The Sarbanes-Oxley Act of 2002 was established following Enron and other corporate whistle-blowing scandals. It provides legal protection against retaliation to employees of public companies who report suspected corporate fraud or other activities related to fraud against shareholders.

Sarbanes-Oxley presents unique challenges to corporations, including a provision that enables terminated employees to be reinstated before their case is completely resolved, including back wages and interest. Sarbanes-Oxley also states that employees have 90 days to file their claims. Since administrative law judges are usually overwhelmed with cases, employees can bring their case to federal court. Although most cases are decided in the company’s favor (343 cases out of 491 have been dismissed since 2002), the legal fees can be extremely expensive for corporations.

Experts say a flaw in the Sarbanes-Oxley Act is that companies must offer “clear and convincing evidence” that an employee would have been terminated even if there had been no whistle-blowing. This is considered a higher evidence standard than required for other anti-discrimination laws. Additionally, most other laws do not mandate that an employee be reinstated until the case is decided upon.

Some companies are settling with accusatory employees in advance, for fear of being associated with Sarbanes-Oxley or whistle-blowing in general. Additionally, the charge of inappropriate conduct is being attached to other claims with no association to Sarbanes-Oxley in order to attach more merit.

However, provisions in Sarbanes-Oxley are beneficial to companies because they require employers to establish procedures that enable employees to confidentially file internal whistle-blowing complaints. These types of in-house grievance procedures can prevent costly litigation in the future.