The New Whistleblower's Handbook

by Stephen Kohn

  In 2010, responding to the peanut butter scandal, Congress finally approved, as part of the Food Safety Modernization Act, whistleblower protections.

  The food safety law included a strong whistleblower antiretaliation provision modeled on the Consumer Product Safety Act’s whistleblower laws. The law covers employees “engaged in the manufacture, processing, packing, transportation, distribution, reception, holding or importation of food.” Complaints must be filed with the DOL within 180 days of an adverse action, and employees who prevail are entitled to reinstatement, back pay, compensatory damages, and attorney fees. After exhausting DOL procedures, employees can remove their claims to federal court.

  Foreign Corrupt Practices Act

  The Dodd-Frank Act triggered a critically important breakthrough in the enforcement of the Foreign Corrupt Practices Act (FCPA). Whistleblowers who provide the Securities and Exchange Commission with “original information” regarding violations of the FCPA qualify under the act for large monetary rewards. These rewards are available to U.S. citizens and foreign nationals alike.

  For information on the FCPA’s whistleblower provision, see Rule 9. Because the FCPA is administered by the SEC’s Office of the Whistleblower, individuals filing FCPA claims should also review Rule 8 and Checklists 7 and 8, all of which cover the SEC’s Dodd-Frank Act program.

  Fraud Against Shareholders

  In 2002, after the corporate giants Enron and WorldCom went bankrupt, and shareholders lost billions of dollars in savings, Congress enacted the historic Sarbanes-Oxley Act. The law had a number of provisions directly related to whistleblowers, including the following:

  • The requirement that all publicly-traded companies have an independent “audit committee” able to accept, on a confidential basis, whistleblower allegations of corporate fraud;

  • A limited disclosure requirement that permits attorneys licensed to appear before the Securities and Exchange Commission to make whistleblower-type disclosures of corporate misconduct;

  • An amendment to the criminal obstruction of justice statute, which specifically prohibited any employer from engaging in conduct that interfered with the livelihood of an employee, including terminations, in retaliation for that employee blowing the whistle to federal law enforcement concerning any violation of a federal law, securities related or not.

  At the heart of the SOX corporate whistleblower protections is Section 806, the Corporate and Criminal Fraud Accountability Act. This provision created a private right of action for any employee, contractor, or agent of a publicly traded company who blew the whistle on any violation of law related to shareholder fraud and/or any violation of a rule of the SEC. Protected activity was broadly defined to include disclosures to various persons, ranging from supervisors to members of Congress.

  “Without . . . accountability, greed can run rampant with devastating results”

  Senate Report, Sarbanes-Oxley Whistleblower Act

  The law is similar in nature to the Atomic Energy Act, the Surface Transportation Act, and the Airline Safety Act. The SOX has also been used as a model for other whistleblower laws, including the Dodd-Frank Consumer Financial Protection Act and the 2008 Consumer Product Safety Act.

  Complaints are initially filed with the Department of Labor, and the law incorporates, by reference, all the procedures set forth in the Airline Safety Act. This includes the right to preliminary reinstatement if the employee prevails during the Occupational Safety and Health Administration (OSHA) investigation, a full hearing before a DOL judge, and two levels of appeal. Damages available under the law are also modeled on the Atomic Energy and Airline Safety Acts and include reinstatement, back pay, special damages, compensatory damages, and attorney fees and costs.

  The SOX law permits employees who exhaust their DOL remedies to file their own case directly in federal court. Under the SOX, if the DOL fails to issue a final enforceable order within 180 days, employees can file a de novo claim in federal court.

  Since the law was passed in 2002, thousands of whistleblowers have relied on its broad provisions to seek protection. The scope and meaning of most of the core provisions in the law were hotly contested, and corporations took advantage of a number of ambiguities in the law to argue (often successfully) that subsidiary corporations were not covered under the SOX and that employees had no right to a jury trial if a case was removed to federal court. Moreover, employers took advantage of two procedural weaknesses in the law, including a short statute of limitations and mandatory arbitration rules that forced employees to arbitrate disputes utilizing pro-employer procedures, instead of having their claims heard in court.

  In 2014 the U.S. Supreme Court, in Lawson v. FMR, LLC, further expanded the scope of SOX. Employers had argued that the law narrowly covered only employees of publicly traded companies. The Supreme Court rejected this argument, holding that contractors and agents who perform services for such companies are also protected.

  A majority of justices pointed to the Enron scandal, in which outside lawyers and accountants—none of whom were actual employees of Enron—contributed to the multi-billion-dollar frauds. The Court warned that not permitting outside contractors (including “countless professionals” who advise Wall Street firms) to be covered would create a “huge hole” in protections. They also pointed out that most mutual funds are “structured so that they have no employees of their own; they are managed, instead by independent investment advisors.” Under Lawson mutual fund “advisors” would also be protected.

  If employees remove their SOX case to federal court (after exhausting administrative remedies), they may be able to join that case with antiretaliation claims permitted under the Dodd-Frank Act securities whistleblower law and potential state whistleblower laws.

  Health Care Entitlement

  Because it covers Medicaid and Medicare fraud, the False Claims Act remains the most important law protecting whistleblowers in the health care industry. In 2010, as part of the Patient Protection and Affordable Care Act, the FCA was amended to ensure its continued coverage of health care fraud whenever federal monies or programs are involved, including programs incorporated into President Obama’s 2010 health care program.

  In addition to the FCA, in enacting the Patient Protection and Affordable Care Act, Congress also incorporated a special antiretaliation provision for employees who blow the whistle on violations of Title I of that act (i.e., the affordability and accountability sections of the law). This law was modeled directly after the Consumer Product Safety Act of 2008 and provides for remedies and procedures identical to that law.

  Immigration Law: Political Asylum

  Whistleblower coverage under U.S. immigration law is explained in the International Toolkit.

  IRS Whistleblower Rewards

  In 2006 the Internal Revenue Code was amended to require the payment of monetary rewards for whistleblowers who disclose major tax frauds or the underpayment of taxes. This law is addressed in Rule 7. One major defect in this law is its failure to contain an explicit antiretaliation provision. Unlike other qui tam laws, such as the False Claims Act, the Securities Exchange Act, and the Commodity Exchange Act, the IRS law does not explicitly prohibit the termination of employees who file tax qui tam claims. But most tax whistleblowers should be able to obtain protection under other federal whistleblower laws or state law. Congress is also considering whether to enact antiretaliation protections for tax whistleblowers, a proposal that has strong bipartisan support.

  Military/Armed Services

  The Military Whistleblower Protection Act permits members of the armed services to lawfully communicate with Congress, their chain of command, and military inspectors general. The Act also permits members of the armed services to raise allegations of violations of law, discriminatory conduct and “gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health and safety.”

  Retaliation cases are filed with the Office of Inspector Ge
neral. There is a sixty-day statute of limitations, but the IG can waive that deadline. Once filed, the IG must “expeditiously” review the claims and determine whether a full investigation is warranted. The IG’s report of investigation is filed with the Secretary for the division of the military for which the member served. Appeals of the IG actions can thereafter be filed with the Board for Correction of Military Records. The Board can conduct a full evidentiary hearing. The Board’s ruling is provided to the head of the relevant military department for a ruling. That decision is appealable to the Secretary of Defense. If a final decision is not rendered within 180 days, the service member is deemed to have exhausted his or her administrative remedies and should be able to appeal the rulings to court.

  Under the law, members of the armed services who prevail in whistle-blower cases are entitled to a wide range of relief, including correction of their military records, financial compensation, and remedies related to any courts martial that may have been retaliatory.

  Mine Health and Safety

  Miners who raise health and safety complaints are protected under the Mine Health and Safety Act. This law is administered by the Department of Labor and protects complaints raised internally with mine management and complaints filed with government officials. There is a sixty-day statute of limitations, and claims are investigated by the DOL. Employees are entitled to preliminary reinstatement pending the outcome of a hearing if the Mine Health and Safety Commission determines that a complaint was not “frivolously brought.” Remedies under the act include reinstatement, back pay, and attorney fees.

  Although the law contains some progressive features, the statute of limitations is short, damages are limited, and there is no right to a federal court trial. Amendments to strengthen this law were introduced into Congress as a result of continuing mining disasters.

  Nuclear Safety

  In 1974 nuclear whistleblower Karen Silkwood died in a mysterious “car accident” on her way to provide documentation to a New York Times reporter that the Kerr-McGee nuclear plant where she worked was riddled with safety problems. Her case triggered a series of nuclear safety exposés, which led Congress to pass nuclear whistleblower protections in 1978. Originally, the nuclear whistleblower law was identical to the other six environmental whistleblower laws. But Congress did not rest on its laurels and ignore court rulings or the on-the-job reality facing employees.

  Congress passed the first major amendments to the whistleblower law in 1992. The thirty-day statute of limitations was abolished and increased to 180 days. The scope of statutorily-protected activity was expanded to conform with the broad interpretation of the law given by the Department of Labor, and it specifically reversed the Brown and Root decision of 1984, which had stripped internal whistleblowers from protection. Congress included contacts with managers and other internal company complaints into the rubric of protected activity. A court-made loophole that had prevented workers at nuclear weapons plants from protection was also closed.

  Congress again revisited the law in 2004 and updated it with two major changes. Whistleblowers were given the right, after exhausting procedures within the DOL, to file claims de novo in federal court. In other words, if the DOL failed to issue a final ruling in a timely manner (one year), employees would have the opportunity to leave the DOL process and file a new case in federal court.

  The scope of coverage was extended so that not only were private-sector employees in the nuclear industry covered under the law, but employees of the two federal agencies responsible for nuclear safety: the Nuclear Regulatory Commission and the Department of Energy. Private-sector and federal employees who exposed nuclear safety problems were given the same protections.

  OSHA/Workplace Safety

  On-the-job safety is a major concern for workers throughout the United States. An average of fourteen workers die each day from on-the-job accidents, and thousands more are injured. To fix this problem Congress enacted the Occupational Safety and Health Act of 1970. Congress looked to workers as the key on-the-job source of information concerning workplace hazards and established the Occupational Safety and Health Administration as the federal agency designed to investigate worker safety complaints. OSHA also was entrusted with the power to prevent workers from being retaliated against if they exposed workplace hazards.

  Under section 11(c) of the act, OSHA was authorized to investigate allegations of retaliation and take strong remedial action to prevent whistleblowers from being fired. The act permitted OSHA to file a lawsuit in federal court against employers who fired health and safety whistleblowers. If victorious, the employee is entitled to “all appropriate relief,” which includes reinstatement and back pay. The only Court of Appeals to consider the issue concluded that employees illegally fired under the OSHA law are also entitled to compensatory and punitive damages.

  But the law has major flaws that render it impotent. First, a worker must file his or her discrimination claim within thirty days of the adverse action. This short statute of limitations results in numerous claims being automatically denied.

  Second, there is no “private right of action” under the federal law. In other words, it is up to OSHA to protect the employee. The employee’s complaint triggers an OSHA investigation, but not a lawsuit. Only OSHA can file a lawsuit against the employer. If OSHA declines to defend the employee, the employee cannot sue the company. In other words, if OSHA does not prosecute on your behalf, you have no federal remedy if you are fired for exposing workplace hazards that threaten the health and safety of fellow workers. Even if OSHA does file a lawsuit on your behalf (which is very rare), OSHA controls the pace of the lawsuit and is responsible for any settlement.

  OSHA’s resources are very limited and they cannot file a lawsuit on behalf of every meritorious claim. The vast majority of employees retaliated against in violation of section 11(c) either obtain no relief whatsoever or obtain small, token remedies. When OSHA does act on behalf of a worker (which they do in just a minority of cases), the results are abysmal. According to the most recent statistics available, in 2007 OSHA “settled” 172 occupational safety cases. The average settlement was $5,288. Not one case settled for over $100,000. In other words, if an employer fires a worker who complains about safety, even if OSHA gets involved in the case, the penalty may be token.

  For those cases that do not settle, the statistics are even worse. In 2009 OSHA received over twelve hundred retaliation complaints, yet they filed lawsuits on behalf of only four workers. The stories of employees abandoned by OSHA are indeed horrific. For example, Roger Wood was fired from his job after he exposed “serious” worker safety problems at the Johnson Atoll Chemical Agent Disposal System, a worksite responsible for the disposal of highly toxic chemicals. After OSHA investigated his safety claims, they found that the company was guilty of “two serious safety violations.”

  OSHA also looked into Wood’s termination. The investigators concluded he had a “valid” section 11(c) complaint and ordered relief. The company ignored the retaliation findings. After ten years of administrative delays, the OSHA lawyers decided to reject the investigators’ findings and declined to file a lawsuit on behalf of Wood. Wood challenged this decision in court and demanded that either OSHA protect his rights or that he be able to file a lawsuit on his own for reinstatement and back pay. The courts threw out his case. They held that only OSHA can file a lawsuit on behalf of a fired worker and that there was no “private right of action.” Despite an administrative finding that he was illegally fired, and despite having exposed two “serious” safety violations, Wood had no remedy, and his company got off scot-free. Similar stories abound.

  Congress is seriously considering fixing the OSHA law. But until they muster the wherewithal to fix it, employees fired for exposing safety hazards at work must look elsewhere for protection. The best place to find protection is under state law.

  Today, almost every state now provides protections for whistleblowers, either under its common law or unde
r a state whistleblower protection statute. In reaction to the defective federal Occupational Safety and Health Act, workers have sought remedies under alternative state whistleblower laws. To start with, most state courts recognize that the federal Occupational Safety and Health Act is completely ineffective and “inadequate,” as a matter of law, to displace state rights over employee safety. A Missouri Court of Appeals decision summarized the weaknesses in the federal law, clearly explaining why it was inadequate and should not displace more powerful state laws:

  OSHA only allows an employee to file a complaint with the Secretary of Labor who then decides whether to bring an action . . . the employee’s right to relief is further restricted in that the complaint must be filed within thirty days. . . . The decision to assert a cause of action is in the sole discretion of the Secretary of Labor and the statute affords the employee no appeal if the Secretary declines to file suit.

  Consistent with this ruling, the Kansas Supreme Court evaluated the federal Occupational Safety and Health Act and found it to be “inadequate.” Consequently, that court allowed Occupational Health and Safety Act–related whistleblowers to file claims in state court under the Kansas “public policy exception.” Under this doctrine, the whistleblowers were granted the right to file lawsuits based on state tort (i.e., personal injury) law. If they prevailed, they could request substantial relief from a jury, including back pay and other economic, compensatory, and punitive damages.