The Federal Sarbanes-Oxley corporate whistle blower law (SOX) contains a definition of employees and employers covered under the SOX. The SOX corporate whistle blower protection law (SOX) does not foreclose corporate employees from pursuing other federal legal remedies, even if they also file a claim under the SOX. State laws that protect whistle blowers are not pre-empted, and employees can file other federal employment discrimination claims, even if they also file a SOX case. If you are a whistle blower employee and are facing discrimination, speak to an experienced Tooele, Utah corporate lawyer.
The legislative history of the SOX demonstrates Congress’s intent to ensure that employees who prevail in corporate whistle blower cases are properly compensated. The Senate Judiciary Committee’s intention was to “require” “reinstatement of the whistle blower” and an award of “back pay and compensatory damages” to any claimant who prevailed in an action. The heart of a SOX damage award is a mandatory “make whole” remedy.
Business Law Claims
The SOX permits employees to file claims de novo in federal court if the U.S. Department of Labor (DOL) does not issue a final decision on the merits of a case within 180 days of the initiation of DOL proceedings. If an employee opts to file in federal court, any other potential federal claims can be joined with the case, and state pendent claims can also be joined. Conversely, if an employee files a SOX claim within the DOL, the employee can still pursue alternative remedies in state or federal court under various legal theories, including the public policy exception to the termination-at-will doctrine. Under the SOX, an employee also has the right to file a private cause of action in federal court if the DOL does not issue a final order on the complaint within 180 days. An experienced Tooele, Utah corporate lawyer can help you file your SOX claim.
The SOX law is only one of four federal statutes that permit employees to obtain payment for reasonable attorney fees and costs as part of “special damages.” In other words, fees and costs incurred by an employee are “part and parcel of the ‘special damages sustained as a result of the discrimination.'” An employee who prevails in a SOX case is entitled to fees and costs as part of the “make whole” remedy, and a court does not have the discretion to refuse to award reasonable fees and costs.
Under the statute, an employee “prevailing in any action” under the SOX “shall” be awarded “compensation for any special damages” “including cost of the litigation, fees of expert witness, and reasonable attorney fees.” Unlike most other fee-shifting statutes, the SOX does not give the courts or the DOL the discretion to deny the payment of reasonable attorney fees to any employee if a violation of the SOX is upheld, does not permit the award of fees to an employer, and classifies fees as part of the “special” damages owed an employee. Only the complainant may obtain reimbursement for expenses and attorney fees. If the respondent (employer) wins, there is no provision for the payment of legal expenses.
The scope of coverage under the SOX is broad. Not only are most publicly traded companies covered, but “any officer, employee, contractor, subcontractor, or agent” of a publicly traded corporation is also covered. Consequently, non-publicly traded companies, which serve as contractors, subcontractors, or agents of Wall Street traded firms would also be covered under the SOX. Also, individual “officers,” “employees,” and other “persons” who work for or control the conduct of publicly traded companies may also be liable under the act. Given the broad statutory definition of “employer,” it may be advantageous for employees to name specific persons and /or contractors and agents in their complaint, along with the publicly traded corporation that may own and / or control such persons or agents. In other whistle blower statutes, including those upon which the SOX was modelled, the terms “employer” and “employee” have been construed broadly by the responsible administrative agencies and the courts.
Separate business entities have been found liable as employers where the interrelation between the company actually employing the worker and the independent corporation was sufficient to qualify the parent company as a “joint employer.” The joint employer doctrine is applicable to the SOX.
Hiring employees as independent contractors also will not automatically insulate employers from liability. The issue of subsidiary liability under the SOX has not been fully resolved. However, in the handful of cases in which the issue of subsidiary liability has been raised, one of the key factors in upholding an employee’s claim has rested on naming the parent corporation in the initial complaint. Once a parent corporation has been named as a respondent, there are a number of theories upon which liability of the parent can be sustained. However, if the parent corporation is not initially listed as a respondent, employers have opposed attempts to amend a complaint to name the parent corporation
Employers may also be prohibited from discriminating against employees who do not directly work for them. Regardless of the “proximate relation of the employer and employee,” an employer named in a complaint may be “prohibited from engaging in discriminatory conduct against any employee, prospective employee, former employee or an employee seeking employment or working for another employer.” The Secretary of Labor, citing established U.S. Supreme Court and U.S. Courts of Appeals precedent under other employment discrimination laws, held that an employer “may violate” the whistle blower laws “with respect to employees other than his own”.
Definition of Employer
The SOX does not limit the definition of “employer” to corporations or formal business entities. Congress specifically included individuals who work on behalf of the publicly traded company, including corporate “officers, employees” and “agents” as potential respondents under the Act. Congress also permitted the Department of Labor or the federal court to order that relief be paid directly by “any person,” not necessarily the formal corporate employer. The inclusion of individuals in the definition of “employer,” and in the definition of who is responsible in a SOX “enforcement action,” would permit complainants to name individuals as responsible parties in a SOX case. Thus, were an officer for a publicly traded corporation to be responsible for an adverse action taken against an employee of non-publicly traded corporation, that officer should be listed as a named respondent in a SOX case.
The term “employee” is also not limited to “employees of a particular employer.” The law’s protection may encompass disputes in which there is no “proximate relation” between the employer and employee. An employee should be protected from discrimination or harassment from any publicly traded corporation (or agent / contractor, etc.)—not just the employer for whom the worker is presently employed or for whom he or she formerly worked.
“Employee” has been defined to include former employees, contract workers, and probationary or temporary employees; independent contractors; applicants for employment, former employees, and prospective employees; contract job shoppers; and temporary workers. The laws generally protect workers “regardless of their function.”
In order to settle a SOX case, the parties to the agreement must obtain the approval of the DOL. The controlling statutory language requires the DOL to “enter into” any agreement reached by the parties. Under DOL case law, settlement agreements cannot be “entered into” unless they are fully reviewed by the DOL and the Labor Department finds that their “terms” are in the “public interest” and are “fair, adequate, and reasonable.”
The DOL’s settlement-approval authority differentiates SOX cases from other administrative and civil legal actions. In most cases parties are free to settle cases without any government monitoring. Settlements are often confidential, and courts generally automatically dismiss proceedings upon the simple filing of a notice of dismissal after a settlement is reached. Because Congress authorized the DOL to “enter into” any private settlement agreement, the role of the government in SOX claims is different from the role played by a typical court in a civil case.
Settlement Approval Procedures
The submission and approval of settlement agreements is a matter of routine procedure in the DOL. The DOL adheres to the principle that “settlements are to be encouraged.” Parties regularly execute settlements and submit them to an administrative law judge for approval. The Office of Administrative Law Judges has implemented regulations allowing both for a stay of proceedings (including discovery) in order to provide the parties time to execute agreement and for the appointment of “settlement judges” who can confidentially assist in the voluntary mediation of a dispute. Likewise, under the DOL regulations, if a settlement agreement is approved by a presiding administrative law judge, the agreement may become final if no party files an appeal to the Administrative Review Board (ARB) within the 10-day period. If an appeal of the merits decision has been filed with the ARB, then the ARB must approve the settlement. If the case is settled during the OSHA investigation, OSHA must approve the agreement.
The DOL will interpret the agreement— and the conduct of the parties when they negotiated the agreement—in accordance with contract law. Parties must submit the entire agreement to the presiding DOL officer (usually the administrative law judge) for approval. Any “side agreements” related to the whistle blower claims must also be submitted, or the parties to the agreement must certify that there are no other such agreements. The agreement cannot be submitted “under seal,” and the amount of money obtained by the employee, as well as the amount paid for attorney fees, must also be disclosed. Although the entire agreement must be submitted for approval and placed on the record in a case, a party may, pursuant to DOL Freedom of Information Act (FOIA) regulations codified in 29 C.F.R. § 70.26, designate some or all of the settlement as “confidential business information” and request that the agency not disclose the agreement.
A settlement can only be approved by the DOL if the complainant consented to it. The settlement should be signed by the complainant individually. If it is not, the complainant should certify in writing to the veracity of the agreement. An “unequivocal agreement and all material terms” can be approved by the DOL even if a party has “second thoughts” about the settlement and attempts to back out of the agreement. Oral agreements may be binding on the parties. However, if the parties did not reach an agreement on all material terms, the SOL will not approve the agreement. If the DOL determines that the parties cannot comply with a material term of the agreement, the DOL will not enter into the agreement.
The DOL has jurisdiction to approve only those portions of a settlement that concern SOX whistleblower issues. If a settlement resolves other issues, the DOL’s “approval” of the agreement does not constitute approval of the settlement as it relates to other potentially resolved claims. A settlement agreement may contain the “final terms” of employment for a whistleblower. Consequently, it is fully appropriate for an agreement to contain terms related to employment, such as an agreement that an employer provide “positive references” for an employee. Attempts to require an employee to waive his or her right to file future discrimination claims that may arise after the settlement is executed have been voided.
Settlements can be effective at their execution, and the parties are bound by the contract until the DOL renders a decision. Allegations that one of the parties to the agreement breached the settlement agreement prior to the DOL’s approval of the agreement may not, standing alone, provide adequate grounds for the DOL to refuse to approve an otherwise valid agreement. The DOL can consider “bad faith” conduct by a party to a settlement when weighing whether the DOL will approve the agreement.
A settlement agreement approved by the DOL constitutes an enforceable final order of the Secretary of Labor. The terms of a settlement may be enforced in federal court. A suit for breach of contract based on a settlement agreement must be heard in federal court. If you believe you have a claim under SOX, contact an experienced Tooele, Utah corporate lawyer.
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