Internal policies can help businesses avert whistleblowers

Staff Writer
Columbus CEO

Employers should implement and follow internal complaint policies to prevent and defend against costly lawsuits.

It would be human nature for those running companies in central Ohio to take it personally when an employee blows the whistle on possible corporate wrongdoing by filing a complaint with a federal or state agency. But a knee-jerk instinct to punish a whistleblower can make a bad situation even worse.

"We have clients who call us and say, 'Joe just contacted the Department of Labor and reported us for X, Y and Z," says Susan DiMickele, an attorney at Squire Patton Boggs in Columbus. "They say he's a problem and they want to get rid of him. But I tell them, 'You can't do that because Joe is engaged in protected activity. If you fire him now, you'll be explaining it to a judge.'"

That's the case because protections for whistleblowers have been increased over the years by passage of federal laws such as the Sarbanes-Oxley Act in 2002 and Dodd-Frank Act in 2010 and then expanded by subsequent court rulings. The bottom line is clear: Employers are prohibited from firing, demoting, harassing or taking any other adverse employment action against whistleblowers for filing a complaint and open themselves to additional legal headaches if they do.

Given that, DiMickele and several other Columbus attorneys with corporate clients say the best approach is to have an internal system to field employee complaints and address them before they are brought to the attention of a government regulator. When that doesn't work, an employer needs to have a clear-cut policy on how to respond to a whistleblower claim.

"If something comes up," says David Butler, partner-in-charge of the Columbus office of Taft Stettinius & Hollister LLP, "it's good to have internal (reporting) policies when dealing with regulators. You want to show you've created a workplace culture of compliance that embraces complaints-that if something is being done wrong, (employees) can take it up the ladder and get it addressed."

Butler and fellow Taft attorney David Thomas say whistleblower claims and judgments, especially ones in the healthcare industry, have been rising as federal and state regulators seek high-dollar recoveries from corporate wrongdoers.

"It's become a cash cow for them," Butler says, adding he saw a study that found federal agencies enjoy an 8-to-1 return on their investments in such investigations.

In December, the US Department of Justice reported it had obtained more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, 2015. That brought total recoveries to $26.4 billion since January 2009.

The justice department noted most claims are filed under the False Claims Act's whistleblower, or qui tam, provisions that allow individuals to file lawsuits alleging false claims on behalf of the government. If the government prevails in such suits, the whistleblower receives up to 30 percent of the recovery.

Whistleblower protections have also been included in federal securities laws written to deal with corporate fraud, including Dodd-Frank after the US financial meltdown in 2009. Many state laws, including ones in Ohio, have whistleblower components as well, says DiMickele, co-leader of the Labor & Employment Practice Group at Squire Patton Boggs.

Her advice to clients is to have a system in place that allows employees to report problems internally, including through a hotline or the chain of command. Then a company needs to be willing to respond to the complaints, offer management training on how to handle them and even invest in a corporate compliance officer.

"Putting your head in the sand doesn't work in this environment," DiMickele says. "Employees know they have rights. You need to encourage internal reporting."

It's important that employees can complain on a confidential and anonymous basis either through a company hotline or dedicated email system, says Paul Hess, an attorney at Kegler Brown Hill + Ritter in Columbus. Such a reporting system needs to be easy to use, and employees should be made aware it exists.

"It doesn't do you any good to have a whistleblower system if it's just mentioned on page 47 of an employee handbook that nobody reads," Hess says.

It's also critical that supervisors are trained on how to respond to complaints and understand that retaliating against an employee who points out a problem is a major no-no.

"You can't just fire or suspend him, cut his contract or open an office in Siberia and he's the one-man office," Hess says. "Those are all games that people play, but you've got to almost go overboard so the (employee) is not treated differently."

Should a whistleblower complaint be filed, an employer should still investigate the issue internally, according to Hess. An attorney should be brought in at that point with the caveat that what employees share with him or her is privileged and won't be used against them.

"You've got to figure out if the claim has merit and be unbiased about it," Hess says. "Ultimately you want to take action if something is wrong but not take action if something isn't wrong and it's just someone complaining."

Employers also need to be aware there is increasing coordination between the criminal and civil arms of government agencies that investigate whistleblower complaints, says Thomas, a partner in Taft's Corporate Compliance and White Collar Criminal Defense practice. That's especially the case with the justice department, which can hold corporate leaders accountable for fraud in their companies' dealings with the federal government.

Thomas says executives need to be able to show investigators there has been diligent monitoring of employee conduct and people can come forward if there is a problem.

"An ounce of prevention can be worth a pound of cure when you're interacting with the Department of Justice," he says. "Prudent companies with the right plan in place should be able to ward off these issues."

Most whistleblower complaints are settled before they ever go to a judge and jury, says DiMickele, who adds it's critical for employers to talk with legal counsel sooner rather than later when a complaint is filed.

"Either you did something wrong and you fix it," she says, "or you didn't do anything wrong and you can defend yourself. Employers do that, and they do it successfully."

Jeff Bell is a freelance writer.

Costly Claims

Civil cases involving fraud and false claims against government.

$3.5 billion-Fiscal year ending Sept. 30, 2015

$26.4 billion- Since January 2009