Dealing with whistleblowers and avoiding retaliation claims
Whistleblowers are an increasingly common phenomenon, especially in an era of laws like Sarbanes-Oxley and Dodd-Frank
Q. One of our managers reported that one of his reports went on at length about how she had heard that accounting had been instructed to manipulate sales data so that quarterly earnings looked better than they were. How should I respond?
A. The reporting employee is a whistleblower, and you need to handle her complaint with care. Whistleblowers are an increasingly common phenomenon, especially with the advent of legislative schemes like Sarbanes-Oxley and Dodd-Frank. By some reports, there are more than 35,000 whistleblower complaints annually, and the number and quality of the claims are purported to be on an upswing. You should have a program in place to handle whistleblower claims so that those claims are effectively and lawfully handled and that there is no retaliation against the complainants.
Keep in mind as you deal with the employee’s claim that the company does best if corporate misconduct is reported internally first. If the company has erred, it is better to self-identify and correct than it is to have the government do it for you.
The law, however, provides incentives for employees to go to the government directly. For example, Dodd-Frank requires the Securities and Exchange Commission to pay the first to report a bounty of between 10 percent and 30 percent of any fine or forfeiture recovered from a corporate wrongdoer. A recent anonymous Dodd-Frank whistleblower netted $14 million. Moreover, since the payout goes to the first to report, a prudent whistleblower may be inclined to report to the government first (or at least simultaneously), and ignore any internal claims process, lest someone else get to the government first and grab the reward money.
Anecdotally, the two main reasons employees notify the government of their employer’s misconduct are that they feel their internal report has not been given the attention it deserves and the company retaliates against them for making the report. How you handle the report will therefore possibly determine whether the company gets a full opportunity to investigate before the government is alerted. It will also help set the stage for future reporting if others see the company’s fair handling of a whistleblower’s claim.
Sarbanes-Oxley and Dodd-Frank, just like anti-discrimination and False Claims Act statutes, make it unlawful to retaliate against a whistleblower. Retaliation means firing, reducing the employee’s hours, taking away authority, imposing more onerous terms and conditions of employment – basically anything bad that happens as “punishment” of the complainant employee. If you are determined to have retaliated, the government’s punishment will be more severe if the complaint is well-founded.
Protections against retaliation apply whether the report of corporate wrongdoing is accurate or not.
There are some general considerations you should have as you move forward.
First, maintain the anonymity of the whistleblower to the greatest extent practicable. This is the best way to avoid a retaliation claim, since it is hard to retaliate against someone you do not know has done anything to “warrant” retaliation. Avoiding real or perceived retaliation is also the best way to maximize the company’s ability to respond before the governmental is notified.
Second, communicate to the employee, without overstating the case, your efforts to keep her report confidential. Tell the employee to similarly keep quiet. Do not, however, discourage the employee from reporting to the government, although you do not need to urge that report. You should share with the employee that you will be following up on her complaint, and will, if possible, share the results of your investigation, understanding there are good reasons the employee may not hear back for some time.
Third, this report may lead to criminal and/or civil litigation. You therefore need to assure the preservation of all relevant evidence. This may mean asking the system administrator to preserve pertinent electronic evidence, including backup tapes, hard drives, voice messages and the like. You will need to keep detailed documentation regarding all you do in response to the complaint.
Fourth, undertake an investigation, one conducted with an open mind, quickly, deliberately and with the assurance that the confidentiality of all concerned is protected to the greatest extent possible. There are advantages and disadvantages to conducting the investigation internally or to looking outside the company and you should discuss those relative merits with counsel.
Finally, you will need to decide on the appropriate output once the investigation concludes. Any written product should be prepared with future litigation in mind. The failure to prepare a written report may, however, suggest evasion. This too is something you will need to discuss with counsel.
Scott Harris, a director in the Litigation Department of McLane, Graf, Raulerson & Middleton, Professional Association, can be reached at 628-1459 or firstname.lastname@example.org.