One of the lesser-known responsibilities of the Occupational Safety and Health Administration, better known as OSHA, is its handling of whistle-blower complaints under 14 federal statutes including the Sarbanes-Oxley Act of 2002, the federal legislation passed in the aftermath of the Enron, WorldCom and other corporate scandals. On Aug. 24, OSHA published its final rule on the administration of whistle-blower complaints under Sarbanes-Oxley.

The act prohibits a publicly held company from taking adverse action against an employee who provides information or assists an investigation or proceeding involving an alleged violation of federal securities laws and regulations, mail, wire or bank fraud, fraud against shareholders and in certain instances any federal offense. An employee may be reinstated and receive back pay, special damages, costs, expert witness fees and attorney fees.

Complaints must be filed with the regional OSHA office within 90 days of the adverse action. The employee may sue in federal district court if the investigation is not completed within 180 days.

As of Aug. 24, OSHA had received 296 whistle-blower complaints under Sarbanes-Oxley and had taken formal action on 98 of those complaints. The majority of the cases were dismissed and several ended in settlements or withdrawals. In only two cases were final decisions entered against the employer.

The central question is what constitutes protected activity. For instance, an employee’s report that a manager was improperly compensating union employees to secure contract concessions was determined to be a protected activity. The insistence by a chief financial officer that certain journal entries be revised was considered reasonable because ultimately the company’s financial statements were restated. However, because one employee’s allegations of racial discrimination did not have a material impact on the company’s financial condition, it was not considered a protected activity.

The key point is not whether there was a violation of the law, but whether the employee reasonably believes the law had been or would be broken. However, the validity of an employee’s complaint depends upon whether the company’s violations have a material impact on its financials or the decision by a shareholder to buy or sell.

These cases also highlight the challenges of defining what is protected activity by employees such as accountants, auditors, attorneys, senior managers and others who are expected to raise and resolve issues. In other contexts, only employees who went above and beyond the call of duty in voicing concerns were protected.

An employer who receives notice of the filing of a whistle-blower complaint must respond quickly to the complaint. Simultaneously, investigation into whether a violation of securities laws occurred, whether retaliation occurred, whether the company’s financials must be restated and whether the company’s internal controls and procedures were followed may be conducted. The company also will need to weigh the benefits and risks of self-reporting violations of securities laws to receive reduced penalties.

An employer can defend its actions by presenting “clear and convincing evidence” that it took action against the employee without regard to the protected activity. The key for the employer to succeed is careful documentation of the handling of the employee’s protected activity and job performance.

The whistle-blower protections are designed to encourage and protect employees who express reasonable concerns about possible and actual violations of the law, which is in the best interests of the investing community. The best line of defense against complaints is to adopt, review and update internal financial and legal controls, policies prohibiting retaliation, procedures for the receipt and review of complaints and programs to communicate the policies and procedures.

Tom Slaughter is an attorney with Faegre & Benson LLP.