By Glenn C. McGovern
Metairie, La.
Being a whistleblower is not an easy lifestyle choice. There are many famous ones that come to mind. Before any whistleblower laws existed to protect whistleblowers, Daniel Ellsberg leaked the Pentagon papers during the Vietnam War in 1971. A recent story in the Times-Picayune in Oct. 5, 2010, about a PBS TV special on Daniel Ellsburg, Ellsburg discussed the cost to him personally that included the loss of his income, savings, marriage and career as well as criminal prosecution. Henry Kissinger called him “the most dangerous man in America” at the time of the Pentagon Papers publication. A Vietnam veteran, Ellsburg leaked a secret history of the Vietnam War in 1971. On the topic of why most people reject being a whistleblower, Ellsberg said, “It’s understandable …that you don’t have flocks of people doing this, but nobody?...I don’t understand that…What’s going on there?”.
Karen Silkwood was the subject of a movie on her life and mysterious death. Silkwood was elected to her union’s Oil, Chemical and Atomic Worker’s bargaining committee and assigned to investigate health and safety issues in a Kerr-McGee nuclear plant. She reported numerous violations and in the summer of 1974 testified before the Atomic Energy Commission (AEC) about safety issues and falsified safety records dealing with plutonium contamination. In Nov. 7, 1974, she was found to be dangerously contaminated with plutonium. On Nov. 13, 1974, she met with a packet of documents regarding safety violations at the plant with a union representative at a café. She then drove alone in her car to Okahoma City to meet with a New York Times Journalist prepared to print the story on the plant safety violations. Her body was found in her car which ran off the road and struck a culvert. No documents were found in the car. A suit was filed by her attorneys, Gerry Spence and Arthur Angel. A jury rendered a verdict of $505,000 in compensatory and $10,000,000 in punitive damages. Silkwood v. Kerr-McGee Corp., 464 U.S. 238 (1984). On appeal the judgment was reduced to $5,000.00. The U.S. Supreme Court ordered a retrial. The case was reported in the press to have settled out of court for $1.38 million before a retrial.
The Enron, WorldCom, Global Crossing scandals are still resulting in the development of new, evolving legislation to protect whistleblowers and recognizing their value to society in preventing fraud in financial institutions. Enron whistleblower Sherron Watkins is regarded as a hero for her decision to blow the whistle on the illegal activities of her employer Enron and was featured on the cover of Time Magazine. Had Enron survived the resulting scandal, however, the company could have fired or otherwise retaliated against Watkins with legal impunity as she was not protected under Texas law. (See Richard Lacayo & Amanda Ripley, Persons of the Year, Time, Dec. 30, 2002, at 30.) Watkins is quoted she expected the company to "just stick [her] in a corner and treat [her] like a pariah and sort of force [her] out.” (See Miriam A. Cherry, Whistling in the Dark? Corporate Fraud, Whistleblowers and the Implications of the Sarbanes-Oxley Act for Employment Law, 79 Wash. L. Rev. 1029, 1051-52 (2004).
Following Enron and other corporate scandals, Congress passed the Sarbanes-Oxley Act. (“SOX”). SOX provide protection to employees of public companies who like Watkins, report violations of securities and accounting regulations. Unlike Texas’s whistleblower law, SOX protects both employees who report internally to supervisors and externally to government regulators. Sarbanes-Oxley Act of 2002 § 806(a), 18 U.S.C. § 1514A (2006).
Whistleblower policies appear in employee policy manuals. The September 2010 issue of CUNA News ran an article asking the question, “Does you credit union have a whistleblower policy?” quoting Christopher Pippett, who explains the growing interest in these policies. (See article, Compliance: Have ‘whistleblower’ policy in place, CUNA News 09/10 issue.) The IRS explains in its instructions in its Form 990, “Return of Organizations Exempt from Income Tax, “requires state-chartered credit unions to report annually whether they have a whistleblower policy.”
The fact of widespread retaliation against whistleblowers in all industries is well documented. In the article by Marcia P. Miceli & Janet P. Near, Blowing the Whistle: The Organizational and Legal Implications for Companies and Employees (1992) discusses evidence of retaliation against whistleblowers. In David Culp, Whistleblowers: Corporate Anarchists or Heroes? Towards a Judicial Perspective, 13 Hofstra Lab. L.J. 109, 113, 123 (1995) describes that retaliation was a primary concern for federal employees who considered blowing the whistle. Laura Simoff’s article, Comment, Confusion and Deterrence: The Problems that Arise From a Deficiency in Uniform Laws and Procedures for Environmental Whistleblowers, 8 Dick. J. Envtl. L. & Pol'y 325, 342 (1999) details the high incidence of retaliation against whistleblowers in the science community.
Whistleblowers hated and punished by employers. But to jurors, in focus groups and surveys, the vast majority by far do not choose to describe them as “disgruntled employees”, but call them instead “heros”. Whistleblowers provide a valuable service to both their employers and the public at large. In just the past three years, whistleblowers have played a prominent role in the discovery and remediation of employer and government misconduct in such areas as 1.) aviation safety (See Matthew L. Wald & Micheline Maynard, Behind the Chaos in Air Travel, a Pendulum Swing at the F.A.A., N.Y. Times, Apr. 13, 2008, at A1 discussing the actions of two FAA whistleblowers). 2.) public health, (Ana Radelat, CDC Enters Fray of Tainted Trailers, USA Today, Apr. 2, 2008, at 3A detailing story of whistleblower at the CDC who called attention to the dangers of formaldehyde fumes in trailers that the Federal Emergency Management Agency had provided to people displaced by hurricanes Rita and Katrina) 3.) privacy, (Eric Lichtblau & David Stout, Report on F.B.I. Use of Personal Data, N.Y. Times, Mar. 13, 2008, available at http://www.nytimes.com/2008/03/13/washington/13cnd-fbi.html. and 4.) corporate sales and marketing practices (What Ever Happened to ‘An Apple a Day’?, Bus. Wk., Mar. 31, 2008, at 93 discussing whistleblowing activity of a pharmaceutical sales representative resulted in Warner-Lambert’s criminal conviction and payment of $340 million fine) and Linda A. Johnson, Merck to Pay $671 million to Settle Whistle-Blower Suit, S.F. Chron. , Feb. 8, 2008, at C2 (detailing agreement by Merck to pay $671 million to the U.S. government to settle charges that its sales and marketing practices violated federal law; the charges resulted from an investigation that began when two whistleblowers reported Merck’s conduct to public officials).
The federal and state legislatures are now recognizing that employees are often in a unique position as they may be the only ones to discover and report wrongdoing within both the private and public sectors that regulators an government officials that are suppose to be protecting us will miss. (See, e.g., Stefan Rutzel, Snitching for the Common Good: In Search of a Response to the Legal Problems Posed by Environmental Whistleblowing, 14 Temp. Envtl. L. & Tech. J. 1) Whistleblowers can alert employers to problems before those problems escalate. If an employer refuses to resolve an issue, employees may be the only parties capable of reporting the problem to external authorities. “Seventy-five to eighty percent of the information on which the Inspectors General Act comes from so-called whistleblowers.” 135 Cong. Rec. H752 (daily ed. Mar. 21, 1989).
Recognizing that whistleblower protection is critical to preventing another financial crisis, Congress included in the Dodd-Frank financial services reform bill (H.R. 4173) numerous provisions designed to encourage whistleblowing and to provide expanded protection from retaliation. These provisions create monetary awards for whistleblowers who provide original information to the SEC or CFTC, strengthen the whistleblower protection provisions of the Sarbanes-Oxley Act and the False Claims Act, and create additional whistleblower retaliation causes of action. The award will range from 10 to 30 percent of the amount recouped and the amount of the award shall be at the discretion of the SEC.
Section 922 creates a new private right of action for employees who have suffered retaliation “because of any lawful act done by the whistleblower– ‘(i) in providing information to the Commission in accordance with [the whistleblower incentive section]; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002,’” the Securities Exchange Act of 1934, and “‘any other law, rule, or regulation subject to the jurisdiction of the [SEC].’” The action may be brought in federal court and remedies include reinstatement, double back pay with interest, as well as litigation costs, expert witness fees, and reasonable attorney’s fees.
As a result of the recent financial economic meltdown in the financial services industries, Section 1057 now creates a private right of action for employees in the financial services industry who suffer retaliation for disclosing information about fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service. It applies to organizations that extend credit or service or broker loans; provide real estate settlement services or perform property appraisals; provide financial advisory services to consumers relating to proprietary financial products, including credit counseling; or collect, analyze, maintain, or provide consumer report information or other account information in connection with any decision regarding the offering or provision of a consumer financial product or service. Section 1057 claims are exempt from mandatory arbitration agreements.
Amendments to the Sarbanes-Oxley act (SOX) broaden the scope of coverage, increase the statute of limitations, exempt SOX whistleblower claims from mandatory arbitration, and clarify that SOX claims removed to federal court can be tried before a jury.
Section 929A clarifies that the whistleblower protection provision of the Sarbanes-Oxley Act (SOX), 18 U.S.C. § 1514A, applies to employees of subsidiaries of publicly-traded companies “whose financial information is included in the consolidated financial statements of [a publicly] traded company.” This amendment eliminates a significant loophole that some courts have read into SOX that has substantially narrowed the scope of SOX coverage. Elevating form over substance, some judges have permitted publicly-traded companies to avoid liability under SOX merely because the parent company that files reports with the SEC has few, if any, direct employees, and instead employs most of its workforce through non-publicly traded subsidiaries. This clarification in effect overrules those decisions.
New whistleblower laws are being passed as a new crisis unfolds. Senator Mike Enzi ( R-WY) described the SOX reform law best as “earthshaking” when he said, “It had to be earthshaking because we are trying to counteract the tremors from the volcanic action of the mountaintop being blown off such companies as Enron, WorldCom, Global Crossing and others.”
