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Whistleblowing Is Not Just Hot Air

By Brian J. Zickefoose

Since 2010 and the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act, whistleblower claims have been on the rise.  This trend serves as a constant reminder that companies should make every effort to assure that they are complying with all laws applicable to their business and have a system in place to address compliance concerns.  Moreover, companies should be fully equipped to deal with whistleblower claims, both legitimate and otherwise, as claiming “whistleblower” status may create an additional protected category upon which an employee may initiate a legal action against an employer.  Although whistleblower laws increase the legal exposure to an employer, there are a few steps employers can take to lessen such exposure and ultimately present a more defensible case in an adversarial proceeding.  

First, an employer should identify those laws applicable to the company and, in particular, the laws that provide whistleblower protection to employees or third parties.  Whistleblower protections arise out of federal and state laws (statutes, rules and regulations) or common law (case law developed through the courts).  For example, two “hot” federal whistleblower statutes are the Dodd-Frank Act, which provides protections and remedies for individuals who report violations of securities laws, and the False Claims Act, a federal statute that protects individuals who report governmental program fraud.  Additionally, states have  whistleblower statutory and common laws covering a wide variety of whistleblowing related to public policy, employee or public health, safety, and welfare, health care, tax and securities fraud and other fraudulent activity, and abuse of elders, minors or other vulnerable individuals, to name a few.  Because of this wide variety, employers should proactively research or seek counsel on those laws that are applicable to their business and how they could form the basis for a whistleblower claim.  

Once the employer has identified, or verified, those applicable laws, and in particular, those that provide whistleblower protection, the company should prioritize and encourage compliance.  Employers should create or update a formal, written whistleblower policy that includes a complaint procedure.  The complaint procedure should have an alternative reporting structure (i.e., report to your supervisor or a specified member of management).  Additionally, the policy should not be too narrow (i.e., do not limit it to complaints about securities violations under the Sarbanes–Oxley Act of 2002 if other whistleblower protections apply to the organization).     

Finally, employers should train managers on the policy and how to address complaints.  Proper documentation is critical.  Often, in the event the relationship between the employer and an employee sours or becomes adversarial, the employee’s story may change.  A good written record requires the employee to be precise in his or her report and makes it more difficult to morph the story to fit a particular legal theory later.  A thoughtful and proactive approach to mitigating the risk of whistleblower claims will allow employers to focus on what they do best – running their business.