Employees are increasingly willing these days to blow the whistle when they see fraud, corruption and general unlawful behavior at their employers.
Since 2005, there’s been a spike in whistleblower cases filed with the federal government, according to the Department of Labor’s Occupational Safety and Health Administration, or OSHA. And one of the biggest labor law firms in the country, representing employers, has experienced such a big increase in worker snitching that it has created a special whistleblower practice to handle the extra workload.
“Any uptick is a good sign,” said Geoffrey Rapp, the Harold A. Anderson Professor of Law and Values at the University of Toledo’s College of Law, about an increase in whistleblower charges. “The goal here is to get information about fraud before it becomes so serious, as in the collapse of [Bernard] Madoff and Enron, where the whole company falls apart, or the economy falls apart.”
It’s a trend that labor and shareholder advocates applaud, but corporations dread, and it’s intensified in recent months for a host of reasons, according to legal experts.
A new law providing monetary rewards for whistleblowers kicked in last month (in addition to scores of federal and states whistleblower protections put in place in recent years). There’s also a growing desire on the part of citizens to step up when they see wrongdoing following an economic downturn largely caused by malfeasance in corporate America. And there has been a beefing up of government enforcement to protect citizens who come forward with their accounts of misconduct from retaliation.
Indeed, just last week OSHA announced it had ordered Bank of America to pay a whistleblower $930,000 in interest and back wages and reinstate the employee.
“It’s clear from our investigation that Bank of America used illegal retaliatory tactics against this employee,” said David Michaels, OSHA’s Assistant Secretary. “This employee showed great courage reporting potential fraud and standing up for the rights of other employees to do the same.”
The agency, which administers a host of whistleblower protections under 21 different laws, including not only labor safety laws, but also those under Sarbanes-Oxley Act and the Consumer Financial Protection Act, has seen a jump in whistleblower charges, reaching 2,339 through Sept. 14 of this year, compared to a total of 2,319 for all of 2010, and 2,158 in 2009.
And corporate labor law giant Littler Mendelson has seen a 25 percent jump whistleblower and retaliation claims firm-wide between 2009 and 2011, prompting the firm earlier this month to create a stand-alone Whistleblowing & Retaliation Practice.
“In my own personal experience, I have seen a 200 percent increase in the number of whistleblower claims I am handling in 2010 to 2011 compared to 2009 to 2010,” said Gregory Keating, co-chair of Littler’s new whistleblower practice and author of “Retaliation and Whistleblowing: A Guide for Human Resources Professionals and Counsel.”
Keating believes much of the uptick has to do with the expansion of remedies for whistleblowers and the increase in enforcement.
“Leading up to 2010, you already had continued expansion of rights, remedies and the regulatory environment becoming more employee friendly,” he explained. “Then came Dodd Frank and dramatically expanded the world of whistle blowing and created a fundamental sea change where the federal government decided to no longer just protect the whistleblowers but also going to incentivize them and create a bounty program.”
The Dodd-Frank financial reform law created more incentives, including a whistleblower reward that went into effect in August, for employees to step forward, something that’s very difficult for them to do because they can lose their jobs as a result, and many have. The legislation actually calls for financial incentives of up to 30 percent of funds recovered for information employees give regulators that leads to prosecution of securities fraud. (Click here for information from the U.S. Securities and Exchange Commission on how the bounty works.)
The financial incentive, Keating said, is driving some employees to make unsubstantiated claims. He said he’s seen cases where employees who were on the ropes because of their job performance threatened to blow the whistle.
Not everyone has a problem with the monetary inducement.
“If its encouraging them to blow the whistle on wrongdoing then it’s fine,” said Bartlett Collins Naylor, financial policy advocate with Public Citizen. With thousands of public companies and a limited number of government enforcers, he continued, “we have to depend on other avenues of enforcement and honest people within corporations are pivotal.”
The monetary reward may also be that added incentive for someone who is reluctant to come forward, said Stuart Meissner, a New York attorney who represents whistleblowers and has gotten upwards of 120 inquiries from employees since the bounty went into effect, and has taken on about eight cases thus far.
“I think people still have inhibitions of being a whistleblower but certainly having the bounty out there entices them to take the risk of coming forward,” Meissner said.
He produced a whistleblower commercial and website called “SECSnitch” to encourage people to come forward, which some management lawyers have pointed to as an example of an unsettling tactic being used to get employees to tattletale on their bosses if they’re disgruntled and looking for a big payout.
To the criticism, Meissner said, whistleblowers have to substantiate their claims and, according the bounty statute, can only collect a bounty if a million-plus dollars in sanctions is actually ordered by the government.
“If the claim is valid,” he added, “whether they’re disgruntled or not is irrelevant.”
And beyond the bounty, some see the increase in people willing to step forward when they see wrongdoing as a sign of the times.
“We live in an era where people are more open about second-guessing institutional activity,” said Reuben Guttman, an attorney for Grant & Eisenhofer, a law firm that focuses on corporate governance and fraud, adding that the financial implosion and economic collapse has caused many people to “open their eye[s]. Entities we thought were reputable may be making misrepresentations and not telling the truth about what they’re doing.”