Regulatory compliance is the concept that all businesses are required to follow certain business laws and guidelines when conducting their business operations. These rule and guidelines, in general, involve the following areas:
- Accounting;
- Taxes;
- Wage and hour issues;
- Health and safety codes;
- Stocks and other corporate security interests; and
- Business property.
Compliance laws are in place to ensure that businesses are, in fact, operating in a fair manner and that the public is not exposed to misleading or dangerous practices. If a business fails to comply with the applicable laws and statues, it may result in negative consequences for their organization.
How is Compliance Enforced?
One major area of law which applies to businesses is business regulatory compliance law. In order to enforce the numerous laws, it requires the involvement of many different:
- Individuals;
- Agencies; and
- Lawmakers.
Compliance enforcement of business regulatory laws occurs in several ways, including through:
- Compliance agents who are hired to work internally for the organization;
- Government departments and agencies such as the United States Securities and Exchange Commission (SEC);
- Acts and statutes such as the Sarbanes-Oxley Act; and
- State and federal enforcement authorities.
The enforcement of compliance with business regulatory laws may include:
- Fines;
- Injunctions requiring the business to change its policies; and
- Other types of remedies.
In more serious cases, criminal charges may be filed against the individuals who were responsible for the non-compliance of the organization.
What is The Sarbanes-Oxley Act of 2002?
The Sarbanes-Oxley Act of 2002, also referred to as SOX, is a securities law which was passed by Congress in response to the high-profile financial scandals and Worldcom and Enron. SOX was implemented in order to protect the general public as well as stockholders from accounting errors and fraudulent practices in the world of finance.
SOX provides rules that dictate how and when a business must keep its financial records as well as place regulations upon the professional behavior of executives and upper management in the company. SOX is enforced by the SEC.
If a business fails to comply with SOX, it may face:
- Hefty fines;
- Imprisonment for the individuals who did not comply; or
- A combination of fines and imprisonment.
What is Required by the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act places numerous requirements upon businesses, including:
- Certifying financial reports by chief executive officers (CEOs) and chief financial officers (CFOs);
- Banning personal loans to any executive officers or directors;
- Accelerating reporting on securities trades by insiders and individuals with secret knowledge;
- Banning insider trading during a pension fund blackout period;
- Making a public disclosure of CEO and CFO compensation and profits;
- Keeping business records, including electronic records and electronic messages, for at least five years;
- Demanding auditor independence;
- Banning auditors working on any non-audit materials and pre-certifying any audits; and
- Showing annual independent audit reports on the reliability of how financial records are made and maintained.
How Does The Sarbanes-Oxley Act Protect Whistleblowers?
SOX is a relatively recently enacted law which provides protections for whistleblowers who are employed by public traded companies, including corporations. Entities that are covered by SOX are those which are registered under the Securities and Exchange Act as well as entities that are required to file reports with the Securities and Exchange Commission.
Additionally, SOX applies to those actions which are made by contractors or agents of a corporation. As previously noted, SOX was enacted in response to the widespread fraud which was being conducted by many large corporations during that time frame.
Many individuals associate SOX with specific issues, such as improper corporate governance and accounting issues. It is important to note that SOX also contains a major provision which applies to whistleblowers in corporate settings.
Employees may file claims under SOX against employers who have violated the law. SOX also protects whistleblowers from retaliation by their employers, similar to other federal statutes.
What is a Whistleblower?
Whistleblowers are individuals, who are typically employees, who report to an outside agency when their employers have broken the law. Whistleblowers are protected by both state laws and federal laws.
Employers are prohibited from retaliating against whistleblowers for reporting the employer’s misconduct. Whistleblowers cannot be terminated from their positions, mistreated in any other manner, or retaliated against.
In some situations, the government may reimburse a whistleblower for any costs which they incurred as a result of reporting the misconduct of their employer.
What Kinds of Actions by the Employer Constitute Retaliation?
Certain actions employers may take against whistleblowing employees may be considered retaliation if the lawful reporting done by the employee was a factor in the employer’s decision to take unfavorable action against that employee. Unfavorable retaliatory action which may be taken by an employer may include:
- Discharging, laying off, or terminating the employee;
- Placing an employee on a blacklist, also referred to as a do not hire list;
- Demotion from a position;
- Pay reductions or reductions in hours;
- Withholding of wages, overtime pay, or promotions;
- Denying benefits;
- Not hiring or rehiring the employee;
- Harassing, intimidating, or otherwise mistreating the employee; and
- Reassignment to an unsuitable post or position.
What Remedies Does a Whistleblower have Under The Sarbanes-Oxley Act?
Employees who have been retaliated against for whistleblowing may be entitled to a variety of remedies, which may include:
- Being hired or rehired;
- Restoration of benefits that were previously denied;
- Payment of back wages owed, plus interest;
- Restoration to position of seniority;
- Compensation for employee lost benefits, including:
- retirement;
- vacation; or
- sick leave;
- Special damages for employee losses which were indirectly caused by retaliation, which may include emotional distress or damage to the professional’s reputation;
- Attorney’s fees and litigations expenses, which may include expert witness fees;
- Affirmation, or a letter of apology provided to the employee; and
- Other compensation which would make the employee whole again.
How Do I File a Claim if I Have Been Retaliated Against as a Whistleblower?
If an employee has been retaliated against due to whistleblowing, they must first file a complaint with the Occupational Safety and Health Administration (OSHA) prior to being able to file a lawsuit in a civil court. There are several requirements for filing a complaint with OSHA, including:
A written complaint is required to be submitted to OSHA within 90 days of the violation or the time the employee became aware of the retaliation;
After receiving a complaint, OSHA will review it to determine whether an investigation is necessary;
Following the investigation, OSHA will determine whether an employer is guilty and if it would be possible to reach a settlement in order to compensate the employee;
If an agreement cannot be reached after 180 days after filing the complaint, the employee may then sue in a state or federal court; and
OSHA decisions are final.
The employee who filed their complaint with OSHA has 30 days to appeal any decisions which were made. An appeal of a decision made by OSHA will be heard before an administrative law judge or before OSHA’s review board.
Can a Lawyer Help Me With the Sarbanes-Oxley Act?
A securities lawyer can answer any questions, concerns, or address any issues you may have with the Sarbanes-Oxley Act. SOX represents one of the most significant changes to federal securities laws since the 1930s and includes harsh penalties for businesses that do not comply.
Certain rules under SOX may require a company to make large modifications or even undergo a complete overhaul of how financial records are kept and maintained. Your attorney can advise you regarding the requirements for your business and help you make the necessary changes to remain in compliance.
If you are a whistleblower under SOX, a whistleblower attorney can provide you with guidance regarding the steps to take and the protections you are afforded. They will assist you with the complaint process and represent you if a civil lawsuit becomes necessary.
