Unfulfilled Expectations: An Empirical Analysis of Why Sarbanes-Oxley Whistleblowers Rarely Win

Article excerpt

ABSTRACT

Scholars praise the whistleblower protections of the Sarbanes-Oxley Act of 2002 as one of the most protective anti-retaliation provisions in the world. Yet, during its first three years, only 3.6% of Sarbanes-Oxley whistleblowers won relief through the initial administrative process that adjudicates such claims, and only 6.5% of whistleblowers won appeals through the process. This Article reports the results of an empirical study of all Department of Labor Sarbanes-Oxley determinations during this time, consisting of over 700 separate decisions from administrative investigations and hearings. The results of this detailed analysis demonstrate that administrative decision makers strictly construed, and in some cases misapplied, Sarbanes-Oxley's substantive protections to the significant disadvantage of employees. These data-based findings assist in identifying the provisions and procedures of the Act that do not work as Congress intended and suggest potential remedies for these statutory and administrative deficiencies.

INTRODUCTION

I.  SARBANES-OXLEY'S WHISTLEBLOWER PROVISIONS:
    A SHORT OVERVIEW
    A. The Anti-retaliation Protections of the Act
    B. The Procedure for Filing a Whistleblower Complaint
II. STUDY METHODOLOGY
    A. Complete Census vs. Sampling
    B. Original Sources vs. Secondary Compilations
    C. The Specifics
III. RESULTS AND DISCUSSION
    A. The Big Picture: Outcomes from the
       Administrative Process
    B. Explaining the Low Win Rate: The Importance of
       Procedural, Boundary, and Causation Hurdles
       1. The Size of the Hurdle Depended on the
          Level of Review
       2. Specific Legal Hurdles Loomed Large
          a. Statute of Limitations
          b. Covered Employers
          c. Protected Activity
       3. A Surprisingly Unfavorable Burden of Proof
       4. Conclusion: Narrow Boundaries and a
          High Burden
IV. RECOMMENDATIONS
    A. Amending the Statute of Limitations
       Procedural Hurdle
    B. Clarifying the Act's Boundaries
       1. Clarifying the Definition of a "Covered Employer"
       2. Clarifying the Scope of "Protected Activity"
       3. Clarifying the Decision-Making Process
    C. Enforcing the Burden of Proof
    D. Thinking About Broader Protections
CONCLUSION

INTRODUCTION

Whistleblowers played a significant role in revealing and disrupting corporate malfeasance at the beginning of the twenty-first century, as scandals at corporations such as Enron and WorldCom came to public light through the efforts of whistleblowing employees. (1) Subsequently, Congress recognized the importance of whistleblowing and included strong and unprecedented anti-retaliation protection for corporate employees as part of the Sarbanes-Oxley Act of 2002 ("the Act"), the mammoth congressional reaction to these corporate scandals. (2)

Yet, in the first three years after the statute's enactment, the Act failed to protect the vast majority of employees who filed Sarbanes-Oxley retaliation claims. During this time, 491 employees filed Sarbanes-Oxley complaints with the Occupational Safety and Health Administration (OSHA), the agency charged with initially investigating such complaints. (3) OSHA resolved 361 of these cases and found for employees only 13 times, a win rate of 3.6%. (4) On appeal from 93 OSHA decisions, administrative law judges (ALJs) in the Department of Labor found in favor of 6 employees, a win rate of 6.5%. (5)

This Article presents the findings of an empirical analysis of these Sarbanes-Oxley administrative decisions to explore why the Act's protections did not produce a robust number of employee victories. The results indicate that employees rarely won claims for two primary reasons. First, OSHA and the ALJs generally decided cases as a matter of law and rigidly construed Sarbanes-Oxley's legal requirements. (6) Second, for cases that survived this strict legal scrutiny during the initial OSHA investigation, OSHA tended to misapply Sarbanes-Oxley's burden of proof regarding causation, to the substantial detriment of employees. …