Earlier this week, Senators Patrick Leahy of Vermont and Charles Grassley of Iowa submitted a letter to the Department of Labor accusing it of violating the “spirit and goals” of the Sarbanes-Oxley Act of 2002 (“SOX”). The whistleblower provisions of SOX protect employees who report corporate wrongdoing.
According to the letter, the senators were displeased over the Department of Labor’s narrow interpretation of SOX’s whistleblower provisions, which has resulted in the dismissal of the majority of complaints filed with the Department of Labor. According to Department records, the government has only ruled in favor of whistleblowers 17 times out of 1,273 complaints since 2002. An additional 841 claims have been dismissed based upon a finding that the employee-claimants of the subsidiaries of publicly traded companies (or companies required to file reports with the Securities and Exchange Commission) are simply not covered under the law.
SOX’s whistleblower provisions expressly prohibit publicly traded companies or “any other officer, employee, contractor, subcontractor, or agent of such company” from retaliating against any employees who blow the whistle on corporate fraud. The Department of Labor has been dismissing claims of employees who work for nonpublicly traded companies, despite that those companies are subsidiaries of publicly traded companies. An example of such a situation is a nonpublic investment banking subsidiary of a publicly traded bank. Under the Department of Labor’s interpretation of SOX, the employees of the bank would be protected under the law, while those employed by the investment subsidiary would not.
According to Senators Leahy and Grassley, the whistleblower provisions of SOX were enacted as a result of the fraud perpetrated by Enron, “through the misuse and abuse of its shell corporations and subsidiaries.” Moreover, according to the senators, the plain language of SOX, including the “agent of such company” language, permits its application to subsidiaries of nonpublic companies.
Indeed, the Department of Labor’s unduly narrow interpretation of SOX is contrary to both the letter and spirit of the law. Without adequate whistleblower protection, employees will be less likely to complain of corporate fraud.