On July 15, 2010 Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama is expected to sign into law. While the financial reforms in this bill have been highly publicized, the bill also expands the whistleblower protections under the Sarbanes-Oxley Act of 2002 (SOX). SOX originally only protected whistleblowers who were employees of publicly traded companies. This new Act expands the whistleblower protections to employees of subsidiaries or affiliates whose financial information is included in the consolidated financial statements of a publicly traded company.
If an employer is covered under SOX it may not discharge or in any manner retaliate against an employee who:
- provided information;
- caused information to be provided; or
- assisted in
- an investigation by a federal regulatory or law enforcement agency,
- an investigation by a member or committee of Congress, or
- an internal investigation by the company relating to an alleged violation of mail fraud, wire fraud, bank fraud, securities fraud, or violating SEC rules or regulations or federal laws relating to fraud against shareholders.
In addition, an employer may not discharge or in any manner retaliate against an employee who filed, caused to be filed, participated in or assisted in a proceeding under one of these laws or regulations.
Subsidiaries and affiliates of public companies should consider adopting a code of ethics that includes provisions (1) prohibiting conduct that may give rise to a whistleblower complaint, (2) establishing procedures for the reporting and resolution of employee complaints, and (3) prohibiting retaliation against an employee for providing or causing to be provided information or assisting in an investigation relating to an alleged violation of SOX.
In developing a code of ethics, keep in mind that simply applying the publicly traded company’s code of ethics to employees of its subsidiaries and affiliates can raise issues of joint employer status. Additionally, a reporting system must allow for anonymous and confidential submissions. Many companies have opted to institute an anonymous hotline to comply with this requirement. Companies will want to ensure that employees of subsidiaries and affiliates have access to and are informed of the hotline, or have the affiliate company set up their own.
For more information on the SOX whistleblower requirements, the Dodd-Frank Wall Street Reform and Consumer Protection Act or assistance developing a code of ethics, please contact your principal Squire Sanders lawyer or one of the individuals listed in this Alert.