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Employment Newsletter
Published Friday, September 16, 2011 6:00 am

Preston L. Pugh

The Dodd-Frank Act Expands Sox's Whistleblower Protections

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) ("the Act"). Among other broad-ranging reforms in the financial industry, the Dodd-Frank Act significantly changes the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (SOX).

The Amendments:
The Dodd-Frank Act prohibits, among other things, retaliation against whistleblowers who provide information to the SEC, engage in other SOX-protected activity or assist in any related SEC investigation or legal action. The Act largely keeps the enforcement scheme of SOX's whistleblower provisions in place, but greatly strengthens and expands SOX's reach and scope. As explained in the chart below, the Amendments:

  • Expand the types of employers whose employees are covered
  • Increase the administrative complaint filing period
  • Allow filing a complaint directly in federal court
  • Clarify the right to a jury trial
  • Prohibit pre-dispute arbitration agreements
  • Increase available remedies


Employee Coverage Expanded

Covered only employees who work for a publicly-traded company or brokerage firm, or for contractors, subcontractors, or agents of publicly-traded companies.

Covers employees of "nationally recognized statistical rating organizations."

Covers employees of private subsidiaries of publicly traded companies "whose financial information is included in the consolidated financial statements of [a publicly] traded company."

Administrative Filing Period Lengthened 90 days 180 days
Direct Federal Actions Created Not available - an employee had to file an administrative complaint with OSHA first. A whistleblower may bring an action directly in federal district court. Such an action reporting SEC-related or other SOX-protected activity must be filed either within six years after the date when the violation occurs or within three years after the date "facts material to the right of action are known or reasonably should have been known by the employee," but not more than 10 years after the date of the violation.
Jury Trials Reinstated Did not expressly provide for the right. Expressly provides that employees bringing claims under SOX have a right to jury trial.
Predispute Arbitration Agreements Prohibited Pre-dispute arbitration agreements were potentially enforceable. The rights and remedies under SOX were potentially capable of waiver by agreement. Expressly prohibits the use of predispute arbitration agreements for SOX claims. The amendments specifically provide that the rights granted under SOX "may not be waived by any agreement, policy, form, or condition of employment, including a predispute arbitration agreement." The amendments also provide that "[n]o pre-dispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under [the whistleblower provisions of SOX]."
Remedies Expanded Amongst other remedies, provided for the awarding of back pay. Amongst other remedies, provides for the doubling of back pay for a whistleblower who engages in SOX-protected activity.


Recommendations for Employers:
These Amendments collectively increase the financial risk to employers by permitting many more federal lawsuits against more entities. Employers should consider:

  • Expanding compliance programs: institute help lines, audit committees, policies and procedures addressing the treatment of whistleblowers and investigations, and training programs.
  • Reviewing document-retention policies: because of the longer limitations periods, maintain applicable files longer.
  • Assuring an effective response system: employers should create multi-disciplinary teams consisting of legal counsel, human resources personnel, and compliance professionals. The response system should involve the audit committee, promptly investigate, cautiously engage the whistleblower and dispense appropriate discipline. The response should also involve determining whether self-reporting to the government is warranted.
  • Adopting employee fraud certification and reward programs: employers may want to consider asking employees to complete forms certifying that they are unaware of fraudulent misconduct. Employers may also want to consider rewarding employees who internally lodge complaints that are well-founded.
  • Strengthening codes of conduct and ethics: these must contain strong anti-retaliation provisions, avenues for lodging complaints, encouragement of good-faith whistleblowers, and overall demonstrate a commitment to transparency.

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