Part of the Enron mythology is that former Enron VP Sherron Watkins blew the whistle on Ken Lay, Jeff Skilling, and their fellow miscreants. In fact, however, so-called “Enron whistle-blower” Sherron Watkins never really blew a whistle. A real whistle-blower would have reported the misconduct to the SEC or the cops. Watkins simply reported it to Ken Lay, and even warned him that potential real whistle-blowers were lurking among within the company. Nevertheless, by the time Congress started work on SOX, this myth of the brave employee bringing down an evil corporate empire had taken root. In order to protect those who blew the whistle on firms like Enron and WorldCom, as well as to encourage future whistleblowers, Congress included two sets of protections for whistleblowers in SOX: (1) Criminal penalties for those who retaliate against whistleblowers and (2) civil remedies for whistleblowers who are fired or otherwise suffer some form of retaliation by their employer.
In today's W$J, Michael Delikat reports:
About 1,000 whistleblowing claims have been filed under Sarbox. Only 17 were determined after federal investigation to have merit and only six of this group have kept their wins after full evidentiary hearings before administrative law judges. ... Sarbox whistleblowers rarely win because most claimants are using, or some might say, misusing, the law as a club in garden-variety workplace disputes. ...
The one-two financial punch of legal defense costs and drop in share value precipitated by wholly inappropriate whistleblower cases totally devoid of merit has cost U.S. companies millions of dollars.
Larry Ribstein comments:
... the new law obviously can give significant leverage to employees, including in cases where the firm has good reason to take action against the employee.
(HT: Ted Frank)
Well, yes and no. When I wrote The Complete Guide to Sarbanes-Oxley, I devoted considerable attention to the whistle blower provisions. I learned two things. First, labor law attorney Eugene Scalia (son of U.S. Supreme Court Justice Antonin Scalia) thinks that the statutory timelimits do not allow "nearly enough time for an OSHA investigation and decision letter; discovery; trial before an administrative law judge; post-trial briefing; issuance of the ALJ decision; and, possibly, briefing and review before the ARB." Hence, Delikat is wrong when he suggests that the low percentage of cases deemed meritorious by regulators is not, at least in part, an artifact of the short statutory time limits (his focus on the statute of limitations, by the way, is misleading; it is the 180 day limit imposed on OSHA that is the real issue). OTOH, it is certainly true, as I wrote in The Complete Guide:
A particularly serious problem arises when poor job performance coincides with an employee whistle blowing complaint. In some cases, a poorly performing employee might file a SOX § 806 complaint as a strategic maneuver to prevent the employer from taking disciplinary action. In others, an employee’s supervisors might cobble together charges of poor performance in order to discredit a whistleblower. Finally, a lousy employee might have legitimate charges to bring.
Because SOX exposes employers and managers to the risk of criminal sanctions and/or having to pay large monetary damages, attorney fees, as well as the need to reinstate terminated employees, the safest approach is to treat all complaints as legitimate even if the employee in question has a known pattern of poor performance. In order to ensure that disciplinary action may be taken against a poorly performing employee who has also engaged in protected activity, the employer must be able to clearly document that the complaint was not a contributing factor in the decision to take disciplinary action. Providing employees with regular, written performance evaluations will help establish the necessary paper record. (Managers and supervisors should be trained to avoid criticism of an employee’s protected activity in performance evaluations.) Advice from legal counsel and/or human resources personnel should be sought before taking any disciplinary action.
Clearly, the whistle blower provisions significantly raised costs and created opportunities for employees to game the system.
