Criminal sanctions for employee harassment in post-Enron era

April 1, 2003
HARASSMENT of employees who report illegal company actions to law enforcement can result in expensive fines and lengthy prison time. A new federal law

HARASSMENT of employees who report illegal company actions to law enforcement can result in expensive fines and lengthy prison time. A new federal law establishes significant criminal sanctions for anyone who discriminates against employees for providing information or aiding in an investigation concerning potentially unlawful company activity.

In response to the accounting and financial scandals impacting Enron and WorldCom, Congress passed the Sarbanes-Oxley Act of 2002, which includes criminal penalties of up to 10 years in federal prison. Violations can result in criminal fines of $250,000 per person, and companies can be fined a maximum of $500,000.

“After Enron and WorldCom went belly up, Congress wasn't happy that big corporate management types were ripping off shareholders and employees and lying about performance of the company,” said Lon R Williams Jr, partner in Bracewell & Patterson, a Houston, Texas, law firm, and head of the North Texas labor and employment law practice. “That's why they passed this act to protect employees who don't work for a government agency.

“If you are found guilty of violating this law, damages can include back pay with interest, attorneys' fees, and even emotional distress,” Williams said. “Damages for emotional distress can be quantified by the plaintiff's attorney.”

Williams spoke at the 2003 Dairy Distribution and Fleet Management Conference in Savannah, Georgia.

The Sarbanes-Oxley Act makes a distinction between civil and criminal liability. The civil whistleblower provision applies only to publicly traded companies and their representatives — an officer, employee, contractor, subcontractor, or agent of the company.

The statute prohibits retaliation against any employee for engaging in a lawful act of providing information or assisting in an investigation regarding any conduct that the employee reasonably believes is a violation of securities law, any rule or regulation of the Securities and Exchange Commission, or any provision of federal law relating to fraud against shareholders when the information is given to a federal regulatory or law enforcement agency; any member of Congress or any committee of Congress; or a person with supervisory authority over the employee.

The law not only bars retaliatory discharge but also makes it unlawful to “demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms or conditions of employment” because of activity protected under the statute.

“Harassment has become a hot legal topic beyond sex,” he said. “It is becoming an all encompassing term. If employees spill the beans to the feds, almost anything you've done that they could characterize to an attorney as being disparaging or harassing will give them opportunity to take legal action.”

To pursue a civil claim against a company, an employee must first file a complaint with the Secretary of Labor within 90 days of the date of the alleged violation. Following the filing, the Department of Labor has 60 days to conduct an investigation of the complaint. If the Department of Labor fails to issue a decision within 180 days of the complaint filing, and the delay was not caused by the bad faith of the employee, relief may be sought in federal district court.

Compensatory damages and other remedies “necessary to make the employee whole” include reinstatement with the same seniority status that the employee would have had but for the discrimination; back pay with interest; and compensation for any special damages sustained as a result of the discrimination, such as litigation costs, expert witness fees, and reasonable attorneys' fees.

Additional whistleblower protection

A separate whistleblower protection that carries criminal penalties extends not only to publicly traded companies and their representatives, but to anyone or organization. That section makes it a crime to “knowingly, with the intention to retaliate, take any action harmful to any person, including interference 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.”

As the language indicates, this provision is much broader than the civil prohibition. “Notice the word ‘any’ in the statute, because it's in there plenty of times,” Williams said. “One of your employees calls a law enforcement office — anyone from the FBI to a local constable — and says all is not well at your company. If you retaliate, you face the possibility of a federal criminal charge.”

Because the criminal penalties for whistleblower retaliation applies to all companies and individuals as well as publicly traded companies, every employer needs to understand the new law and take appropriate preventive action:

  • Educate all managers, supervisors, and other agents of the company about the whistleblower law.

    “When a law is recently enacted, it takes some time for lawyers to figure out how it applies to their clients,” Williams said. “Make sure that your managers, supervisors, and anyone who is in a position to retaliate against an employee for disclosing information to a law enforcement agency are educated about this law.”

  • Establish an effective reporting procedure that allows employees easily to report potentially illegal or unethical conduct to a central source within the organization. Devices that might be used within the reporting procedure include a toll free number and a plan to publicize the reporting mechanism so that employees will be encouraged to use it.

    “A lot of companies don't have any established reporting procedure, so employees might go to the shop foreman or the supervisor at the loading dock,” Williams said. “Typically that person doesn't understand what has been reported and ignores it. That will come back to haunt a company during a legal deposition. ‘What if anything happened after you told the shop foreman? Nothing, but I got demoted two weeks later.’”

  • Make sure employee handbooks and personnel manuals address the issue of harassment and retaliation as specifically stated in the Sarbanes-Oxley Act.

Post-September 11 issues

Since September 11, 2001, employers have been required to re-examine their workplaces in light of new issues that once were unthinkable or low priority. These include securing the workplace against the threat of an attack or natural disaster; handling special issues associated with hiring employees from other countries; and ensuring the workplace is secure while respecting the privacy rights of employees.

“At the Dairy Distribution Conference in 2002, I talked about the impact of September 11 on the workplace,” Williams said. “Since that time, laws are beginning to be enforced, and plaintiff attorneys are doing exactly what I said they would do. If employers don't take steps to protect their workforce, they can be held negligent.

“What if someone drops poison into raw milk product, and thousands of school children are poisoned while eating ice cream? It could happen. Think as a terrorist and go to the most undefended opportunity where you could do the most harm — a place where no one is watching.”

According to a 2002 survey of 428 respondents by the American Management Association, only 49% of companies had a general crisis management plan, 41% had a written plan, and 38% had a contingency plan. While 54% responded that they have a crisis management team, 61% said they have never conducted a drill or simulation, and 71% reported that key management across all lines of business had not been trained in crisis management to ensure intra-company support. Sixty-five percent said they offer no employee security training, including training on their own security plans or procedures.

“The survey shows that plenty of people are not doing their jobs, and you don't want to be on the wrong side of the 50% that hasn't created a crisis management plan,” Williams said. “Drills and simulations are just as important in the dairy distribution industry as they are in hospitals and fire and police departments.”

The Centers for Disease Control and Prevention and the National Institute for Occupational Safety and Health worked with the Office of Homeland Security and other federal agencies, state and local organizations, and professional organizations in producing a 40-page guide to immediate actions to protect occupants from airborne chemical, biological, or radiological attacks. The agencies' recommendations include adoption of security measures for air intake and exhaust systems, evaluation of filtration systems, restricted access to building operations systems, and restricted dissemination of building design information.

“Some government bureaucrat has developed a list of what a prudent and reasonable employer would do to protect his employees,” Williams said. “By offering recommendations, the government is setting a standard. If you haven't at least examined what the government is suggesting, a jury can conclude that you don't care.

“This is one example of hundreds of government publications in the past year. How do you know what the government is publishing? Attending conferences such as this one, reading your industry magazines — those are steps that a reasonable and prudent person would take.”

As required by OSHA, companies with more than 10 employees must have an emergency action/evacuation plan in writing to identify what steps the company takes in the event of an emergency. The Federal Emergency Management Agency provides sample emergency plans at The American With Disabilities Act requires employers to provide reasonable accommodations to qualified employees with disabilities. This obligation may extend to providing reasonable accommodations during emergency evacuations.

In drafting an evacuation plan, companies in the dairy distribution industry should, at the very least, include a chemical/biohazard exposure and treatment plan; a process for employee education, information, and training; and a decision-making chain of command.

“Your plan must designate who will be in charge in an emergency or people are going to run around in chaos,” he said. “There was ample opportunity for everyone to freak out after the space shuttle disaster, but they had a plan in place ahead of time. This is equally important in the dairy distribution industry because of its impact on the general population.”

Revising company policies

Another issue that employers have been re-examining since September 11 is the revision of company policies. They should include general instructions for over-the-road drivers to follow and phone numbers to call in the event of an emergency, natural disaster, or terrorist action.

Almost every employee handbook has a non-solicitation/distribution policy. Solicitation for employee contributions to disaster relief funds can undermine the enforcement of employer no-solicitation rules.

“After 9/11 and the space shuttle disaster, people have been raising money to help,” Williams said. “It may be for a good cause, but good causes can be the worse thing to allow in the workplace. If unions want access to your company, you may have obliterated your policies by allowing people to solicit on you property.”

According to the National Labor Relations Act, an employer commits an unfair labor practice if it prohibits union solicitations while permitting other forms of non-union solicitation. The general counsel for the National Labor Relations Board issued a memo to regional directors addressing the conflict between employer no-solicitation rules and recent employer efforts to solicit employee contributions for disaster relief funds. Although employers may sponsor a small number of charitable efforts as exceptions to the non-solicitation rule, the NLRB has not determined the number of times or how long an employer may engage in such activities before triggering a finding of unlawful discrimination.

The Equal Employment Opportunity Commission has reported that charges of discrimination based on religion and/or national origin — backlash discrimination — had more than doubled between September 11, 2001 and June 2002. Charges filed by Islamic employees are included in fact sheets available at

The EEOC has asked employers to be aware of potential discrimination or harassment against employees who are or are perceived to be Muslim, Arab, Afghani, Middle Eastern, or South Asian. The commission has requested that employers reiterate policies against harassment based on religion, ethnicity, and national origin; communicate procedures for addressing workplace discrimination and harassment; urge employees to report such improper conduct; and provide training and counseling.

Consistent treatment

“In the employment area, policies are king,” Williams said. “In earlier days, companies operated with employment practices — a method of operation. If you don't have written policies and only operate on practices, you're not going to be consistent in the manner you treat your employees. Inconsistency in the employment area relates to discrimination — treating someone with a bias. The best way to treat people consistently is to have an employment policy.”

No law requires written job descriptions, but taking the time and effort to write job descriptions documents the essential functions of the job for applicants and employees. A position might, for example, require an employee to wear protective head gear. If someone claims discrimination, the company has documented that the applicant knew about the job requirement at the time of hiring.

Employment decisions, such as hiring, verification, and surveillance, raise employee privacy issues. Invasion of privacy claims tend to arise when employees are subjected to searches or investigations; personal information is requested; or employees are required to undergo testing or other scrutiny.

The Uniformed Services Employment and Reemployment Rights Act is the primary federal law that applies to employees in military service. Its purpose is to prohibit employers from discriminating or retaliating against members of the uniformed services. It is enforced by the Department of Labor, which has posted a summary and compliance guide at The act applies to all employers, regardless of size, and provides job and benefit protection rights for members of the uniformed services. Among those benefits, employees are entitled to reinstatement upon completion of their period of service with seniority and benefits, as if they had never been absent on leave.

Human resources audit

To reduce an employer's concern regarding the legality of employment related activities, Williams highly recommends that companies audit their human resource functions on a period basis. Information to be gathered includes current employment policies; collective bargaining agreements and related contract maintenance; and litigation, potential litigation, and administrative proceedings.

“One of the rare times you need an attorney is during a human resources audit,” he said. “If you involve legal counsel, you will be able to protect much of the information that is gathered during the audit under the attorney-client privilege. The audit helps identify gaps and problems in your employment relationships. If you find those gaps without legal counsel present, you've just proved the case for the plaintiff's attorney who arrives the next day and requests a report of the audit results.”

Personnel policies, employee handbooks, affirmative action plans, application forms, job descriptions, job evaluation forms, promotion logs, termination notices for the past three years, employee training materials, employee benefit plan documents, and employment contracts that contain trade secret agreements, covenants-not-to-compete, and golden parachutes are some of the documentation to be gathered during an audit.

Issues to be considered include whether the employer distributes an employee handbook containing employment policies and procedures, including sexual harassment policy, to all employees; requires applicants to prove that they are legally authorized to work in the United States; conducts regular training for supervisors and managers; uses performance and aptitude tests in the hiring and recruiting process; requires applicants and employees to submit to drug and alcohol screening test; uses workers who are classified as independent contractors; gives regular performance evaluations; and maintains the appropriate occupational, safety, and health documents and conducts periodic surveys to determine any health or safety problems.

About the Author

James Russell

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