Sarbanes-Oxley and Non-Discrimination?

Almost everyone has heard of the Sarbanes-Oxley Act of 2002. And for most of us the legislation immediately focuses our thoughts on public company accounting system requirements.

While that is a primary area of attention under the Act, a critical area of interest to HR professionals is the broader legal compliance arena. Consider the areas of Equal Opportunity (EEO) and affirmative action. Federal laws mandate EEO. Many states have legal requirements as well. Affirmative action is a requirement of federal regulations, which have the same force and effect as laws according to legal experts.

So, following the logic one step farther, when federal law or regulation requires a public company to meet specific standards and the company makes a conscious decision not to do that, it is willfully violating the legal requirement.

Why is this of interest?

Well, Sarbanes-Oxley requires that public companies include a certification from their Chief Executive Officer and from their Chief Financial Officer that the company financial statements are complete and accurate. As it turns out, some companies are requiring lower levels of managers to sign certifications as components of the financial statements that are assembled into one overall document that is filed with the Securities and Exchange Commission (SEC).

According to John C. Fox, Chair of the Employment Group at Manatt Phelps Phillips, LLP in Palo Alto, California, "Sarbanes-Oxley requires senior executives to certify in writing each year that they are not aware of any material violations of law." That's a broad requirement.

If they sign such a certification, knowing the organization's affirmative action plan is not current, or that there is an existing condition or situation in the organization that does not comply with EEO requirements, they could run afoul of Sarbanes-Oxley. Section 906 certification requirements say that violations are punishable by a fine of up to $1 million and 10 years in prison for KNOWING about a violation. Those amounts are raised to $5 million and 20 years in prison for WILLFUL violations. This is all fall out from the ENRON debacle.

It is a note worth taking however. The next time you or your executives are asked to certify that your enterprise is in compliance with HR legal requirements, consider making a quick review of your EEO and affirmative action obligations to be sure you have no violations.

If you need to come into compliance quickly, contact us. We can help.

Special Report for HR Professionals
Bill Truesdell, SPHR ,
Editor
btruesdell@merithr.com
Copyright, 2006 by The Management Advantage, Inc.

Note:

Taking these concerns further, remember that under EEOC regulations, which are part of Title VII of the Civil Rights Act of 1964, any private company with more than 100 employees is required annually to complete and file Report EEO-1 by September 30 as part of meeting non-discrimination standards. The requirement for public companies of this size to report requires even more scrutiny under Sarbanes-Oxley. These are federal requirements. Greater caution is required because criminal penalties can accrue. Any situation where your company fails to meet the expectations of these federal programs could constitute the material violation of law that John C. Fox was referring to.

Another practical example of how some companies can get themselves into trouble in this area of meeting compliance standards is in their over reliance on employee referral programs for recruiting, particularly when it results in a homogenous work force (of any ethnicity). This can be a red flag for the EEOC and if not managed carefully could result in a violation of law.