October 3, 2022

Volume XII, Number 276

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October 03, 2022

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5 Keys to Successfully Defend Against Whistleblower Claims 

Several different laws empower individuals to alert law enforcement about potential corporate wrongdoing. Some of them provide a financial incentive for people to blow the whistle. Businesses and executives can take several steps to successfully defend against whistleblower complaints and claims that have already begun, as well as several precautions to prevent one from ever being made.

1. Know Which Laws Protect Whistleblowers, and Which Ones Incentivize Them

Generally speaking, whistleblowers will be legally protected from retaliation through different whistleblower programs because they have reported corporate fraud, wrongdoing, or criminal activity to law enforcement or a regulatory agency. Those protections come from a variety of sources and depend on the nature of the conduct being reported.

For example, workers can file complaints with the Occupational Safety and Health Administration (OSHA) concerning unsafe or unhealthy workplace conditions that violate the Occupational Safety and Health (OSH) Act. Section 11(c) of the OSH forbids any act of retaliation or discrimination against someone who has filed such a complaint.

Laws that provide these protections serve as passive incentives for workers to blow the whistle on potentially wrongful corporate conduct. 

However, some whistleblower laws go further. Instead of just protecting workers from retaliation after reporting what appears to be misconduct, some laws incentivize reporting by providing whistleblowers with a cut of the monetary sanctions collected or any civil penalties that come from the information that they provide. Two important examples are the:

  1. False Claims Act (31 U.S.C. § 3729 et seq.)

  2. Dodd-Frank Act (15 U.S.C. § 78u-6)

These whistleblower laws give whistleblowers up to 30 percent of the civil penalties that they or the federal government can collect from the corporate entity.

Businesses that are regulated by these laws should take extra precautions to prevent whistleblower claims from happening. The financial incentives that are available to whistleblowers increase the likelihood that they will pursue a claim.

2. Encourage Internal Reporting

Employers are not allowed to prevent whistleblower reports: They cannot forbid employees from reporting potential misconduct to a law enforcement agency or pursuing a whistleblower or qui tam lawsuit. They also cannot use confidentiality or non-disclosure agreements to prevent reporting – courts will not enforce these provisions.

However, employers and corporations can create procedures that encourage internal reporting, first. If employees see these procedures as effective and legitimate, they may be more willing to bring potentially incriminating information to their supervisor, first, rather than to law enforcement.

3. Conduct a Legitimate Internal Investigation

Companies that utilize an internal reporting procedure risk undermining their value if they do not take steps to ensure their legitimacy. Employees are rarely fooled by sham internal investigations, and if they are convinced that their employer uses one to find and cover up evidence of wrongdoing then they are very likely to ignore the internal process and take their information to law enforcement, instead. This effectively renders the internal process useless.

For companies and executives, conducting a legitimate internal investigation of the company's internal compliance – even if it involves independent outside counsel – is far better than an investigation conducted by a law enforcement agency like the Securities and Exchange Commission (SEC) or the Department of Justice (DOJ). Businesses can exert at least some control over an internal investigation, and at the very least will understand its scope and have access to its findings. These benefits are absent when the investigation is run by a law enforcement agency.

Additionally, an internal investigation that does not have conflicts and is unbiased can be used against subsequent lawsuits or claims of wrongdoing. Sham internal reports, on the other hand, can be easy to spot and, once the conflict or bias has been drawn out, tend to undermine the company’s credibility.

Finally, the results of an internal investigation cannot be used as the basis for a subsequent whistleblower claim. In the context of whistleblower claims under the Securities and Exchange Act, for example, whistleblowers have to provide the SEC with “original information.” According to 17 CFR § 240.21F-4, information is only original if it is derived from the whistleblower’s independent knowledge or analysis. The SEC, however, does not consider information obtained in an internal audit, even if the audit is performed by outside counsel, as “independent knowledge or analysis” (17 CFR § 240.21F-4(b)(4)(iii)(B)).

4. Make Sure Not to Retaliate Against a Whistleblower

In nearly every whistleblower case, the whistleblower is legally protected from retaliation or discrimination for filing their claim with a law enforcement agency. Permitting such whistleblower retaliation would deter the kinds of reporting that the government sees as a public good. 

To protect this public good, the government takes a broad view of what amounts of discrimination or retaliation, should the employer retaliate. It is not confined to firing, laying off, or terminating the whistleblower. It also includes:

  • Demotions

  • Suspensions

  • Reassignments

  • Placing the whistleblower on administrative leave

  • Creating a hostile working environment for the whistleblower

  • Issuing a bad performance review that is then used as the grounds for an adverse employment action

It can also include even threatening to take any of these actions.

Because of how wide-reaching these actions are, employers have to tread very carefully around workers who have filed whistleblower claims with the government. Not doing so can subject the company to even more legal action.

5. Look for an Ulterior Motive for the Claim

In some whistleblower cases, it is precise because the worker benefits from these legal protections that they file their claim. Some employees see the legal shield from workplace retaliation as the primary reason to blow the whistle on purportedly wrongful corporate conduct. In these cases, the evidence of wrongdoing can be slim. The workers, however, bring it to law enforcement and report fraud because he or she is more interested in avoiding an adverse employment action, like a termination or a demotion, than anything else.

In cases under the False Claims or Dodd-Frank Acts, the financial incentive of blowing the whistle can also be a factor. 

While attacking the worker’s motive does not directly challenge the evidence that they are presenting, it can at least help to defend against their claim by undermining their credibility.

Oberheiden P.C. © 2022 National Law Review, Volume XII, Number 153
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About this Author

Nick Oberheiden Criminal Defense Attorney Oberheiden PC
Federal Criminal Defense Attorney

Dr. Nick Oberheiden focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation. He has defended clients in PPP Loan Fraud cases and COVID-19 investigations. Nick also directs internal corporate investigations and he leads defense teams in whistleblower actions, corporate defense cases, as well as cases involving national security and elected officials.

Clients from more than 45 U.S. states have hired Nick to seek effective protection against government...

888-680-1745
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