Companies Respond to Increased Whistleblower Protections

Most companies are finding they need to do more to add protections for an expanding group of potential whistleblowers, as new regulations on retaliation against employees who raise concerns proliferate.

Not only have employers needed to comply with new whistleblower protections included in the Dodd-Frank Act administered by the Securities and Exchange Commission and the Commodities Futures Trading Commission, federal regulators have boosted protections for whistleblowers in existing programs. The Occupational Safety and Health Administration, for example, has significantly strengthened protections, says Beth Slavet, director of the agency's Whistleblower Protection Program. The agency has also beefed up enforcement, as OSHA now has 96 field investigators.

In response compliance officers and other executives are taking steps to reduce the likelihood that their companies end up implicated in a whistleblower lawsuit. “There are things companies can do to limit their risk,” says Jessica Tillipman, assistant dean with the George Washington University Law School. Companies are providing additional training on how to handle whistleblowers, working to create a culture where employees are encouraged to speak up, and conducting more follow-up with employees who use whistleblower hotlines to ensure their concerns are being addressed.

Companies haven't always done enough to protect whistleblowers, says Harold Burke, an employment attorney at the law firm of Harold R. Burke. “Whistleblowing isn't popular.” The individuals who question some aspect of their companies' conduct often are challenging executives in positions of power who don't like being questioned, let alone criticized, he says. Even coworkers may worry that a whistleblower is endangering the organization and by extension their jobs, adds Burke.

Complicating the task of protecting whistleblowers is the fact that they could be advancing a personal grudge, could have caustic personalities, or, of course, they could be wrong about their allegations. Some whistleblowers, although by no means all, may share several traits. “There's no single personality type, but most have a high level of moral intensity,” says Geoffrey Rapp, professor of law and values at the University of Toledo College of Law. They may not be the type of people most of their coworkers would choose to have a beer with, he adds. “Whistleblowers can be difficult.”

Whistleblowers also may “tend to be people who view themselves as outsiders in an organization,” Burke says. Perhaps they've been passed over for promotions or criticized for their approach on the job.

These traits could make it tempting to dismiss a whistleblower's allegations. That can be a serious miscalculation, especially in light of the greater attention the government is now paying to whistleblower programs, Rapp says. “Just because they're odd or have ulterior motives, they may still have spotted something of corporate concern,” Rapp says. The compliance team needs to separate any personal feelings about a whistleblower from the allegations and investigate complaints on their merits, he adds. 

Taking employees' allegations seriously isn't a guarantee that some won't decide to take their concerns to authorities outside the company, perhaps motivated by the prospect of an award. Recent payouts from the whistleblower programs, however, generally haven't been the outsize awards that some had feared. The SEC's Whistleblower Office, for example, paid out its first award, of $50,000, in August of 2012, or approximately a year after the Commission established the Office. In that time, it received approximately eight tips per day.

The award, according to the SEC, represented about 30 percent of the amount collected, which is the maximum allowed under the law. The bulk of future awards likely will fall short of the 30 percent maximum, Burke predicts. “To be at the upper limits of recovery, it will have to be an exceptional case.” The CFTC, according to its Fiscal Year 2012 Annual Report, didn't pay any whistleblower awards in the year ending September 30, 2012.

While there had been some concern that the newer whistleblower programs would prompt would-be whistleblowers to bypass their companies' internal reporting mechanisms and go straight to the government with their allegations, that generally hasn't proven to be the case. A 2012 survey by the Ethics Resource Center, “Inside the Mind of a Whistleblower,” found that while one in six whistleblowers did report their concerns externally, 84 percent did so only after trying to report internally first. “Only two percent of employees solely go outside the company and never report the wrongdoing they have observed to their employer,” the report states. That finding increases the importance of monitoring whistleblower hotlines and other reporting mechanisms to ensure that whistleblowers' concerns are being addressed.

Some agencies have paid significant bounties for information provided by whistleblowers. The IRS' awards, for example, have been higher than those paid by other agencies. In fiscal year 2012, the IRS paid out just over $125 million dollars in whistleblower awards, according to a 2012 report to the Congress. While the report doesn't provide figures for individual awards, it does say that it paid 128 awards, or an average of about $979,000 each.

OSHA's Whistleblower Program works a little differently: A whistleblower whose claims are found to have merit may be entitled to back pay, benefits, and other possible remedies, which the employer would cover.  A small percentage of claims typically are found to have merit. In 2012, that number was just 1.5 percent. In addition, settlements were reached in about 20 percent of cases.

The newer whistleblower programs by the SEC and the CFTC are still evolving. It's not yet clear where the SEC's investigatory priorities will land, Burke says. Will the agency focus on, for instance, false financial statements or insider trading? What's more, many investigations take years to unfold, Burke adds. “These are complicated cases and will be vigorously defended.” The largest potential stumbling block to the programs' ongoing success likely will be funding. “Are there adequate resources to deal with all the substantiated complaints?” Burke asks.

At least one bill has been proposed in an attempt to weaken the whistleblower provisions established under the Dodd-Frank Act. The Whistleblower Improvement Act, sponsored by Rep. Michael Grimm of New York, would have, among other changes, prohibited an award to any whistleblower who failed to report the information internally first, except in certain cases. While the bill failed to advance out of committee, lawyers expect legislators to propose more changes to the SEC whistleblower program in the future, including new attempts to require internal reporting to qualify for rewards.

Minimizing Retaliation Risk

Compliance officers who want to minimize the risk that of whistleblower retaliation claims can start by taking whistleblowers' claims seriously, Tillipman says. “They need to create an atmosphere in which people feel comfortable disclosing information.”

CFTC WHISTLEBLOWER DETAILS

Below is a glimpse at the Commodity Futures Trading Commission's whistleblower program and award payouts during the period of Oct. 1, 2011, through Sept. 20, 2012.

The Commission did not pay any whistleblower awards during the period. During the period, the Commission's Whistleblower Office (WBO) received 58 whistleblower tips and complaints on Form TCR, either by mail or facsimile, or through the Commission's Web portal for receiving tips, complaints and referrals, which was launched on

Sept. 10, 2012. WBO also received an additional 52 separate non-whistleblower tips and complaints, most often by e-mail

to whistleblower@cftc.gov. WBO communicates with all non-whistleblower correspondents and invites them

to become whistleblowers by submitting a Form TCR. WBO forwards all tips and complaints to

the Commission's Division of Enforcement for evaluation and disposition.

During the period, WBO received tips and complaints regarding activities such as market manipulation through corners and squeezes, dissemination of false information into the market about supply and demand, misrepresentations to

customers regarding the handling of their accounts, physical trading designed to influence monthly price indexes,

Ponzi schemes and other off-exchange investment scams involving futures, and wash trades.

WBO posts Notices of Covered Actions (NCAs) for all judgments and orders entered after July 21, 2010, which impose more than $1 million in monetary sanctions. WBO posted 78 NCAs during the period, and received 16 whistleblower award claims on Form WB-APP.

WBO is also currently working to educate interested stakeholders about the whistleblower program—including whistleblowers and their attorneys, industry and professional groups, other government agencies, self-regulatory organizations and academia—through panel and seminar appearances, Webinars, speeches, articles, Web postings, and by answering questions posed directly to WBO about the program.

Source: Commodity Futures Trading Commission.

Moreover, the fact that a company's whistleblower hotline never receives calls or tips is not necessarily a positive, Tillipman adds. “It means that people don't know about it or don't want to use it.” It also pays to check that the line actually works; it's not unheard of for a line to no longer be in service, but no one at the company is aware of the fact. A healthy tip line should be steadily receiving complaints, although only rarely (if ever) should they be serious, Tillipman says. 

Equally important, companies need a mechanism to promptly and methodically follow up on the tips they receive. “If you ignore them, that's when employees get angry,” Tillipman says.

While the awards offered by the government's whistleblower programs might seem like tough competition for internal compliance initiatives, Rapp notes that companies are free to incorporate similar elements within their own programs. “There's no reason there can't be a bounty program at a company.”

Most importantly, compliance officers and other executives need to look at their corporate culture. That requires taking a hard look at the behaviors that are rewarded, and checking that they mesh with the actions management says it wants to encourage.  

“No one likes to tell the boss they're doing something wrong,” Slavet says. But employees need to “know that if something's wrong, the company will fix it, versus kill the messenger.”