Whistle-Stop Campaigns

Sarbanes-Oxley is one of 14 whistle-blower laws passed since 1974 enforced by the Department of Labor, which with a few exceptions is the main overseer of such claims. Until Sarbanes-Oxley, however, most laws covered employees connected to specific topics: nuclear materials; airline, trucking and shipping safety; air and water pollution; abuse of migrant workers.

Business has tried to weaken Sarbanes-Oxley protections since the law was enacted, and the Bush administration has seemed willing to help. As Bush signed the legislation, he praised it for providing needed investor protections. More quietly, he issued a "signing statement" saying he interpreted the whistle-blower sections as extending protections only to employees who gave information to members of Congress engaged in an ongoing investigation. A few weeks later, the Labor Department filed a brief asserting the same interpretation.

Sens. Charles E. Grassley (R-Iowa) and Patrick J. Leahy (D-Vt.), who wrote the whistle-blower sections of the law, fumed. They sent letters to the White House and met several times with Labor Department officials to make clear that Congress intended a much broader interpretation.

The administration's stance would extend protection to employees "who are lucky enough to find the one member of Congress out of 535 who happens to be the chairman of the appropriate committee who also just happens to already be conducting an investigation, even though the problem identified may not have come to light yet," Grassley said at the time. "That's just nonsense."

Eventually Bush backed down. Alberto R. Gonzales -- then Bush's White House counsel and now attorney general -- wrote a letter acknowledging the point in late December 2002. Corporation consultants took notice.

Michael Delikat, who represented Salomon Smith Barney in the arbitration case and represents Wyeth against Livingston, won't comment on the cases, but he cites them on his Web site cautioning that the law's provisions "dramatically raise the stakes of even the most routine employment actions taken against employees." He and Shine, the attorney representing the employee in the Bank of Floyd case, often are on opposite sides in litigation and are in demand to appear together on panels discussing the effects of the law and how interpretations of it are evolving.

"While only a handful of claims to date have been decided on their merits, they offer important cautionary takes for corporations," two WilmerHale lawyers, Carrie Wofford and Lisa Stephanian Burton, write in one issue of Compliance Week.

Labor Department officials say they count settlements in Sarbanes-Oxley cases, which the agency must review and sign off on, as a win of sorts for an employee -- not as clear-cut as an out-and-out favorable ruling but still beneficial. Shine disagrees. Settlement agreements invariably are secret, so the public has only the word of the Labor Department to rely on, he said.

But settlements sometimes do save time and aggravation. In October 2003, mortgage giant Fannie Mae reached a settlement with Roger L. Barnes -- who claimed the company effectively demoted him when he questioned its accounting -- by paying him a reported $1 million-plus the day before the deadline expired for Barnes to file a claim with the Labor Department. Barnes, who was a mid-level manager in Fannie Mae's controller's office, has been identified by federal regulators as a key figure in helping them uncover accounting irregularities that ultimately led to the biggest earnings restatement in history.

The Labor Department reports every claim filed with it to the SEC. Some people think Fannie Mae decided to settle with Barnes to prevent an SEC referral. It didn't matter -- eventually the SEC ruled that Fannie Mae's accounting was flawed and, along with the Department of Justice, is investigating the mortgage giant's financial statements.

As for the Welch case -- viewed by the entire financial services industry as a test -- the Labor Department's administrative review board at the end of March said the Bank of Floyd must reinstate its former finance chief and give him back pay and other compensation. But the board then gave the bank 10 days to appeal that ruling.