United States: Navigating Between Scylla And Charybdis: Effectively Enforcing Corporate Compliance Programs Without Turning Violators Into Whistleblowers – Part 1

In Homer's epic poem, The Odyssey, hero Odysseus encounters danger from all manner of man, beast and nature during his decade-long voyage home after the Trojan War. During his trek, Odysseus attempts to travel through a narrow strait guarded on one side by Scylla, a hydra-headed monster, and on the other by Charybdis, a demon who continually inhaled huge quantities of water along with those floating on it. Efforts to avoid one necessarily increased the chance of being attacked by the other.

Companies in highly regulated industries, such as health care and financial services, often face their own metaphorical Scylla and Charybdis as they struggle to enforce disciplinary measures without triggering a rash of lawsuits from those employees who are disciplined.

This article discusses the companies' compliance obligations and the attendant employment law pitfalls, the points that create the greatest potential for conflict, and strategies to navigate a course for safe passage.

Advice from On High – Understanding the Government's Expectations

Over the past decade, the government has encouraged companies to implement robust compliance programs in order to prevent, detect and remedy potential violations of law. Sometimes, the government provides formal guidance.

For example, the Department of Health and Human Services, Office of Inspector General (HHS-OIG) has published compliance program guidance for various types of health care providers, including hospitals, nursing facilities, home health agencies, ambulance providers and hospices.

In addition, the Federal Sentencing Guidelines provide guidance for corporations in all types of industries. Those guidelines effectively educate companies on how to structure an effective compliance program by articulating the elements the government deems necessary to demonstrate a commitment to compliance with the law.

No matter how it communicates its message, the government expects companies to do the following, at a minimum:

1. Implement compliance policies and procedures

2. Identify an individual with primary responsibility over compliance

3. Conduct training and education

4. Develop effective lines of communication

5. Conduct internal monitoring.

In addition, the government expects that, as part of their compliance efforts, companies will enforce disciplinary measures against those who run afoul of established guidelines. Meting out sanctions demonstrates the company's genuine commitment to compliance, and enhances the culture of compliance by making clear to employees that violations of company policy carry serious consequences. But if discipline is not applied in a consistent fashion, a company may have difficulty demonstrating to the government that its compliance program is anything other than a paper tiger.

Recognizing Potential for Conflict Between Compliance Obligations and Employment Claim Risk

Most companies operating in regulated industries recognize that it is a question of when, rather than if, they will face a government inquiry.

Whether those inquiries ripen into enforcement actions depends on:

1. Whether the alleged violation results from a systemic failure to implement compliance measures and

2. Whether sanctions are necessary to prevent future violations by the company.

If the answer to both questions is yes, a government enforcement action is likely.

Companies under government scrutiny often seek to avoid or minimize potential consequences by touting the robust nature of their compliance programs. While most companies have formal compliance programs, they often struggle to establish one key component: instances where the company has enforced disciplinary measures against those whose behavior deviated from established standards. In those cases, the government becomes understandably skeptical that compliance is truly a priority, and the chances that the company will be sanctioned increases.

But application of disciplinary measures carries its own risks. Disciplined employees – especially those who are terminated – may seek redress against their employer through a variety of means. State and federal court dockets are littered with cases filed by employees claiming violations of various statutory and common law protections.

In some instances, employees discussing violations of the law, in person or using social media, can even be further protected under the National Labor Relations Act. Even those lawsuits that are lacking in merit can be costly and time-consuming to defend.

A company's inability to point to a consistent track record of employees disciplined for compliance may not mean the company lacks a genuine commitment to compliance but may reflect a particularized concern about the costs of defending against employee lawsuits.

Whistleblower Laws

At the same time, the federal government has made it easier to file whistleblower suits. Under the Sarbanes-Oxley Act of 2002 (SOX), publicly traded companies are required to track complaints regarding suspected violations of accounting and auditing practices, and allow employees to make confidential, anonymous reports on potential violations.

In addition, the recent passage of the Dodd-Frank Act expands dramatically the types of claims for which employees may obtain a bounty by whistleblowing. Under Dodd-Frank, similar to False Claims Act cases, whistleblowing employees can bring suit on behalf of the government and potentially collect up to 30% of any sanction in excess of $1,000,000 recovered by the government.

Congress also included increased whistleblower protections in the Patient Protection and Affordable Care Act (the Health Care Reform Act) and the American Recovery and Reinvestment Act (the Stimulus Act). These whistleblower laws are explicitly designed to encourage and reward employees, often without the knowledge of their employer. This expanded federal protection of whistleblowers is in addition to state statutes and common law protection of whistleblowers.

Together, these legal protections increase the likelihood that employees who have been disciplined or terminated will attempt to avail themselves of whistleblower protections by reporting non-existent compliance violations.

Courts have also expanded whistleblower protections. The Supreme Court recently ruled that companies can even be held liable for retaliating against an employee for the whistleblowing activity of third parties such as family members and close associates.

Both courts and administrative law judges (through which many whistleblower actions are handled at the federal level) have granted employees of vendors protected whistleblower status, even where the vendor's role is to monitor employee hotlines or perform Foreign Corrupt Practices Act due diligence.

In a troubling decision, the Administrative Review Board recently revived a SOX case by an employee who was terminated after he improperly accessed and took sensitive company information in order to make a whistleblower complaint to the IRS.

In short, employees (and their attorneys) are now armed with a greater arsenal of protections and weapons at their disposal designed to investigate and report wrongdoing, bring whistleblower lawsuits and extract leverage on employers.

On Wednesday, we will finish the discussion about enforcing corporate compliance programs without turning violators into whistleblowers.

For further information visit Waller

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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