Imagine this: You're a compliance officer who receives a complaint on a whistleblower hotline from an employee alleging that a supervisor is sexually harassing a female co-worker. But along with that allegation, the employee also accuses the supervisor of breaking into his home and moving furniture around, poisoning the food in his refrigerator, and sending helicopters to hover around his house to spy on him.
Sound like the plot of a paranoid fiction novel? Guess again. Real-life employee complaints like these (and yes, this one did happen) underscore just how baseless and bizarre some whistleblower reports can appear on their face. But beware; not taking them seriously or providing the same protections that employers would provide to other whistleblowers can be spell disaster.
“We thought he was a little bit nuts,” Martha Zackin, a partner with the labor and employment law firm Bello Welsh, says of the employee who raised the wild allegations. “If I was a betting person, I would have put money on it that this claim was nonsense.”
After launching an internal investigation, however, the company discovered that the employee's complaints did have at least some merit. Since the whistleblower provided specific names along with his complaint, the company was able to follow up on that information by directly interviewing the employees involved.
“As it turned out, the supervisor was not only sexually harassing the female co-worker, but stalking her outside of work,” says Zackin. Even though the allegations didn't involve any statutory whistleblower violations, the wrongdoing itself could have caused the company a lot of legal problems down the road if it had never been investigated at all, she says.
The lesson to be learned, say compliance advisers, is to never ignore a whistleblower report, no matter how baseless it may appear to be. “Make that determination based on a reasonable investigation of your own,” says Randy Stephens, vice president of advisory services at Navex Global.
Most companies have improved whistleblower reporting systems to the point where they do a reasonable job at handling serious charges that come through various channels. But it is the seemingly off-the-wall and dubious claims, or those from employees that have a spotty employment history that can trip companies up. “That's where some companies run into legal trouble,” says Heather Sager, a member of the labor and employment group at law firm Vedder Price. “They reach a conclusion before they do the investigation.”
Historically, employers haven't always put a high premium on having a structured, dedicated, well-trained team to focus on the investigation of whistleblower claims, says Sager. Today, companies ignore whistleblower reports at their peril. “When employees make bizarre claims, or wrap a bizarre claim around something that's real, the tendency is to ignore it,” says Zackin.
In addition to having greater legal protections, employees also are much more familiar with their whistleblower rights than ever before, due not only to growing media coverage of whistleblower lawsuits and awards, but also the increasing sophistication of ethics and compliance programs. Thus, employers who don't have robust policies and procedures in place to investigate whistleblower reports will “have to play catch-up in order to effectively defend against these types of claims,” says Sager.
Serial Reporters
Senior managers may also be quick to dismiss a whistleblower report based on the profile of the employee lodging the complaint. They have a natural tendency to discount anonymous reporters, for example, “because they often see them as disgruntled employees,” says Stephens.
While it's true that claims by anonymous whistleblowers are less likely to be accurate than those by employees who provide their name, the difference is small. A recent hotline benchmarking report conducted by NAVEX found that the gap in the overall substantiation rate between anonymous reports and named reporters has remained at 9 percent or less over the last four years. Given that 36 percent of anonymous reports in 2013 were substantiated, compared with 45 percent of named reporters, the findings prove these reports are “valuable and credible,” the report stated.
“I see a tremendous amount of whistleblower claims that really are not well-founded or grounded in reality.”
—Steven Pearlman,
Partner,
Proskauer
Senior managers may have a tendency to discredit serial reporters, in particular, because the majority of the reports they make more often than not come down to allegations of personality conflicts as opposed to any serious compliance violation. According to the NAVEX report, 68 percent of hotline calls from repeat reporters related to an HR, diversity, or workplace conflict matter.
Nonetheless, reports from repeat whistleblowers are actually more reliable than concerns reported by an employee who is making a complaint for the first time. According to the NAVEX report, first-time reporters turn out to be right 36 percent of the time, compared to 40 percent for repeat whistleblowers in 2013. The finding is consistent with similar studies in the past, says NAVEX.
Baseless Reports
Another common type of whistleblower claim that senior managers have a tendency to ignore is one that is related to a compliance violation, but seems baseless on its face, due to the employee's own misinterpretation of the company's policies and procedures. “I see a tremendous amount of whistleblower claims that really are not well-founded or grounded in reality,” says Steven Pearlman, a partner in the labor and employment law department of law firm Proskauer.
“It doesn't mean the person is lying or acting in bad faith,” Pearlman adds. “It means the person who is blowing the whistle is missing the full context of the situation.”
Even these kinds of claims cannot be ignored. “It's never going to be okay in a deposition or on witness stand to say, ‘we just knew,'” says Sager. “From a practical matter, that's what the company would be stuck saying if they didn't investigate.”
REPEAT REPORTERS
The chart below from NAVEX Global shows the median reporting rate by allegation category for first time and repeat reporters in 2012 and 2013.
Source: NAVEX Global.
Still, companies have some legal protections against retaliation charges when whistleblower allegations are false. In the case Day v. Staples, the U.S. Court of Appeals for the First Circuit held in February 2009 that whistleblower protections under Sarbanes-Oxley do not apply where there exists no objectively reasonable belief that an employer has engaged in securities fraud.
The lawsuit was filed by Kevin Day, a former entry-level analyst at Staples, who alleged that the company was improperly processing customer returns. Even after supervisors and other senior management found no evidence of fraud and met with him to explain the company's business practices, Day remained unconvinced.
Staples later terminated him for performance reasons unrelated to his complaint. He consequentially filed a whistleblower claim for breach of contract and wrongful termination. On appeal, the First Circuit held that “a complaint about corporate efficiency is not within the intended protection of SOX.” It also held Day's termination didn't constitute a breach of contract, because he was an at-will employee, which the company's employee handbook clearly stated did not constitute a contract of employment.
This ruling demonstrates that companies can successfully provide a defense to whistleblower claims by responding to reports in a timely manner, and documenting everything. Employers need to document the steps they took, the reason for taking them, and when they were taken, so that you can be armed in the event of an anti-retaliation claim.
The most important step supervisors and managers should take is getting back to the individual who made the complaint, rather than potentially doing more damage by either ignoring the report, or exacerbating it through retaliation, says Stephens. “You need to demonstrate to your employees that whatever the report is that you're taking it seriously.”
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