weapon in forcing a settlment of these cases.
Any publicly held company that does not have a SOX whistle blowing compliance mechanism in place should move now to get one. This situation will only get worse as these claims gain more notoriety, especially in the management classes of a business.