New Federal Criminal "Whistleblower Law" Could Be Broad And Dangerous To Employers
On July 31, 2002, Congress passed and President Bush signed the new "Sarbanes-Oxley" law. That law is the sweeping corporate and accounting fraud reform adopted in the wake of the "Enron/Worldcom" and related corporate financial frauds. It contains an enormous number of new provisions governing auditing of public companies, corporate responsibility and enhanced corporate securities fraud crimes. One of the most pervasive new laws that has attracted less attention but that may cause very big headaches for employers is the so-called "whistleblower" protection provision.
Section 1106 of Sarbanes-Oxley adds a new provision to the federal criminal code, Title 18, Section 1513. It is worth quoting this provision in its entirety in order to appreciate its full potential scope:
"Whoever, knowingly, with the intent to retaliate, takes any action harmful to any person, including interfering with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both."
Thus, the intent of this criminal provision is to protect an employee who reports any suspected federal crime against any form of adverse job action -- not only termination, but also any form of demotion, threats, or negative consequences. The protection would arise indirectly by virtue of a new form of "public policy" exception to the "at will employment" doctrine that would give rise to wrongful termination or constructive discharge claims. The real impact of this law is that it is a criminal law. An employer, or any supervisor of a company, would be subject to serious jail time for retaliation. We can imagine any number of scenarios where a supervisor might act to commit an adverse employment action when an employee reports suspected federal crimes without being aware of the seriousness of the consequences.
The new § 1513 is salutary insofar as it encourages employees to report serious corporate financial frauds. When employees, particularly financial officers and operating officers, have credible evidence of a corporate crime, they ought to be protected against retaliation. But the new § 1513, although it is part of a new law pertaining to corporate financial fraud, is not limited to the reporting of such corporate crimes. It covers "any Federal offense." Anyone who has lately gazed upon a volume of the federal criminal code, Title 18, knows that it is an enormous volume of complicated and interrelated provisions covering an emormous multitude of crimes. In addition, many other federal crimes are contained in other parts of the U.S. Code, such as criminal price-fixing and tax crimes. A supervisor who takes any adverse action against an employee may do so for the reporting of some event that the supervisor has no idea is a crime. For example, in the technology area, trade secrets are generally protected by confidentiality agreements. Suppose an employee violates a confidentiality provision and another employee reports it to the FBI. A supervisor must know that now, and since 1996, the theft of a trade secret is a federal crime as well as a tort and breach of contract. 18 U.S.C. § 1831. Similarly, hacking into a computer is a federal crime. 18 U.S.C. § 1030. There are so many federal crimes, that supervisors must be extremely careful not to take any adverse employment action without careful understanding of whether it constitutes retaliation. More and more, then, the job of the HR department and of the employment lawyers, will need to intersect with an understanding of the criminal laws.
For more information, contact Tom Patton (202) 454-2840.