SOX Whistleblowers not Always Welcome in Subsidiaries

The spirit of the whistleblower provision in the Sarbanes-Oxley act, which was included in the legislation in response to the Enron and Worldcom scandals, isn’t being lived up to, according to Senator Patrick Leahy (D- VT), who helped write it. The Department of Labor (DOL) has been dismissing whistleblower cases involving employees of subsidiaries of public companies because the language of the law doesn’t specifically mention subsidiaries.
Leahy told The Wall Street Journal that the law was meant to cover workers in subsidiaries, and was written to be interpreted as broadly as possible. “Otherwise, a company that wants to do something shady could just do it in their subsidiary,” he said.
The DOL contends that the plain language of the statute only applies to employees of publicly traded corporations, protecting them from retaliation by their employer if they report potentially criminal behavior.
Holly Eng, a partner with Dorsey & Whitney LLP, says there is no legal basis for the argument that subsidiaries of covered corporations are automatically covered under the SOX whistleblower provision but adds that many companies and organizations that are not publicly traded have adopted controls and best practices that have evolved under Sarbanes-Oxley. “Regardless of whether a company is a covered entity under the Act,” she says, “public awareness has been raised by the statute, and the bar is higher now than it was in 2002,” when the Act was passed.
Senator Charles Grassley (R-IW?) joined Leahy in asking the DOL to supply documentation supporting its position and to suspend its interpretation that exempts employees of subsidiaries from the SOX provision. But the DOL seems to be holding fast to its narrow interpretation.
Several high-profile whistleblower cases involving European and U.S. companies including Siemens AG, UBS AG, WPP Group PLC, ING Groep NV, Torchmark Corp. and Florida investment firm Raymond James Financial Inc. are currently pending, according to The Journal.