Whistleblower Claims Under SOX And Dodd-Frank: Recent Developments

Section 806 of the Sarbanes-Oxley Act ("SOX") and Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") both extend whistleblower protection to certain individuals who report conduct they reasonably believe constitutes federal mail, wire or bank fraud or a violation of any rule or regulation of the Securities and Exchange Commission ("SEC") or any provision of federal law relating to shareholder fraud. Dodd-Frank also required the SEC to implement a new whistleblower program — the so-called bounty program — that pays awards to whistleblowers who provide the SEC with information about violations of securities laws that leads to a successful enforcement action resulting in monetary sanctions in excess of $1 million.

As described in more detail below, the U.S. Department of Labor ("DOL") has issued final regulations governing the procedures for handling SOX whistleblower claims. The SEC has announced its view that, for purposes of the employment retaliation provision in Dodd-Frank, an employee's status as whistleblower does not depend on whether that individual reported wrongful conduct to the SEC. The Second Circuit Court of Appeals followed suit in a recent decision, creating a circuit split on this issue, which now may be resolved by the United States Supreme Court. Moreover, a number of notable recent federal court decisions, including those issued by two circuit courts, have addressed the standards for establishing "protected activity" under SOX.

The DOL Issues Final Rule on SOX Whistleblower Complaints

Earlier this year, the DOL's Occupational Safety and Health Administration ("OSHA") issued final regulations governing procedures applicable to whistleblower claims under SOX. It had been more than three years since OSHA had issued an "interim rule," which had during that period governed the agency's approach to SOX retaliation complaints.

The Final Rule does not substantially alter OSHA's approach to investigating retaliation claims under SOX. The key features of the regulations include:

An employee, or someone on the employee's behalf, may file a retaliation complaint, either orally or in writing, in any language, with OSHA within 180 days from the date of the alleged retaliation or the date on which the employee becomes aware of the violation. A complainant must make a prima facie case showing that he or she engaged in protected activity and that activity was a "contributing factor" in the adverse action by the employer. Once the employee makes that showing, the burden shifts to the employer to prove by clear and convincing evidence "that it would have taken the same adverse action in the absence of the protected activity." At the conclusion of the investigation, if OSHA determines that there is reasonable cause to believe that the statute was violated, it will issue a preliminary order for relief, including immediate preliminary reinstatement. Employers may request a hearing before an administrative law judge and may apply for a stay of the preliminary order of reinstatement. Whistleblowers may be provided "economic...