Witness Protection What will a new whistle-blower clause mean to you and the way you do business?

Don't slay the bearer of bad news. That's the messageCongress sent companies when it finally hammered out a law lastsummer to curtail corporate misconduct. While the Sarbanes-OxleyAct of 2002 got plenty of media attention, chances are youhaven't heard about this provision protecting whistle-blowers,which applies not only to publicly held companies, but also tothose who advise them. Corporate scandals and the TimePersons of the Year brought whistle-blowers into the limelight, butthe need for you to pay attention to their rights will continuelong after the attention has died down.

Suppose an employee suspects his or her company is playing fastand loose with its financial reports. Being an upright citizen, heor she reports those suspicions to the federal government. Thesupervisor catches wind of this and fires the employee. Under thenew provisions, that supervisor and company officers could facecriminal fines or even jail time for such an action. It doesn'tmatter whether the employee's suspicions were correct; the keyis reasonable belief that there are federal fraud violations.

The law is tied to existing definitions of fraud. It covers bankfraud; securities fraud; fraud by wire, radio or TV; andgarden-variety frauds and swindles. Retaliation includes not onlytermination of the employee, but also demotion, suspension,harassment and other forms of discrimination. "You cannot takeany deleterious actions that would affect the person'sjob," says Philadelphia attorney Anita B. Weinstein of lawfirm CozenO'Connor. "That includes failure to consider [theemployee] for promotion."

What's really unusual about the act is its scope. Theprovisions apply not only to officers of the company and theemployee's supervisors, but also to contractors, subcontractorsand "agents of the company." If your business providesconsulting services to a publicly held company, and you adviseclamping down on the snitch, you could land in jail with those whofollow your advice.

While it's apparent why Congress took this tack, given theshady dealings of Enron and Arthur Andersen, it stands on freshlegal ground. "It's so broadly written that we have towait for the courts to come down on who it applies to,"Weinstein says.

There are other laws in the books protecting employees who soundthe alert on toxic dumping and such, but they're limited toofficers and supervisors. Never before has a law threatenedcriminal sanctions against third parties who advise the company.Sanctions may include fines of up to $1 million and up to 10 yearsin jail--and, of course, public humiliation of a criminalconviction, which doesn't exactly build investorconfidence.

Meanwhile, the whistle-blower can win reinstatement andcompensatory damages. On the other hand, if a court finds that thewhistle-blower filed a frivolous complaint, the employer canrecover attorney fees of up to $1,000.

So, if your company is publicly traded, don't discriminateagainst employees who notify the authorities about possible fraud,even if it's not true. Have a procedure in place to receiveretaliation complaints and an audit committee to review them--bothrequired by the act. And if your business is advising the big guys,watch what you say.

Steven C. Bahls, dean of Capital University Law School inColumbus, Ohio, teaches entrepreneurship law. Freelance writer JaneEaster Bahls specializes in business and legal topics.