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They may be working down the hall from you right now, gathering internal documents and copying hard drive information that later may be used as evidence to topple your company or force your shareholders to bear the brunt of an expensive legal fight.
For corporate officers and in-house legal departments, they represent one of the most dangerous groups in the today’s workforce. Some call them heroes. Others call them martyrs. Some think they’re simply tattletales. Our legal system calls them whistle-blowers, and they’re not going away anytime soon.
The Merriam-Webster dictionary defines a whistle-blower as “one who reveals something covert or who informs against another.” The work backgrounds for whistle-blowers run the gamut, from hourly employees to corporate officers and directors, all of whom have made the decision to divulge a company’s internal workings in an attempt to prove wrongdoing or fraud.
Whistle-blower lawsuits, also known as “qui tam” lawsuits, have been on the rise since the worldwide economic downturn that began in 2008. Much of this increase can be attributed to new state and federal laws, including the federal Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. These new rules have provided an unprecedented bevy of whistle-blower protections, in addition to significant financial rewards for those whose allegations lead to settlements or courtroom verdicts where companies find themselves on the losing end.
Financial giants Bank of America and UBS AG, pharmaceutical manufacturers Glaxo Smith Kline and Johnson & Johnson, and medical industry companies HCA Healthcare and Tenet Healthcare all have felt the whistle-blower’s sting in recent years to the tune of hundreds of millions of dollars.
The most-noticeable benefits associated with being a whistle-blower are the enormous financial incentives offered by the government for those willing to expose actual corporate wrongdoing. In the UBS case mentioned above, the bank agreed to a $780 million IRS penalty in order to avoid prosecution after a former employee exposed UBS’ role in helping thousands of U.S. citizens avoid tax payments through the use of overseas accounts. The whistle-blower employee, a banker, pleaded guilty to conspiracy charges after confessing his role in helping clients shield assets, but he was awarded a $104 million payment while still in home confinement following a prison stay.
Imagine what a $104 million payout might look like to an employee who hasn’t committed a crime, and it’s easy to see why whistle-blowing is considered a very real and potentially lucrative option for employees of all stripes, from the mailroom to the boardroom.
Another incentive for whistle-blowers is the satisfaction of being a force for change and the associated fame. Many whistle-blowers decide to come forward after months or years of silence. Some of them try to bring about change internally with no results, and eventually choose to become whistle-blowers as a last resort. The relief they feel after blowing the whistle is a true lure for these employees, many of whom go to online chat rooms to share their stories of post-whistle-blowing jubilation.
While the roster of famous whistle-blowers is somewhat short, the employees in the Glaxo Smith Kline and UBS cases found themselves sitting for interviews that later appeared in national and international television broadcasts and newspaper reports. Of course, there’s always the possibility that their stories will be captured in books or movies, as has happened with famous whistleblowers Karen Silkwood and Jeffrey Wigand.
The drawbacks that typically accompany an employee’s decision to become a whistle-blower are many. For starters, many employees who blow the whistle will be fired before their claims are resolved despite the existence of statutes prohibiting retaliation against whistle-blowers.
Although companies have paid out significant financial settlements in related wrongful-termination lawsuits, many whistle-blowers find themselves out of work based on their employers’ assertions that they were deficient in areas far removed from their whistle-blowing activity. As a result, whistle-blowers are left not only jobless, but with the reality of having to explain to potential employers why they left their former job. This can result in long-term difficulty in finding a job, causing negative psychological and emotional effects that include increased feelings of isolation and frustration.
A 2010 article in The New England Journal of Medicine highlighted various whistle-blowers’ experiences in litigation against pharmaceutical companies, including their motivations and advice for other workers who may be contemplating filing whistle-blower lawsuits themselves.
In addition to firing, many whistle-blowers face various forms of retaliation after making their claims, both from fellow employees and their employers. Co-workers may blame the whistle-blower for potentially damaging the company and threatening its future viability. Some employers choose to delegate whistle-blowers to isolated offices where they’re not allowed to perform any real work. The prospect of having to show up every day and sit in an empty office with no phone causes many whistle-blowers to leave their posts even though they face no real threat of being fired.
Another disincentive is the long amount of time it typically takes to resolve a whistle-blower claim. It was nearly eight years after the original filing before Johnson & Johnson agreed to a $158 million settlement in a Texas whistle-blower lawsuit that was resolved last year. The UBS whistle-blower waited five years, including 40 months in prison, before collecting a dime based on his claims. Such lengthy periods of litigation can compound the mental impact that comes with choosing to become a whistle-blower.
Protecting Your Company
Obviously, avoiding any conduct that may give rise to claims of fraud or other misdeeds is a sure-fire way of avoiding the long and costly process of fighting a whistle-blower lawsuit. A solid compliance program is a good way to begin ensuring that your company is on solid ground.
Educating employees on the company’s stance in terms of reporting such conduct and conducting thorough investigations into employees’ claims are additional ways to escape or mitigate a whistle-blower claim. If workers feel like they won’t be fired or face other retaliation when reporting potential wrongdoing, then the company is much more likely to get solid information in a timely manner. This allows company officials to determine the depth and breadth of the allegations and formulate an appropriate plan of action, hopefully before a lawsuit is even filed. Similarly, when employees feel that their complaints are being heard, it goes a long way toward avoiding future litigation.
With available awards worth millions of dollars and the increasing protections afforded to those who expose corporate misdeeds, whistle-blowers appear to be here to stay and smart companies need to be prepared.
Natalie Arbaugh is a Principal in the Dallas office of Fish & Richardson, where she handles commercial and business litigation for both plaintiffs and defendants in state and federal courts throughout the country. She provides extensive experience in pretrial and trial proceedings, including complex multi-party actions, as well as in appeals and arbitrations. Ms. Arbaugh’s substantial trial experience includes having tried dozens of cases, including more than 20 cases where she served either as lead counsel or second chair. She litigates a wide range of commercial and business cases, relying on her significant experience in matters involving breach of contract and commercial torts, qui tam/whistleblower claims, trademark and copyright infringement (including counterfeiting), trade-secret theft, non-compete counseling and litigation, wage and hour collective actions, and wrongful termination and discrimination claims. A former law clerk to the Hon. Deborah Hankinson at the Supreme Court of Texas, Ms. Arbaugh has earned multiple selections to the Texas Rising Stars list from the publishers of Texas Super Lawyers.