Some aspects of the Department of Labor’s interim final rules for handling whistleblower retaliation claims under Section 806 of the Sarbanes-Oxley Act are unauthorized by statute, imbalanced, and unduly prejudicial to employers’ reasonable interests, in the view of the Society of Corporate Secretaries and Governance Professionals. In a letter to the DOL, the Society maintained that the interim final rules lack any standards governing the issuance of preliminary reinstatement orders, that OSHA lacks the authority to enforce preliminary reinstatement orders in federal court, and that the oral complaint provision will have unintended negative consequences. And all this comes against the backdrop of recent decisions where the Administrative Review Board (ARB) has taken an exceedingly broad approach to interpreting Section 806. While the Society embraces the need to ensure that good faith whistleblowers are protected against retaliation, the final rules must protect employers' interests on par with those of employee whistleblowers.
The interim final rules lack standards governing the issuance of preliminary reinstatement orders, noted the Society, which is particularly troublesome in light of OSHA’s presumption in favor of reinstatement and that staying a preliminary reinstatement order would be available only based on exceptional circumstances. Since reinstatement orders may carry potentially significant, harmful consequences for the employer, reasoned the Society, the rules should contain safeguards ensuring that such a remedy is warranted and appropriate under the circumstances rather than presuming that reinstatement is proper.
The lack of clear and reasonable standards gives OSHA unfettered discretion to issue reinstatement orders without regard to business, human resources or legal concerns, said the Society, which is inconsistent with constitutional requirements. The Society suggests that OSHA include in the final rules factors that which have been considered by courts to determine when reinstatement is appropriate, such as whether hostility exists between the employee and the company such that reinstatement would adversely impact productivity or information flow, whether the employee poses risks in terms of violence, misappropriation, or otherwise compromising the value of the company’s reputation or property, and whether the employee’s position no longer exists.
The Society also urged that the rules be modified to provide meaningful standards governing when an ALJ should stay a preliminary order of reinstatement. The current language stating that such a stay must be granted only based on exceptional circumstances is substantive, said the Society, not procedural, and would unduly constrain the ALJ’s otherwise vested discretion and authority and leave them in the dark as to when a stay is warranted.
In the interim final rules, continued the Society, OSHA’s position that any preliminary reinstatement orders that it issues are enforceable by federal courts is directly at odds with express statutory language and federal court decisions. OSHA rebuffs this solid line of decisions, noted the Society, and takes a position that would allow an employee to be taken in and out of the work force at each stage of appeal. For example, an ALJ could decide against reinstatement, the ARB could then order reinstatement and the federal Circuit Court of Appeals could then reverse the reinstatement order; and the employee would move in and out of the company with each decision. The rules do not provide any standards that would resolve this real and unacceptable risk.
The Society is also concerned that provisions in the interim final rules would enable OSHA investigators to take in oral complaints and then create a written complaint based on the complainant’s statements. This could have unintended negative consequences, warned the Society, and urged OSHA not to enact it. The prior rule requires complaints to be in writing. OSHA does not provide examples of how the prior requirement prejudiced whistleblowers or otherwise was unworkable, noted the Society. Further, the new rule is unnecessary because most Sarbanes-Oxley complaints are filed by sophisticated professionals.
Moreover, the new rules shift the OSHA investigator’s role from neutral fact-finder to advocate. The investigator in this circumstance now creates the complaint, said the Society, rather than just reviewing and investigating it and can be expected to make efforts to ensure that it sets forth a defensible prima facie case. This is problematic because the rules lack any standards governing the investigator’s creation of a written complaint to ensure that the investigator will act in an entirely neutral capacity, avoid asking leading questions in the course of preparing the complaint, and avoid expanding the scope of the complaint to fill in gaps to avoid dismissal.
Section 806 of Sarbanes-Oxley provides whistleblowers with broad protection against retaliation, and its safeguards recently became even more robust as a result of the enactment of the Dodd-Frank Act and a range of decisions recently issued by the Administrative Review Board. Dodd-Frank amended Section 806 to cover private subsidiaries of publicly traded companies and to guarantee a jury trial in SOX whistleblower cases pursued in federal district court.
In addition, the ARB issued a ruling that significantly expanded the scope of protected activity under Section 806. In Sylvester v. Parexel International LLC, ARB No. 07-123 (May 25, 2011), the ARB ruled that a complainant need not demonstrate a fraud on shareholders to sustain a whistleblower claim under Section 806 and repudiated what the Society called the widely accepted standard requiring complaints to definitively and specifically relate to one of the categories of fraud in Section 806. In the Society’s view, the existence of these expanded whistleblower protections underscores the need to ensure that employers are provided adequate due process in the context of the DOL’s administration of Section 806 complaints.