Title

Whistleblower Protections under the Sarbanes-Oxley Act: A Primer and a Critique

Abstract

In the wake of scandals involving Enron Corporation, Arthur Andersen and other corporations, Congress enacted the landmark Sarbanes-Oxley Act of 2002, the Corporate and Criminal Fraud Accountability Act of 2002 (hereinafter the “Act” or “Sarbanes-Oxley”).This article critically examines the whistleblower protections afforded employees under Sarbanes-Oxley. Part I of the article considers the statutory language, the legislative history, and the regulations pursuant to the Act. Part II of the article examines recent decisions by the U.S. Department of Labor in Sarbanes-Oxley whistleblower cases (cases under the Act are initially adjudicated by the Department of Labor) and the overall framework for implementation of the law. The manner in which Sarbanes-Oxley relates to state law, particularly the doctrine of at-will employment, is discussed in Part III. In Part IV, the breadth and effectiveness of the Sarbanes-Oxley whistleblower protections and the existing legal and corporate cultural framework is considered. Finally, Part V proposes suggestions for improving current whistleblower protections under Sarbanes-Oxley so that they will accomplish their intended legislative purposes: that of protecting and encouraging corporate whistleblowers. Normatively, it appears that meaningful changes must occur on three levels to protect and encourage whistleblowers to “whistle” early on and to thereby prevent corporate fraud: i) there must be more exacting implementation of the existing Sarbanes-Oxley regulations; ii) administrative tribunals and courts must give effect to the intent of the statute: to actually protect whistleblowers; and iii) years after the “Enron wake-up call,” public companies must still reform their business cultures to encourage the free flow of information and reporting of wrongdoing. Whistleblower protection is a critical part of Sarbanes-Oxley and fraud prevention. Loyal employees with information to report about their corporate employer will only come forward readily – to protect investors and individual shareholders against corporate fraud – when they believe that their livelihoods will be protected in an immediate and real way. Only when all employees are watching – and no one is afraid to blow the whistle – will the incidence of fraud in public corporations drop to an acceptable level.

Disciplines

Administrative Law | Commercial Law | Corporation and Enterprise Law | Labor and Employment Law | Law and Society | Legislation

Date of this Version

October 2006