State and federal laws -- including the Sarbanes-Oxley Act of 2002 -- protect whistleblowers from retaliation by their employers. If you take disciplinary action against an employee who complains of fraud, illegalities, or other workplace wrongdoing, you risk a lawsuit from the disciplined worker -- and possibly fines and even criminal charges brought by the government.
A whistleblower is an employee who complains of company misconduct, such as health and safety violations, shareholder fraud, or financial mismanagement. Usually, workers who don't make the initial complaint but participate in an investigation of alleged wrongdoing are also considered protected whistleblowers. A number of federal and state laws protect whistleblowers from being punished by their employers.
In the wake of the Enron affair and other corporate mismanagement scandals, Congress enacted the Sarbanes-Oxley Act (named after its Congressional sponsors) to force companies to straighten up. The Act is primarily aimed at preventing shareholder fraud and financial shenanigans in publicly traded companies, but its provisions also create strong protections for whistleblowers.
Under the Act, an employee who complains that his or her employer is breaking certain federal laws, including laws relating to securities, shareholder fraud, or wire, mail, or bank fraud, is protected from retaliation. And the employee doesn't have to be right to be protected: As long as the employee has a reasonable belief that a legal violation has taken place, the employee is considered a whistleblower, even if that belief turns out to be mistaken.
An employee doesn't have to complain to a government agency to be protected. A complaint within the company -- to a supervisor, for example -- triggers the Act's whistleblower protections.
A number of federal workplace laws also protect employees who complain of illegal activity. For example, an employee who complains of discrimination or harassment is protected from retaliation by the employer. The same is true of an employee who complains of unsafe or unhealthy workplace conditions, violations of the Family and Medical Leave Act, and violations of wage and hour laws.
These laws generally don't use the term "whistleblower," but they provide the same protection: Employees cannot be fired or otherwise subjected to disciplinary action for making a complaint, whether within or outside of the company.
Additional federal laws also protect those who complain of wrongdoing in specific industries or work relationships, such as companies that contract with the federal government or deal in hazardous materials.
Many state workplace laws also prohibit retaliation against those who complain that the law has been violated. These laws include, for example, state laws regarding family and medical leave, state wage and hour laws, state laws requiring employers to provide time off for jury duty and voting, and state antidiscrimination laws.
In addition, some states allow employees to bring lawsuits claiming that they were fired or disciplined "in violation of public policy." Generally, these claims allege that the employee was fired or disciplined for exercising a legal right or complaining about the company's illegal actions. The rules for bringing such claims vary widely from state to state.
Some states allow employees to bring a violation of public policy claim only if they complain to government officials, while others allow an employee who makes an internal complaint to sue. Some states allow employees to sue only if the law that was allegedly violated contains an explicit antiretaliation or whistleblower provision, while other states allow employees to bring a claim based on any violation of laws or regulations -- or based on actions that are unethical even if they are not explicitly illegal. And some states don't recognize public policy claims at all.
Whistleblower lawsuits can be very damaging to a company's reputation and pocketbook. Happily, you can go a long way towards preventing whistleblower claims by following a few simple steps: