United States: For Whom The Whistle Blows

I. Introduction

With the media attention on Enron and Sarbanes Oxley, employers may comfort themselves by viewing whistleblower law as a source of liability which may be narrowed to a single law, a single type of violation, or even a single type of employer. In reality, whistleblower protection defies legal and industrial boundaries, and courts continue to expand safeguards depending upon the unique circumstances of each case. As a result, employers cannot look to a single statute or legal principle to determine potential liability. Instead, coupling an understanding of fundamental sources of whistleblower law with knowledge of recently-recognized pitfalls, employers may design grievance procedures to minimize their exposure toliability.

Sarbanes Oxley has become the posterchild for whistleblower protection. As codified, the Act provides that no publicly-traded company, or its officers, employees, or other agents, may "discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee" because the employee has provided information or otherwise assisted "in an investigation regarding any conduct which the employee reasonably relieves constitutes a violation" of SEC rules or other federal law relating to fraud against shareholders.² But the concept of protecting whistleblowers had been a staple of U.S. statutory law for years before the arrival of Sarbanes Oxley. In fact, most states, including Washington, have at least one whistleblower statute of their own. The careful employer must be mindful of the full spectrum of statutes giving rise to liability. The following chart contains a sampling of statutes containing some form of whistleblower protection.

Simply tracking the growing list of whistleblower statutes is an overwhelming task. Yet statutes are only the beginning of whistleblower protection. In an attempt to ensure the success of statutes lacking whistleblower provisions, the state and federal judiciaries have created new safeguards from the bench. Just a few months ago, in Jackson v. Birmingham Board of Education, the United States Supreme Court found whistleblower protection hidden between the lines of Title IX of the Education Amendments Act of 1972.³

In Jackson, the male coach of a high school girls’ basketball team complained to his supervisors that inadequate funding, equipment, and facilities for girls’ sports violated Title IX. Coach Jackson’s superiors ignored his complaint and began issuing negative work evaluations. Five months after Jackson lodged his complaint, the school district terminated him as a coach.

Jackson brought action against the school district, alleging retaliatory discharge for blowing the whistle on the school district’s violation of Title IX. The district and appellate courts dismissed the claim, concluding nothing in the text of Title IX specifically allowed for a retaliation claim. But the U.S. Supreme Court reversed, holding that Jackson stated a cause of action despite the lack of a specific whistleblower provision within the statute.

The Court likened Jackson to Sullivan v. Little Hunting Park, Inc.,⁴ in which the Court held that a shareholder expelled for speaking out against race discrimination to support a minority lessee could recover for retaliation: "Retaliation for Jackson’s advocacy of the rights of the girls’ basketball team in this case is ‘discrimination’ ‘on the basis of sex,’ just as retaliation for advocacy on behalf of a black lessee in Sullivan was discrimination on the basis of race."

Dissenting, Justice Thomas characterized the Court’s broad interpretation of Title IX as "a prophylactic enforcement mechanism designed to encourage whistleblowing about sex discrimination."⁵ In other words, despite the fact that Title IX does not explicitly provide whistleblower protection, the Court created such protection to foster the goal of preventing discrimination.

Like the U.S. Supreme Court, Washington courts have long demonstrated a willingness to look beyond the terms of a statute to protect whistleblowers. Washington recognizes a cause of action for discharge in contravention of public policy. To state a claim for discharge in violation of public policy, an employee must prove : (1) that a clear public policy exists; (2) that discouraging the employee’s conduct would jeopardize public policy; (3) that the public-policy conduct caused the dismissal; and (4) that the defendant had no overriding justification.⁶ In Dicomes v. Washington, the Washington Supreme Court recognized a "public policy found in protecting employees who are discharged in retaliation for reporting employer misconduct, i.e., employee ‘whistleblowing’ activity."⁷ While the defendant argued that employer "misconduct" should be limited to violations of state statutes, the Court held otherwise: "[I]n determining whether a discharge contravenes the public policy of protecting employees who report employer misconduct, we will consider whether the employer’s conduct constituted either a violation of the letter or policy of the law, so long as the employee sought to further a public good."⁸ Thus, an employer who abides by the letter of Washington law but terminates an employee for reporting wrongdoing that amounts only to a violation of the "policy of the law," the employer may still face liability for retaliatory discharge.

For example, in Blinka v. Washington State Bar Ass’n, a WSBA employee testified against the WSBA in a deposition.⁹ After her testimony, the employee’s performance deteriorated and the WSBA terminated her for performance reasons. Blinka alleged that while the WSBA had not violated the explicit language of Court Rule 45 (allowing for the subpoena and testimony of witnesses), it had violated the spirit of that Rule. Although the court ultimately denied Blinka’s claim, the court agreed that violating the policy underlying Rule 45 could form the basis of a retaliation claim. Courts will not only look to the policy of Washington statutes, but to the policy of any Washington regulation, even the Rules of Court.

State and federal court expansion of statutes to provide shelter for employees acting in the interest of public policy creates a troubling dilemma for employers. Looking to the text of the statute is no longer sufficient. Instead, employers must presume that whenever they have any form of a legal obligation, the employee complaining of the employer’s failure to meet such an obligation will be protected.

Sometimes the identity of the whistleblowers themselves may cause the employer to overlook them as an obvious source of liability. In Merritt v. Dillard Paper Co., a female employee filed suit against Dillard Paper Company, alleging Dillard’s agents had subjected her to sexual harassment.¹⁰ Among the specific wrongdoers she identified was employee Harry Merritt. During his deposition, Mr. Merritt admitted he had made several sexual remarks to female employees. Ultimately, Dillard settled with the female employee.

After settlement, Dillard’s president reviewed the deposition transcripts of the five employees who had been identified as harassers. He then took disciplinary action against the employees based on the admissions made in the depositions. Viewing Mr. Merritt’s testimony as the "most damning," Dillard terminated Merritt.

Suddenly, Meritt transformed from villain to victim. Meritt filed suit against Dillard Paper Company, claiming whistleblower protection under Title VII. Initially, the district court granted summary judgment in Dillard’s favor, holding that Title VII’s anti-retaliation provision did not apply. However, the Eleventh Circuit reversed, holding that despite the fact that he had admitted sexually harassing a Dillard employee, he was protected by Title VII for his participation in the Title VII proceeding. The court concluded: "[H]e was entitled to protection . . . not from being fired because of his sexually harassing behavior and its ill effects on the company. He was entitled to protection only from retaliation against him because of his participation as a deponent."¹¹

As shocking as the Eleventh Circuit’s decision may seem, employers may easily protect themselves against such unlikely whistleblowers. Rather than terminating an employee based on her admissions in legal proceedings, employers should be careful to make clear that the basis for their adverse employment action is the employee’s inappropriate behavior at work. Had Dillard terminated Merritt based on his conduct rather than his incriminating deposition testimony, the Eleventh Circuit suggests Dillard would have prevailed.

Even some statutory sources of whistleblower protection go unnoticed. Few employers know of the False Claims Act ("FCA"), yet since its inception it has made way for billions in civil verdicts. The FCA creates liability for any person who knowingly attempts to defraud the United States Government.¹² The risk for employers frequently arises when they contract to provide services to the federal government.

One unique feature of the FCA is a mechanism which allows private individuals to bring an action on the government’s behalf and earn some portion of the judgment that is ultimately obtained. Such an action is known as a "qui tam" action, and its effect on employers is clear: employees have a financial incentive to reveal their employer’s deception of the federal government. If and when an employer is faced with such a claim, it must treat that employee with great caution. The FCA proscribes "discharging, demoting, suspending, threatening, harassing or in any other manner discriminating against an employee in the terms and conditions of employment" based on the employee’s claim of an FCA violation. ¹³

Nationwide, recovery under the FCA claims has increased dramatically, from $382 million in 1994 to $1.56 billion in 2003.¹⁴ As the qui tam action becomes an increasingly popular method for public redress and personal gain, employers contracting with the federal government will see an increased exposure to liability. If an employee voices a concern that her employer may be deceiving the federal government, the employer must treat her with the same care as it would any other whistleblower.

By now, the problems should be imminently clear: Whistleblower liability is tucked into every crevice of the law. Employers must create channels for whistleblowers to voice their concerns, and develop plans for responding to such grievances. A procedure must be established, made known to the employees, and implemented in a uniform manner. In order to provide the best defense should a complaint of retaliatory conduct be alleged, employers are encouraged to do the following:

1. Have an anti- retaliation provision in manuals and employee handbooks. If there are multiple provisions, ensure that policies are consistent.
2. Have a written, management-side procedure for review of complaints. It may work best to organize a committee comprised of individuals from relevant departments, including human resources and corporate counsel. Consider implementing a standard for how quickly the committee must convene after receipt of a complaint.
3. When an alleged violation is received, provide notice to the alleged actor(s) acknowledging that the company received a report of alleged violations and is investigating the allegation.
4. In many harassment situations, employers may transfer the complaining employee or otherwise reassign his or her supervisor who is the subject of a retaliation complaint made by the employee. However, courts are split over whether such a transfer constitutes an adverse employment action. To date, courts in general hold that a transfer alo ne is not adverse, if the working conditions are generally similar and there is no adverse difference in pay. Caution should be used when considering a transfer, especially in a Sarbanes Oxley setting, where a transfer would violate the Act.
5. If transferring is not appropriate, consider assigning the complaining employee a new supervisor/manager who is unaware of the complaint. Keep the new supervisor/manager ignorant of the reporting since adverse employment actions cannot constitute retaliation if the actor responsible for the adverse employment action was unaware of the "protected conduct." However, bear in mind that if, as a result of replacing the supervisor, the complaining employee is treated differently by co-workers or her former supervisor, this option may result in a Sarbanes Oxley violation.
6. Conduct an unbiased investigation of the retaliation complaint, preferably by an outside firm.
7. Limit communication regarding the material violations complaints to those with a "need to know."
8. Consider a moratorium on pending adverse actions if you are aware that a lawful report of an alleged material violation has been made. Postponing a demotion, termination or other adverse action may protect the corporation from a retaliation complaint.
9. Always maintain a paper trail of management deliberations and actions so that the records reflect the consideration and decisions regarding adverse actions occurred prior to the report of alleged material violations.
10. Review and maintain all retrievable emails to and from the complainant and his or her supervisor and any other knowledgeable employees to assess the gravity of the alleged complaint.
11. When advising employees that a complaint has been received and an investigation will be undertaken, have each employee sign a statement acknowledging she has been advised that retaliatory conduct will not be tolerated.

Have no doubt for whom the whistle blows, "it blows for thee." As whistleblower protection continues to grow in each judicial opinion and each new piece of legislation, the only factor employers can control is their internal grievance procedures. By implementing sound procedures and treating each employee grievance with the same caution and respect, employers will minimize their risk of liability.

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.