Corporate Whistleblowers Are Left Dangling

By JENNIFER LEVITZ | The Department of Labor, charged with enforcing the federal law protecting corporate whistleblowers at publicly traded companies, has been dismissing complaints on the technicality that workers at corporate subsidiaries aren’t covered.


The government has ruled in favor of whistleblowers 17 times out of 1,273 complaints filed since 2002, according to department records. Another 841 cases have been dismissed. Many of the dismissals were made on the grounds that employees worked for a corporate subsidiary, says Richard Moberly, a University of Nebraska law professor. He studies issues involving workers who face retaliation from employers for reporting wrongdoing, and based his findings on department data. The rest of the cases are either pending, withdrawn or were settled.

Sen. Patrick Leahy, a Vermont Democrat who helped craft the whistleblower provision — part of the Sarbanes-Oxley corporate governance act — says the law was meant to cover workers in corporate subsidiaries. “Otherwise, a company that wants to do something shady, could just do it in their subsidiary,” he said.

Sharon Worthy, a Labor Department spokeswoman, said the agency “believes that there is no legal basis for the argument that subsidiaries of covered corporations are automatically covered” under the Sarbanes-Oxley whistleblower provision. “The plain language of the statute only applies to publicly traded corporations,” she said in a statement.

The agency declined to provide the exact number of cases dismissed because employees worked for a subsidiary. Ms Worthy said only 17 employees have won favorable findings because many cases are settled before adjudication. Records show 187 cases have been settled to date.

The dismissed cases include three whistleblower complaints against the German manufacturing conglomerate Siemens AG and two against London media giant WPP Group PLC. The Labor Department rejected all five cases because the employees worked for subsidiaries, agency records show. Both companies declined to comment.

Another pending case involves UBS AG, the Swiss bank. The plaintiff, Timothy Flynn, alleged that in June he was suspended from his job as a UBS financial adviser for cooperating with a Massachusetts investigation of the bank’s sales of auction-rate securities. Mr. Flynn’s attorney, Jason Archinaco, says the Labor Department has asked him to show that the UBS unit that employed his client is covered under the act.

UBS declined to comment.

The Sarbanes-Oxley act, passed by Congress in 2002 in response to the Enron Corp. and Worldcom Inc. scandals, included the first federal protection for corporate whistleblowers. Before, there was only a patchwork of state laws protecting them from retaliation. Under the act, remedies can include back pay, reinstatement and attorney’s fees.

The Labor Department’s division of Occupational Safety and Health Administration enforces the whistleblowers’ provision. It prohibits publicly-traded companies or “any other officer, employee, contractor, subcontractor, or agent of such company” from retaliating against employees who provide information or assist in investigations related to alleged fraud. According to Sen. Leahy, the provision was written to be “interpreted as broadly as possible.”

In a whistleblower case still pending at the Labor Department, Carri Johnson, a Minnesota woman, alleges she received a poor performance review and was fired from her job as a manager at Siemens Building Technologies Inc. in 2004 after reporting suspected fraud.

Financial figures for Siemens Building, based in Buffalo, Ill., are included in Siemens AG’s consolidated financial statements, which describe the unit as one of the company’s “operation groups.”

In a Labor Department filing, Siemens Building argued that it wasn’t covered under the whistleblower provision. In November, an administrative law judge at the department sided with the company. Ms. Johnson appealed to the Labor Department’s administrative review board, where the case is pending.

Gregory Jacob, the agency’s chief legal officer, has asked the review board to uphold the November decision, according to filings in the case. In a legal brief, he argued that Ms. Johnson had not shown that the two companies were “significantly interrelated” or that Siemens AG controls employment policies at Siemens Building. He also wrote that the Sarbanes-Oxley law does not “expressly” mention subsidiaries.

In the last two years, the Labor Department has dismissed two other Siemens whistleblower complaints because the plaintiffs worked at subsidiaries, according to agency filings. Nearly all of Siemens AG’s approximately 400,000 employees work at its business groups, according to Siemens AG’s 2007 SEC filings.

In the last year, department judges have dismissed two whistleblower complaints filed by employees at subsidiaries of WPP Group PLC, saying workers at its subsidiaries aren’t protected by Sarbanes-Oxley. In its annual report, WPP describes its various companies as being “centrally integrated.”

Joseph Burke, a former production director at Ogilvy & Mather, alleged that the WPP advertising unit decreased his job responsibilities and ultimately fired him in retaliation for his cooperation with a federal criminal investigation into his employer’s billing practices. Mr. Burke had testified in a 2005 federal trial, which led to the sentencing of two former Ogilvy executives to prison for overbilling the government for an antidrug campaign.

According to Labor Department filings, Ogilvy denied that Mr. Burke’s dismissal was related to his testimony and said he was part of a “reduction in force.” A company executive testified that Mr. Burke was a “terrific worker,” according to a summarized transcript of the hearing,

Ogilvy argued that Mr. Burke’s complaint should be dismissed because the company isn’t subject to the Sarbanes-Oxley whistleblower provision. In May, a Labor Department administrative law judge dismissed Mr. Burke’s whistleblower complaint, saying he “has not established, by a preponderance of evidence, that he is an employee of a company covered under” the Sarbanes-Oxley whistleblower provision.

Under Sarbanes-Oxley, whistleblowers eventually can appeal Labor Department’s rulings to federal circuit court. But they face “an uphill battle,” says Mr. Moberly, the law professor.