The US Department of Labour's procedures for the handling of retaliation complaints (by which informants or 'whistle-blowers' can complain that they were unfairly sacked) at financial firms and ratings agencies under s806 Sarbanes-Oxley Act 2002 have been formalised in a final rule.

The regulations governing employee protection (retaliation or whistle-blower) claims under s806 Corporate and Criminal Fraud Accountability Act 2002, Title VIII of the Sarbanes-Oxley Act 2002, were amended by ss922 and 929A Dodd-Frank Wall Street Reform and Consumer Protection Act 2010, the aim of which is to prevent another significant financial crisis (on top of the present one, that is) by creating new financial regulatory processes that “enforce 'transparency' and accountability while implementing rules for consumer protection.”

An 'interim final rule' (which people have had to obey provisionally until its replacement) has been in force since 2011 and is now defunct. This month's final rule changes little but its provisions are worth listing here. It is, after all, one of the leading rules that protect informants anywhere in the world.

What the rule does

The rule establishes the procedures and time-frames for the handling of retaliation complaints under Sarbanes-Oxley, including procedures and time frames for employee complaints to the Occupational Safety and Health Administration (OSHA), investigations by the OSHA, appeals against OSHA determinations in front of (and hearings by) administrative law judges, reviews of the judges' decisions by the Administrative Review Board (acting on behalf of the Secretary of Labor), and judicial review of the Secretary of Labour’s final decision. It also sets forth the Secretary of Labour’s interpretations of the Sarbanes-Oxley whistle-blower provision on certain matters.

The Act was, on the whole, designed to protect investors by making corporations more responsible, enhancing public disclosure and improving the quality and 'transparency' of financial reporting and auditing. The whistle-blower provision is intended to protect employees who report fraudulent activity and breaches of Securities Exchange Commission (SEC) rules and regulations that can harm innocent investors in publicly traded companies.

Dodd-Frank, then, has amended the 'Sarbox' whistle-blower provision, firstly by lending added protection to employees of nationally recognized statistical rating agencies or their officers, employees, contractors, subcontractors, and agents; secondly by extending the statutory period for retaliation complaints from 90 to 180 days after the date on which the law was broken or after the date on which the employee became aware that it had been; thirdly (s922(c)) to ensure that the rights and remedies provided for in 18 USC §1514A (see below) may not be waived by any agreement, policy form, or condition of employment that might include a pre-dispute arbitration agreement, and to provide that no pre-dispute arbitration agreement is valid or enforceable if the agreement requires arbitration of a dispute arising under this section.

The title of 18 USC §1514A is "Civil action to protect against retaliation in fraud cases" and that section states that no company with a class of securities registered under s12 Securities Exchange Act 1934 and no ratings agency or subsidiary thereof may discharge, demote, suspend, threaten, harass, or otherwise discriminate against an employee for providing information about any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law that relates to fraud against shareholders.

What the whistle-blower can expect

Upon receipt of the complaint, the Secretary of Labour must provide a written notice to the person or persons named in the complaint alleged to have broken the Act (respondent) of the filing of the complaint, the allegations contained in the complaint, the substance of the evidence supporting the complaint, and the rights afforded the respondent throughout the investigation. The secretary must then, within 60 days of receipt of the complaint, allow the respond and meet the investigator to present statements from witnesses and conduct an investigation.

Sarbox or 'SOX' says that the secretary may conduct an investigation only if the complainant has made a prima facie showing that the protected activity was a contributing factor in the adverse action alleged in the complaint and the respondent has not demonstrated, through clear and convincing evidence, that the employer would have taken the same adverse action in the absence of that activity (see s1980.104 for a summary of the investigation process). OSHA interprets the prima facie case requirement as allowing the complainant to meet this burden through the complaint as supplemented by interviews of the complainant.

After investigating a complaint, the secretary must issue his findings in writing. If he finds reasonable cause to believe that retaliation has occurred, he must notify the respondent and also issue a preliminary order which includes all relief necessary to make the employee whole, including, where appropriate:

• reinstatement with the same station of seniority that the employee would have had but for the retaliation;

• back pay with interest; and

• compensation for any special damages sustained as a result of the retaliation, including litigation costs, expert witness fees, and reasonable attorney fees.

Final time limits

The complainer and the respondent then have 30 days after that notification to object to the findings and/or preliminary order and ask for a hearing in front of an administrative law judge. If they do not, the preliminary order becomes final and is not subject to judicial review. The lodging of an objection under Sarbanes-Oxley will stay any remedy in the preliminary order except for preliminary reinstatement.

If a hearing is held, it should be conducted 'expeditiously.' The secretary then has 120 days after the conclusion of any hearing in which to issue a final order, which may provide appropriate relief or deny the complaint. Until then, the secretary, the complainant and the respondent may reach a settlement agreement that ends the proceeding. If the secretary says that someone has broken a law, he will order all relief necessary to make the employee whole in the usual way.

Within 60 days of the issuance of the final order, any aggrieved person can appeal to the US Court of Appeals for the circuit in which the violation occurred or the circuit where the complainant resided on the date of the violation. Sarbanes-Oxley permits the employee to seek de novo review of the complaint by a US district court in the event that the secretary has not issued a final decision within 180 days after the making of the complaint and there is no showing that such delay is due to the bad faith of the complainant. The court will have jurisdiction over the action without regard to the amount in controversy, and the case will be tried before a jury at the request of either party.