New Rule Offers Whistleblowers More Protections

A new Department of Labor rule reminds employers, including in the ethanol industry, how important it is to properly respond to whistleblower complaints, writes Daniel Kaufman of Michael Best & Friedrich LLP.
By Daniel Kaufman | April 09, 2015

Though the ethanol industry makes a tremendous positive impact on the economy, including creating numerous jobs, it is not immune from the challenges of preventing, managing and defending against employees’ retaliation and whistleblower claims. Despite employers’ best efforts, such claims continue to grow. Employers in the ethanol and other industries also must contend with the law’s ever-evolving interpretation of which activities and parties are covered by federal and state retaliation and whistleblower laws.

A prime example of this challenging and developing area of the law is the U.S. Department of Labor’s recently released final rule, outlining the OSHA procedure for handling retaliation complaints under the Sarbanes-Oxley Act, known as SOX. Developed in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the final rule makes it easier for whistleblowers to trigger an OSHA retaliation investigation, thus potentially increasing the retaliation claims employers brought by whistleblower employees.

As many employers subject to SOX already know, both the statute and the DOL’s anti-retaliation regulations protect whistleblowing employees who complain of bank, mail, securities and wire fraud violations of any Securities and Exchange Commission regulation, and violation of any federal law relating to shareholder fraud. The new final rule provides key guidance on the procedural provisions OSHA has adopted. However, the new final rule also makes it easier for whistleblowers to bring retaliation complaints and provides them with greater protection from retaliation. Below are some of the final rule’s highlights.

• Whistleblowers generally have 180 days (as mandated by Dodd-Frank) to file a retaliation complaint after the alleged retaliation occurred, or after the date when the whistleblower became aware of the alleged retaliation.

• Whistleblowers, or anyone authorized by them, may file a retaliation complaint verbally or in writing. If a whistleblower makes a verbal complaint, OSHA, and not the whistleblowing employee, will transcribe the verbal complaint into writing. The DOL’s new final rule essentially expands the U.S. Supreme Court’s decision in Kasten v. Saint-Gobain Performance Plastics Corp., which held that verbal complaints qualify as valid complaints under the Fair Labor Standards Act as long as they are sufficiently clear and detailed to put a reasonable employer on notice of a protected assertion of rights.

• If OSHA decides there is reasonable cause to believe the allegations in a retaliation complaint, it will assess a penalty calculation that could force the employer to, among other things, pay back pay with interest and the whistleblowing attorneys’ fees, as well as preliminarily reinstate the whistleblowing employee before a final determination of the employer’s liability. An employer thus could start paying a penalty before the agency, or a court, finds it retaliated against the whistleblowing employee in violation of SOX. If OSHA determines that preliminary reinstatement of the employee is not feasible or desirable, the agency could order the employer to provide front pay (known as economic reinstatement) to the complaining employee. Even if the employer succeeds in defeating the whistleblowing employee’s retaliation complaint, under the new final rule the employer has no right to recover the costs of the economic reinstatement from the employee.

As these procedural protections illustrate, the DOL’s new final rule presents employers subject to SOX with added challenges because the rule provides whistleblowing employees: greater protection from retaliation by employers; and, secondly, a lower standard for making an effective retaliation complaint. It also is possible that these changes are a harbinger of a DOL plan to liberalize complaint reporting requirements under other employment laws, which would have an even broader impact on employers in the ethanol and other industries.

In any event, the DOL’s new rule serves as a poignant reminder to employers—publicly traded or not—about the importance of properly responding to whistleblower complaints. Because of the significant risk of liability and reputational damage in cases involving whistleblowers, employers’ failure to adopt and implement appropriate anti-retaliation and whistleblower policies and procedures can become costly mistakes. For these reasons, an audit of anti-retaliation and whistleblower policies and procedures can be invaluable in helping employers in the ethanol and other industries to prevent, manage and defend against retaliation and whistleblower claims.

Author: Daniel Kaufman,
Partner, Michael Best & Friedrich LLP

Contributor: Y. Douglas Yang, Associate