Whistle-Stop Campaigns

In one closely watched case, Nova Information Systems Inc., the third-largest credit card processor in the country and a subsidiary of U.S. Bancorp, has argued it was within its rights to fire computer employee Nell Walton after she complained that security controls were inadequate, that they increased the chance of identity theft and that they posed a threat that Securities and Exchange Commission rules require be reported to the firm's external auditors.

Nova, which denied Walton's charges, argued that -- even if she were right -- violations of SEC rules aren't protected by the law unless the rules relate to a direct fraud against shareholders.

Two weeks ago, the Labor Department's administrative review board made a preliminary ruling in Walton's favor, saying the activity she complained about is protected under the law, which the judge noted bars retaliation for reporting on the violation of any SEC rule. The board has not made a final decision, however, on whether Walton has proved the company illegally fired her because of her complaints.

The same issue is pending before a federal judge in North Carolina in a case against Wyeth Pharmaceuticals. Fired Wyeth employee Mark D. Livingston has exhausted the Labor Department process. Livingston, a former associate director of training at a Wyeth infant-vaccine plant in Sanford, N.C., says he was fired for raising concerns that some production personnel were inadequately trained, violating both general Food and Drug Administration rules and a consent decree the FDA had imposed on the company.

Wyeth says Livingston was fired for unruly behavior with fellow employees, but the company also is arguing that the case should be dismissed on grounds that, even if Livingston's claims were true, they are not the types of complaints the law protects. Wyeth argues that only claims of accounting fraud -- purposeful fiddling with a company's financial reports to mislead investors about a company's economic condition -- are protected.

Livingston, represented by lawyers at the Government Accountability Project, argues that SEC rules require disclosure to shareholders of any violation of federal law. Livingston argues that generally accepted accounting principles, which the SEC requires all public companies to use, require companies to reveal risks that can diminish the value of a company to investors.

Livingston argues that failure to properly train vaccine makers could have caused the FDA to shut down operations until problems were fixed or could have resulted in improperly prepared vaccines -- either of which could have hurt the company financially.

If the judge rules in Wyeth's favor, it would drastically curtail the effectiveness of the whistle-blower provisions, Devine said. It would reduce protections to claims of false or misleading bookkeeping.

Another tactic firms are using is to require employees to sign mandatory arbitration contracts. These compel workers who exhaust the Labor Department's process to submit allegations of Sarbanes-Oxley violations to binding arbitration rather than filing suit in federal court.

A year after the law was passed, Salomon Smith Barney Inc., the brokerage arm of Citigroup Inc., won its bid to force into arbitration a former research analyst who claimed he was fired for refusing to alter a research report. The allegation clearly is covered by the Sarbanes-Oxley Act, the court held, but that doesn't override the contract the worker signed agreeing to take complaints to arbitration.

This doesn't mean the companies don't take Sarbanes-Oxley seriously. Many have established policies and procedures to investigate complaints fully and fairly, and to act quickly to fix problems, say lawyers who advise companies and whistle-blowers.

But whistle-blower lawyers say that's also the bad news about the law. Executives are using those same policies and procedures to create paper trails to protect themselves from legal exposure if they demote or fire a complaining worker. Careful documentation has already helped some companies convince judges that they would have fired employees anyway for unruliness or incompetence, regardless of whatever claims were being made about the firm's operations. Lawyers say such portrayals play off the stereotype of whistle-blowers as mostly disgruntled losers. But with the right paperwork, it works, they say.