E MPLOYEE P ROTECTION L EGISLATION

In 1978 the U.S. Congress included language in the Civil Service Reform Act to protect federal employees from retaliation for making disclosures of information regarding misconduct. After the courts and government agencies created loopholes that limited who was protected, Congress unanimously passed the Whistleblower Protection Act (WPA) in 1989. Because the courts and agencies continued to create exceptions for who was protected, Congress passed amendments to strengthen the WPA in 1994. After a series of hostile judicial rulings creating more loopholes, S.995 and H.R.3806 were introduced to further the WPA in 2001 (POGO, 2001). Although not passed, similar

legislation was included within the Homeland Security Act of 2002. The approved provision provides federal employee and federal contractor whistleblowers the right to a legal remedy if they suffer retaliation such as loss of job or demotion (POGO, 2002).

In 2002, in response to the Enron and WorldCom scandals, Congress passed the Sarbanes-Oxley Act. This Act tightened oversight of the account-ing industry, reformed securities laws, and added tough new penalties on corporate fraud. The whistleblower clause in the Act is an outgrowth of revelations that employees at Enron and WorldCom sought to warn senior management of problems with company accounting practices but were ignored. For the first time, all employees in publicly traded corporations possess comprehensive whistleblower rights:

• Comprehensive coverage for all employees of publicly traded corporations;

• Comprehensive protection for any form of harassment or discrimination;

• Broadly defined protected speech, protecting disclosures of any corporate misconduct that could threaten the value of shareholders’

investments;

• Provision for administrative investigation, temporary relief, and due process hearings on alleged harassment;

• The right to a jury trial in U.S. District Court if an administrative ruling is not received in 180 days;

• For both administrative hearings and judicial trials, replacement of antiquated legal burdens of proof, in which employees only prevail on the merits in 2 to 5% of cases, with the modern standards for government workers in the WPA, in which 25 to 33% have prevailed in decisions on the merits;

• Compensatory damages and attorney fees;

• Criminal felony penalties up to 10 years for retaliation;

• Requirement for audit committees to develop complaint procedures (Devine, 2002).

The Sarbanes-Oxley Act whistleblower clause is reproduced in the Appendix.

Other federal acts, such as the Clean Water Act and the Solid Waste Disposal Act, contain whistleblower provisions. Although protection varies by state, all but 15 state governments have passed similar whistleblower protection legislation. State protection began in 1980s as a result of the erosion of the at-will employment doctrine.At-will employmentrefers to the ability of an employer to terminate employment at any time and for any reason.

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Employee protection procedures range from corporate due process to Occupational Safety and Health Administration (OSHA) complaint filing and anonymous complaint filing.

Sarbanes-Oxley Anonymous Reporting System

An employee at a public company wishing to report dangerous behavior or illegal activity may use the company’s anonymous reporting system. The Audit Committee of each publicly traded corporation was required by SOX to create a confidential, anonymous reporting system by April 2004 or be delisted. Each system includes procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, or auditing matters. Each is capable of receiving anonymous complaints from both company personnel and third parties such as competitors, vendors, and consumers.

Rather than being an ominous mandate, this reporting system is a corporate opportunity for publicly traded companies to use employees as an internal early warning system for illegal conduct and other wrongdoing.

An effective program allows a company to identify illegal conduct before it occurs or before it becomes catastrophic, to correct the conduct inter-nally, to increase accountability, and to build confidence in the company among shareholders, employees, and consumers. An effective program also precludes the wrongdoing from becoming a major focus of government enforcement agencies, Congress, or the media (Watchman, 2002).

OSHA Complaint Filing

An employee experiencing discrimination after reporting illegal activity within the organization may be eligible to file for federal action. Federal action is initiated through a complaint to OSHA, which is part of the Department of Labor. To file a complaint, the employer must have discrimi-nated against the employee because he or she is involved in legally protected safety and health activities or because the employee reported any of the following:

• Environmental concerns;

• Potential securities fraud;

• Violations of Department of Transportation rules and regulations pertaining to commercial motor carriers;

• Violations of Federal Aviation Administration rules and regulations;

• Violations of Nuclear Regulatory Commission rules and regulations.

Discrimination may include the following actions:

• Assigning to undesirable shifts,

• Blacklisting,

• Damaging financial credit,

• Demoting,

• Denying overtime or promotion,

• Disallowing benefits,

• Disciplining,

• Evicting from company housing,

• Failing to hire or rehire,

• Firing or laying off,

• Intimidating,

• Transferring,

• Reassigning work,

• Reducing pay or hours.

The complaint should be filed as soon as possible with the local OSHA office, because legal time limits vary with each type of violation reported.

If evidence supports the discrimination claim, OSHA will request that the employee’s job, earnings, and benefits be restored. More information can be found at www.osha.gov (OSHA, 2003).

Anonymous Complaint Filing

In extreme cases in which reporting dangerous behavior or illegal activity within the organization is ill advised, an employee may wish to file an anony-mous complaint with an external agency. If this agency can effect change in the organization, this may be the only way to halt the dangerous behavior.

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A recent example of an anonymous corporate complaint occurred in 2000, before the anonymous SOX reporting system was mandated. Seven employees from a division of Guidant, who were later dubbed the

“Anonymous Seven” in court documents (see Chapter 13), sent an anony-mous letter to Guidant’s chief compliance officer and the Food and Drug Administration (FDA). In this letter, they charged that their organization had failed to report numerous problems to the FDA. The letter launched an internal investigation, as well as a 3-year investigation by FDA’s Office of Criminal Investigations and the FBI. In fact, more than 2500 reports of medical device complications involving the Ancure Endograft system had

not been reported, though mandated by law. These hidden complications included 12 deaths. Guidant subsequently paid $92.4 million in criminal and civil penalties, the largest fine levied to date for violating the FDA’s medical device reporting requirements (Jacobs, 2003).

A recent example of exposing dangerous behavior to superiors and the public occurred on October 24, 2004. On this day, Army Corp of Engineers Contracting Director Bunnatine Greenhouse sent a letter to the acting Army Secretary and copies to Congress and the news media. Greenhouse has a Bachelor of Science (B.S.) degree in mathematics and a Master of Science (M.S.) in engineering management. Her letter detailed that the Corp had shown a pattern of favoritism toward Halliburton that imperiled

“the integrity of the federal contracting program.”

In March 2003, Greenhouse saw no reason why the Corps awarded Halliburton subsidiary Kellogg Brown & Root (KBR), without competition, a 5-year, $7 billion contract to repair oil fields. In December 2003, Corps lead-ers went behind her back to issue a legal document approving the unusually high prices KBR had charged for fuel imports to Iraq. These prices are now calculated by Pentagon auditors as being inflated by at least $61 million and are the subject of criminal inquiries. In early 2004 she questioned why an expiring Halliburton logistics contract in the Balkans had to be extended from the original term of 4 years for an extra 11 months and $165 million on the grounds that no other company could do the job on time.

The Pentagon began an investigation and promised to protect Green-house’s position (Eckholm, 2004). Halliburton has denied any wrongdoing.

Exposure of alleged impropriety is not covered by OSHA whistleblower protection because OSHA complaint procedures were not followed.