Financial Whistle-blowers: A New Employment Law Challenge

Employers have long recognized the risk of retaliation claims arising from employee complaints of discriminatory practices. They are now facing another employment law challenge in the form of financial whistle-blower claims.

Under recent amendments by Congress, the anti-retaliation provisions of the federal False Claims Act have been expanded to protect not only employees but also contractors and agents of companies that do business with the federal government. In the event of retaliation, whistle-blowers may seek double or triple damages and portions of any government recovery.

Other federal laws offer protection against retaliation based upon complaints about the mismanagement of government funds or fraud involving public companies or nonpublic subsidiaries. Separate protections exist for employees in the financial services and health care industries.

And most states have their own “false claims act” laws or pending legislation that protect against retaliation when only state funds are at issue. Potential whistle-blower retaliation plaintiffs include employees of contractors providing products or services to the state or grant recipients.

In light of these increased protections and the larger pool of potential plaintiffs, employers have legitimate concerns that certain claims of financial wrongdoing may be fabricated or imagined. Courts sometimes apply an objective, good-faith standard that results in the early dismissal of bogus claims as not qualifying as protected conduct.

But employers should seriously consider all allegations of wrongdoing and proactively attempt to avoid litigation in the first instance. These goals can be achieved by, among other things, analyzing and coordinating human resources and compliance programs, making appropriate adjustments, and implementing effective training of key players.

In particular, employers should:

• Ensure that personnel and code of conduct policies and practices emphasize the importance of compliance with government contract mandates and regulations and that failure to report noncompliance violates company policy. Policies and practices, including compliance programs, anonymous hot lines and control mechanisms, should be audited to ensure that employees are able to raise allegations of wrongdoing internally at the earliest possible stage. Care should be taken to ensure that a culture of compliance is developed, publicized and provides incentives. This includes incorporating adherence to compliance into the formal and informal review process, discipline process, and exit-interview process.
• Provide code of conduct and compliance requirements to outside contractors and vendors and ensure that third parties maintain and enforce substantially comparable requirements.
• Ensure that supervisors, compliance personnel and members of human resources have a working knowledge of government contract requirements and applicable government regulations in order to appropriately respond to inquiries or complaints from employees or contractors. Training should be implemented, if necessary.
• Ensure that investigators are skilled in the techniques of uncovering the facts and context of financial whistle-blower complaints. These skills have likely been honed in equal opportunity matters but should be enhanced and polished to meet this new employment-law challenge.

Human resources personnel should likewise ensure that managers appreciate the importance of documenting any legitimate performance problems before an employee or contractor raises a compliance issue. Internal complaints that ultimately result in litigation have been known to “evolve” over time. In such cases, a solid record corroborating the facts and context of the investigation is invaluable and may result in the early dismissal of retaliation claims.

Scott McIntyre is an attorney and partner in the Cincinnati office of Baker Hostetler. He is certified as a specialist in labor and employment law by the Ohio State Bar Association. To comment, email editors@workforce.com.