Expanded whistleblower protections for employees at federal contractors and their sub-contractors could mean more enforcement actions against companies in the defense industry if reports of wrongdoing are not handled properly.
The Department of Defense, General Services Administration, and National Aeronautics and Space Administration issued interim rules last month enhancing whistleblower protections for a wider range of federal contractor employees than previously covered. The rules amend the Federal Acquisition Regulations (FAR) and Defense Federal Acquisition Regulations Supplement by enhancing whistleblower protections for employees at defense contractors and their sub-contractors.
The rules implement provisions mandated by the National Defense Authorization Act for fiscal year 2013, signed into law in January. “The statute set out the framework, but now that the rules are actually in effect, government contractors will really have to pay close attention to them,” says Peter Eyre, a partner in the government contracts group of law firm Crowell & Moring.
Among the major changes is that the rules extend whistleblower protections to employees of sub-contractors. Whistleblower protections previously only applied to employees of prime contractors. “Both sub-contractor and sub-contractor employees are now covered by these rules,” explains Eyre.
Under the new rules, employees can also make protected disclosures to a wider range of entities and individuals. In the past, whistleblower protections for contractor employees extended only to reports made outside a company, including those made to an inspector general, a member of Congress, or a law enforcement agency. The new rules now cover “internal disclosures” made to a “management official or other employee of the contractor or sub-contractor who has the responsibility to investigate, discover, or address misconduct.”
The change means that more employees are likely to have protected status after they make a claim. “That's a really important change,” says Eyre. Now that internal reports can trigger whistleblower coverage, contractors must assess whether to make enhancements to their compliance and ethics program to ensure that management officials understand how to respond in the event that an employee raises a concern to them, he says.
More Enforcement Actions
As a result of the expanded whistleblower protections, Congress already has indicated that more enforcement actions may be on the way. According to a Senate Report made by a representative of the inspector general, employees of federal contractors filed 163 whistleblower retaliation complaints between 2009 and 2011, only five of which were investigated by the Department of Defense Inspector General.
The report stated that the reason behind the limited number of investigations was that most of the complaints were “outside the scope of the statute, because the alleged wrongdoing was reported by sub-contractor employees or was reported to company management.” Under the new rules, those limitations no longer apply, potentially opening the door to an increasing number of whistleblower claims against defense contractors.
“If an employer can show that its decision was not retaliatory and instead was based on legitimate reasonable factors, then it's quite likely that employers will be able to stave off, or defend, such claims.”
—Steven Pearlman,
Partner,
Proskauer
“We will certainly see as a result of the expanded coverage more reports being made to inspectors general,” which could result in “many more investigations,” says Eyre.
Some employment law experts argue that the new rules lower the burden of proof, making it easier for whistleblowers to succeed in a whistleblower claim. “On its surface, it may appear the burden of proof is very lopsided,” says Steven Pearlman, partner and co-head of the whistleblowing and retaliation group at law firm Proskauer. “But if an employer can show that its decision was not retaliatory and instead was based on legitimate reasonable factors, then it's quite likely that employers will be able to stave off, or defend, such claims.”
The FAR rule also establishes a four-year whistleblower “pilot program” to extend whistleblower protections to all federal contractor employees, with the exception of the DoD, NASA, and the Coast Guard. The pilot program will end on Jan. 1, 2017.
“They call it a pilot program, but I think that can be little misleading in the sense that these are requirements that are applicable today,” says Eyre. “The fact that it's a pilot program doesn't mean that contractors are under any less obligation to comply.”
Vague Language
A biggest challenge for compliance officers in the federal contracting industry will be interpreting the language in the provisions. A lot of the language in the rules is “undefined or unclear,” says Pearlman.
The pilot program, for example, prohibits federal executive agency contractors and sub-contractors from retaliating against an employee for disclosing evidence of:
“Gross mismanagement” of a federal contract or grant;
“Gross waste” of federal funds;
“Abuse of authority” relating to a federal contract or grant;
Violation of law, rule, or regulation related to a federal contract or grant; or
Substantial and specific danger to public health or safety.
“How do you define ‘abuse of authority?' How do you make a determination of whether there is ‘gross' waste?” says Pearlman. “Employers are in need of definitive guidance in order to govern themselves and defend themselves in these types of cases.”
Because the rules largely reflect the NDAA mandate, the final rules probably won't include many major changes. As the rules apply to some of the more amorphous terms in the rules, however, there may be some further clarifications made regarding the intent and scope of certain provisions, says Eyre.
CONTRACTOR POLICY
Below is an excerpt from the FAR Interim Rule, which details the policy contractors and sub-contractors must abide by.
3.908–1 Scope of section.
(a) This section implements 41 U.S.C. 4712.
(b) This section does not apply to—
(1) DoD, NASA, and the Coast Guard; or
(2) Any element of the intelligence community, as defined in section 3(4) of the National Security Act of 1947 (50 U.S.C. 3003(4)). This section does not apply to any disclosure made by an employee of a contractor or sub-contractor of an element of the intelligence community if such Disclosure (i) Relates to an activity of an element of the intelligence community; or (ii) was discovered during contract or subcontract services provided to an element of the intelligence community.
3.908–2 Definitions.
As used in this section—Abuse of authority means an arbitrary and capricious exercise of authority that is inconsistent with the mission of the executive agency concerned or the successful performance of a contract of such agency.
Inspector General means an Inspector General appointed under the Inspector General Act of 1978 and any Inspector General that receives funding from, or has oversight over contracts awarded for, or on behalf of, the executive agency concerned.
3.908–3 Policy.
(a) Contractors and sub-contractors are prohibited from discharging, demoting, or otherwise discriminating against an employee as a reprisal for disclosing, to any of the entities listed at paragraph (b) of this subsection, information that the employee reasonably believes is evidence of gross mismanagement of a Federal contract, a gross waste of Federal funds, an abuse of authority relating to a Federal contract, a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract (including the competition for or negotiation of a contract). A reprisal is prohibited even if it is undertaken at the request of an executive branch official, unless the request takes the form of a non-discretionary directive and is within the authority of the executive branch official making the request.
(b) Entities to whom disclosure may be made.
A Member of Congress or a representative of a committee of Congress.
An Inspector General.
The Government Accountability Office.
A Federal employee responsible for contract oversight or management at the relevant agency.
An authorized official of the Department of Justice or other law enforcement agency.
A court or grand jury.
A management official or other employee of the contractor or sub-contractor who has the responsibility to investigate, discover, or address misconduct.
(c) An employee who initiates or provides evidence of contractor or sub-contractor misconduct in any judicial or administrative proceeding relating to waste, fraud, or abuse on a Federal contract shall be deemed to have made a disclosure.
Source: FAR Interim Rule, Federal Register.
Whistleblowers have three years in which to file a retaliation complaint to the inspector general of the executive agency involved. Where a sufficient basis for a whistleblower claim exists, contractors may be required to take one or more of the following actions:
Take affirmative action to abate the retaliation.
Give back the employee's position prior to the retaliation, as well as any compensatory damages (including back pay), employment benefits, and other terms and conditions of employment that would have applied to that position had the wrongdoing not occurred.
Pay the employee an amount equal to the aggregate amount of all legal costs and expenses incurred, including attorneys' fees and expert witnesses' fees) that were reasonably incurred.
Based on the language of the rule, agencies appear to have a broader set of damages available to them in the event of a violation, says Eyre. How the rule actually will be interpreted and applied, however, will have to be sorted out through individual cases as they arise, he says.
The new rules could discourage companies from disciplining a problem employee, who may also happen to be a whistleblower. If a contractor was ordered to give a problem employee his job back based on the outcome of a whistleblower claim, “at what point in time could you take action based on the employee's actual poor performance after the reinstatement?” says John Richter, a litigation partner for King & Spalding. “Those are the kinds of matters that are always difficult or challenging for companies to manage, even when they're trying to do the right thing.”
The pilot program further establishes new disclosure obligations by requiring that contractors and sub-contractors inform their employees in writing of their whistleblower rights and protections “in the “predominant native language of the workforce.”
Federal contractors and sub-contractors must also include notice of the whistleblower rule changes in all contract clauses issued on or after Sept. 30, when the rules took effect. With respect to any “major” modifications to contracts awarded prior to that time, the rules “encourage” contractors to include those changes in the contract.
Across the board, enforcement and regulatory authorities are paying greater attention to whistleblower protections, and these rules are consistent with that broader trend. New whistleblower claims are “going to take time to percolate,” Pearlman says, but they are on the way. “Federal contractors now really need to be in tune to this.”
The interim rules will remain open for comment until Nov. 29.
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