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Smart Defense in the Legal Era of Whistleblowers - Carlos Arias

April 24, 2017

Where will a whistleblower act next? Is my company at risk? These are questions that are asked by executives, lawmakers, and compliance officers the world over, every day. There are over 40 federal whistleblower-friendly laws on the books that rest on three pillars: job protection, anonymity, and bounties. These laws are responsible for the handing out of millions of dollars in penalties and fines that can be, for example, 30% of any fines that get dictated from the court on the employer. The problem is not how to identify the whistleblower--in my mind, it is how to decrease the risk to your company.

A whistleblower is effectively an individual who has witnessed or been part of an unethical or illegal process, often against their will as a condition of employment, who decides to submit incriminating evidence to the proper authorities.

The False Claims Act (FCA) permits private individuals to pursue lawsuits against parties who commit past or present fraud against the US government. Financial incentives are an encouragement to whistleblowers and are growing in leaps and bounds as the public becomes aware of what this is and how it all works. Companies are responding generically to this trend--the confidentiality agreements that many firms and companies ask employees to sign might act as a disincentive, but they do not prevent employees from consulting outside lawyers. The lack of employer’s confidentiality policies also facilitates the reporting of potentially illegal activity to law enforcers.

Ideally, companies would put in place a formal reporting system such as the Patient Safety Organizations found in the healthcare industry. Any company should stop their operations immediately if any safety or compliance issue arises, and it should be policy to share knowledge about the issue, the solution, and new policies should be established to prevent a recurrence not only by managers but with all employees. Hearing and noting complaints—an open door policy—is vitally important proactive protection for an organization. The main reason compliance and safety issues are not addressed in a timely manner are that not all managers and supervisors want to hear about them, and there are no processes to monitor, evaluate and measure the complaints.

Companies often see whistleblowers as motivated by revenge or greed. But it has been consistently shown that most are driven to right a wrong. Usually, they will approach friends, co-workers or supervisors to talk about the issues first, rather than running straight to the authorities or newspapers. If they have a choice, they would rather warn than accuse, but if they are not listened to, they will go to official authorities.

Damage to the employee from the business or the manager in response to their effort to report some issues will definitely prompt individuals to run to officials as well. A thoughtful employee-relations program administered by Human Resources should decrease this risk, giving individuals the opportunity to talk and see action taken to satisfy their concerns. Relationships are extremely important to avoid these situations, and creating a company culture of reporting and non-retaliation is key. Creating alternative channels of communication or reporting such as hotlines are another way to allow individuals to report issues while remaining anonymous. Employees may feel more secure and less likely to experience retaliation if they are afforded anonymity while reporting problems.

Important defense mechanisms to avoid whistleblower cases:

  • Do not prejudge
  • Conduct a fair investigation
  • Do not overpromise
  • Respond immediately
  • Properly document the facts
  • Conduct a compliance committee analysis of misconduct reported
  • Open spaces for discussion and meetings with the staff
  • Address concerns in an effective and timely manner
  • Educate and train all employees and supervisors about proper behavior, obligation to act, and ethics
  • Create clear standards and guidelines
  • Make sure that employees are happy

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