Category: Whistleblower

Don’t Use “Build Back Better” to Sabotage the False Claims Act

Congress is on the verge of setting a dangerous precedent.  As part of the Build Back Better Act, it has added two provisions equivalent to a “get out of jail free card” for Big Banks that violate federal law when they hand out billions in federal mortgage-related benefits.   The two provisions create exemptions to False Claims Act liability by creating blanket immunity from liability when banks fail to exercise due diligence, violate FHA housing regulations, or even directly violate federal laws such as the Truth in Lending Act.

It is obvious why banks want to have their federally sponsored mortgage practices immunized from exposure to the False Claims Act (“FCA”).  The FCA works remarkably well and is widely recognized as “the most powerful tool the American people have to protect the government from fraud.”   The law has directly recovered over $64.450 billion in sanctions from fraudsters since Congress modernized it in 1986.  During the debates on the massive trillion-dollar infrastructure laws enacted or debated this year, corporate lobbyists have been extremely active in successfully preventing Congress from adding any new anti-fraud measures to protect taxpayers from fraud.  As part of these efforts, they targeted the False Claims Act as enemy #1 and already have blocked one key amendment needed to close some weaknesses in that law.

With the Build Back Better Act, these corporate lobbyists have taken their opposition to effective anti-fraud laws to a higher level.  Instead of trying to repeal the FCA, they are simply exempting Big Banks from liability under that law in two new programs.  It is obvious why the Big Banks want the exemption from FCA liability.  As a result of illegal or irresponsible lending and foreclosure practices, such as those that fueled the 2008 financial collapse, banks have had to pay billions in sanctions to the United States.

Two words explain why the FCA is “the most powerful tool” protecting taxpayers from fraud:  Whistleblowers and sanctions.  If you accept federal taxpayer monies, you are required to spend that money according to your contractual agreement or the law.  The FCA’s first secret weapon is whistleblowers.  The law encourages whistleblowers, known as qui tam “relators,” to report violations of the FCA.  Whistleblowers disclosures trigger the overwhelming majority of FCA cases, and the law incentivizes employees to risk their careers to serve the public interest. The second secret weapon is how you prove liability.  Second, when an institution accepts federal monies (such as banks that operate various federally sponsored loan programs), liability can attach if the institution acts in “deliberate ignorance of the truth” when spending federal dollars.  Similarly, if payments are made with “reckless disregard of the truth,” liability can attach.  In other words, corporations (including banks) that accept federal money must ensure that these monies are spent as required by law, regulation, or contract.  Safeguards must be in place to prevent fraud.  If a bank does not have adequate compliance programs to protect against fraud, it cannot plead ignorance when the law is broken and taxpayers are ripped off.

These two key elements of the False Claims Act are precisely what the banking lobby is attempting to undermine through the Build Back Better Act.  The tactics employed by the Big Banks are somewhat devious.  They are doing an end-run around the False Claims Act by exempting themselves from having to engage in any due diligence when spending billions in federal dollars.  The banks are seeking to add language to the Build Back Better Act that will immunize themselves from liability under the False Claims Act when they make payments in “reckless disregard” to the legality of those payments.  The immunities they are seeking legalize “deliberate ignorance” in the use of taxpayer money, in complete defiance of the False Claims Act. Thus, whistleblowers who report these frauds will be stripped of protections they have under the False Claims Act, and the federal government will have no effective way to recover damages from these frauds.

What language in the Build Back Better Act creates an exemption to False Claims Act liability?

Two highly technical provisions are deeply buried within the 2135 pages of the Build Back Better Act’s legislative text. The provisions are sections 40201 and 40202 of the Build Back Better Act.  These two sections establish helpful programs that will provide needed financial support to first-generation homebuyers.  Section 40201(d)(5) would provide $10 billion in down payment assistance. Section 40202(f) would give an interest rate reduction on new FHA 20-year mortgage products to first-time homeowners with a potential value of $60 billion.  But the banking lobby has corrupted these otherwise well-meaning programs. The exemptions obtained by the banks are incubators for massive fraud.  It permits the Big Banks to escape any liability when they abuse the generosity of taxpayers and dole out billions to unqualified individuals.

How do the exemptions work?  To qualify for these taxpayer-financed benefits, an applicant simply has to “attest” that they are first-time/first-generation homebuyers.  That would be the end of the inquiry a bank would need to approve making a payment from the billions allocated in these two programs. Anyone could simply stroll into a bank and “attest” to being such a first-time homebuyer and would thereafter qualify for the federal benefits.  The banks would not be required to do any diligence of their own to confirm the borrower’s eligibility.  Willful ignorance would be legalized.  Reckless disregard in the handling of taxpayer monies would be permitted under this law.  Safeguards, such as requiring banks to adhere to the Truth in Lending Act, which requires verification of a borrower’s statements, would not apply.

Under Sections 40201(d)(5) and 40202(f), banks will not be held liable once they are lied to, even if the bank has reason to know that the borrower is not eligible for the federal payout.  Banks can spend taxpayer money even if the information on an applicant’s loan application directly contradicts the borrower’s attestation that they are a first-time homeowner.  Given the lack of any compliance standards, the temptation to engage in fraud in these programs will be overwhelming.

Permitting banks to escape liability under the False Claims Act opens the door to paying billions of dollars in benefits to unqualified persons.  Such payments rip off the taxpayers and severely hurt all honest first-generation homebuyers denied benefits.  For every fraudster who benefits from this program, an honest homebuyer will be left in the cold due to the reckless disregard of the banks.

Congress should never use a back-door procedure to undermine the False Claim Act, as it sets a dangerous precedent.  It is a devious way to undermine America’s “most effective” anti-fraud law.  Instead of undermining the False Claims Act by granting immunities to Big Banks, Congress should be strengthening anti-fraud laws to protect the taxpayers and ensure that the trillions of dollars spent on COVID-19 relief programs and infrastructure improvement are lawfully spent in the public interest.

Copyright Kohn, Kohn & Colapinto, LLP 2021. All Rights Reserved.
For more articles about banking and finance, visit the NLR Financial, Securities & Banking section.

SEC Awards $40M to Two Whistleblowers: Lessons for Prospective SEC Whistleblowers

On October 14, 2021, the SEC announced that it awarded $40M to two whistleblowers.  According to the order, both whistleblowers provided original information to the SEC that led to a successful enforcement action and provided extensive assistance during the SEC’s investigation.  The first whistleblower received an ward of approximately $32 million and the second received an award of approximately $8 million.  Why did one whistleblower receive an award that is four times greater than the award provided to the second whistleblower? And what can prospective whistleblowers learn from this award determination?

Although the SEC’s order is appropriately sparse (to protect the confidentiality of whistleblowers), it offers some important reasons for the disparity in the two awards:

  • The first whistleblower reported promptly and provided a tip that caused the SEC to open an investigation.
  • The second whistleblower provided important new information during the course of the investigation and was a valuable first-hand witness, but waited several years to report to the SEC. Due to the unreasonable delay in reporting the violations, the SEC reduced the second whistleblowers’ award percentage.
  • Both whistleblowers provided extensive, ongoing cooperation that helped the SEC to stop the wrongdoing, but the first whistleblower provided the information that enabled the SEC to devise an investigative plan and craft its initial document requests. The first whistleblower also “made persistent efforts to remedy the issues, while suffering hardships.”

Lessons for Prospective SEC Whistleblowers

Early Bird Gets the Worm

To be eligible for an award, a whistleblower must first submit “original information.” Original information can be derived from independent knowledge (facts known to the whistleblower that are not derived from publicly available sources) or independent analysis (evaluation of information that may be publicly available but which reveals information that is not generally known).  A prospective whistleblower who delays reporting a violation risks becoming ineligible for an award (another whistleblower may come forward first).

And an unreasonable delay in reporting a violation may cause the SEC to reduce an award.  In making this determination, the SEC considers:

  • whether the whistleblower failed to take reasonable steps to report the violation or prevent it from occurring or continuing;
  • whether the whistleblower was aware of the violation but reported to the SEC only after learning of an investigation into the misconduct;
  • whether the violations identified by the whistleblower were continuing during the period of delay;
  • whether investors were being harmed during that time; and
  • whether the whistleblower might profit from the delay by ultimately obtaining a larger award because the failure to report permitted the misconduct to continue, resulting in larger monetary sanctions.

According to OWB Guidance for Whistleblower Award Determinations, one or more of these circumstances, in the absence of significant mitigating factors, would likely cause the SEC to recommend a substantially lower award amount.

Common reasons that weigh against determining that a delay was unreasonable include:

  • the whistleblower engaging for a reasonable period of time in an internal reporting process;
  • the delay being reasonably attributable to an illness or other personal or family circumstance; and
  • the whistleblower spending a reasonable amount of time attempting to ascertain relevant facts or obtain an attorney in order to remain anonymous.

The significant disparity between the two awards announced on October 14th underscores why whistleblowers should report promptly.

A Whistleblower Can Qualify for an Award for Assisting with an Open investigation

Even though the second whistleblower delayed a few years reporting the violation to the SEC and came forward when the SEC already commenced an investigation, the whistleblower received an award for providing information and documents, participating in staff interviews, and providing the staff a more complete picture of how events from an earlier period impacted the company’s practices.  That result underscores how the SEC’s whistleblower rules permit the SEC to pay awards to whistleblowers that provide information in an existing investigation.  In other words, the fact that the SEC has already commenced an investigation should not cause a prospective whistleblower to forego providing a tip to the SEC.

A whistleblower can qualify for an award if their tip “significantly contributes” to the success of an SEC enforcement action, including where the information causes staff to (i) commence an examination, (ii) open or reopen an investigation, or (iii) inquire into different conduct as part of a current SEC examination or investigation, and the SEC brings a successful judicial or administrative action based in whole or in part on conduct that was the subject of the individual’s original information.

In determining whether an individual’s information significantly contributed to an enforcement action, the SEC considers factors such as whether the information allowed the SEC to bring the action in significantly less time or with significantly fewer resources, additional successful claims, or successful claims against additional individuals or entities.

Whistleblowers are Welcome at the SEC

The SEC issued this $40M award shortly after announcing that it reached a milestone of paying $1B in awards to whistleblowers under the Dodd-Frank SEC whistleblower program.  As of October 14, 2021, the SEC has awarded approximately $1.1B to 218 individuals.

Since assuming the position of SEC Chair earlier this year, Gary Gensler has made several public statements and taken specific actions that suggest that he is a strong proponent of the SEC whistleblower program and is determined to utilize the program to detect, investigate, and prosecute violations of the securities laws.  When the SEC announced that it paid $1B in awards, Chair Gensler stated, “The assistance that whistleblowers provide is crucial to the SEC’s ability to enforce the rules of the road for our capital markets.”

And in remarks for the National Whistleblower Day Celebration, Chair Gensler stated:

The tips, complaints, and referrals that whistleblowers provide are crucial to the Securities and Exchange Commission as we enforce the rules of the road for our capital markets . . . the whistleblower program helps us to be better cops on the beat, execute our mission, and protect investors from misconduct . . . Investors in our capital markets have benefited from the critical information provided by whistleblowers. . . . We must ensure that whistleblowers are empowered to come forward when they see misbehavior; that they are appropriately compensated according to the framework established by Congress; and that those who report wrongdoing are protected from retaliation.

Chair Gensler has also taken action to carry out his commitment to encouraging whistleblowers to come forward.  On August 2, 2021, Chair Gensler suspended the implementation of two recent amendments to the SEC whistleblower rules because these amendments could discourage whistleblowers from coming forward. He directed the staff to prepare for the Commission’s consideration potential revisions to these two rules.

© 2021 Zuckerman Law
For more on SEC and whistleblowing, visit the NLR financial Securities & Banking section.

Protections for Whistleblowers Who Share Company Documents

Frances Haugen, a former product manager at Facebook, recently revealed her identity as the whistleblower who reported Facebook to the U.S. Securities and Exchange Commission (SEC) and provided internal Facebook documents to Congress and to the press. Questions have arisen about what kinds of protections she and other whistleblowers have when it comes to sharing documents with government regulators, Congress, and news outlets. Whistleblowers have a number of protections that allow them to disclose documents, even those that may be deemed confidential; however, the availability of these protections depends on the nature of the documents, the scope of what the whistleblower takes from the company, and to whom she provides these documents.

Documents Related to Securities Violations

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and the Sarbanes-Oxley Act of 2002 (SOX) provide anti-retaliation protections for whistleblowers who share information with specific recipients to report possible securities violations. The SOX anti-retaliation provision, 18 U.S.C. § 1514A, protects employees who report fraud or securities violations to (1) federal regulatory or law enforcement agencies, like the SEC; (2) to a person in the company with supervisory authority over the employee; or (3) to any Congressperson or any committee of Congress. The Dodd-Frank Act’s anti-retaliation provision, 15 U.S.C. § 78u-6(h)(1)(A), prohibits retaliation by an employer against an employee who provides information to the SEC; initiates, testifies in, or assists any SEC action or investigation; or, makes required or protected disclosures regarding securities violations. Under both laws, an employer is prohibited from discharging, demoting, threatening, harassing, or in any way discriminating against whistleblowers as it relates to their employment.

If their employer retaliates against them, whistleblowers may pursue different avenues of relief. Under SOX, whistleblowers may file a complaint with the Secretary of Labor and seek “all relief necessary to make the employee whole,” including reinstatement, back pay, and compensation for any special damages. 18 U.S.C. § 1514A(c). If dissatisfied with the outcome, the whistleblower can seek further administrative and judicial review, but first must exhaust these administrative remedies. 18 U.S.C. § 1514A(b)(2)(A). Under Section 922 of the Dodd-Frank Act, whistleblowers have a private right of action. If an employer violates this provision, the whistleblower may sue directly in federal court. If the whistleblower is successful, she would be entitled to reinstatement, two times the amount of back pay otherwise owed to her, and compensation for litigation costs and attorneys’ fees.

Relevant SEC regulations, such as Commission Rule 21F-17, 17 C.F.R. § 240.21f-17, also protect whistleblowers. This regulation prohibits employers from impeding communications with the SEC about possible securities violations, including by enforcing or threatening to enforce confidentiality agreements. This rule permits an individual to share documents, even those that the company may consider to be confidential, with the Commission in order to report possible securities violations. In Ms. Haugen’s case, according to the Wall Street Journal, Facebook has a confidentiality agreement in place that generally prohibits her from sharing proprietary information, but it allows her to communicate with regulators, Congress, and law enforcement. Other companies may have confidentiality agreements that are written more broadly, which might violate SEC Rule 21F-17.

Only the SEC can enforce this Rule 21F-17, and it has enforced it against companies with confidentiality agreements that impede an employee’s communications with the SEC. In one instance, a company had a provision in its severance agreement that required the departing employee to notify the company about any third-party disclosures. The SEC determined that the agreement violated Rule 21F-17 because it did not exempt communications with the Commission, and therefore created an impediment to a potential whistleblower’s communications with the SEC. The SEC Division of Examinations has also affirmatively reviewed companies’ documents, including compliance manuals, employment agreements, and severance agreements, to ensure that these polices are consistent with the protections afforded to whistleblowers under Rule 21F-17. Therefore, even where there are contractual prohibitions against sharing information with third parties, whistleblowers are nonetheless protected when they share internal documents with the Commission to report possible securities violations.

In addition to anti-retaliation protections, the Dodd-Frank Act created the SEC Whistleblower Program, which incentivizes individuals to come forward with information about possible securities violations. The Program offers monetary awards to whistleblowers who provide the SEC with original information leading to an enforcement action that results in over $1 million in monetary sanctions. A whistleblower’s right to seek an award under the Program cannot be waived by contract, such as a severance agreement, as the Commission concluded in a past order, because the SEC views such a prohibition as an impediment to the whistleblower’s communications with the Commission and therefore a violation of Rule 21F-17.

Documents Related to Fraud on the Government

Government contractors working in the tech industry may also be protected by the False Claims Act (FCA), 31 U.S.C. § 3729, et seq., if they report fraud on the government. The FCA prohibits the intentional presentation of false claims to the government for payment, which can include providing false information in connection with any claim for payment, and it allows private citizens to file a lawsuit on behalf of the government, known as a qui tam action. The FCA also includes an anti-retaliation provision, which prohibits retaliation against individuals who undertake “lawful acts . . . in furtherance of” a qui tam action or “other efforts to stop one or more violations” of the FCA.

In pursuing claims under the FCA, whistleblowers, known as relators in the qui tam context, may disclose documents to the government that their employers consider confidential when these documents are reasonably necessary to support the fraud allegations. For example, a court dismissed counterclaims for breach of contract alleging that an employee-whistleblower violated the confidentiality agreement by disclosing documents to the government and noted the strong public policy that protects whistleblowers from retaliation for reporting allegations of fraud to the government.[1]  However, whistleblowers must be careful not to take documents beyond those that show fraud, and relators who have indiscriminately taken large quantities of documents have not been afforded protections from claims by the employer for breach of contract.[2]

Limitations and Potential Risks of Document Disclosures

While the FCA, SOX, and the Dodd-Frank Act provide robust protections to whistleblowers who report wrongdoing to government regulators, law enforcement agencies, or Congress, these laws do not provide absolute protection. The availability of protection for taking confidential documents depends on what the whistleblower takes, how much material she takes, and to whom she gives it.

If a whistleblower has information that may be deemed attorney-client privileged, for example, she should be careful not to disclose this information to any third party and should speak with a whistleblower attorney before making such a disclosure. Similarly, disclosures made to news outlets are not afforded the same protections as disclosures made to regulators, law enforcement agencies, or Congress. Nearly a decade ago, the Ninth Circuit held that disclosures to media outlets were not protected by SOX.[3]  Whistleblower protections for disclosures made to the press vary depending on the particular state or federal law, as well as the specific context and circumstances of the disclosure,[4] so it is important to proceed cautiously and to seek the advice of a whistleblower attorney before sharing information with media outlets.

Further, if a whistleblower takes information that constitutes an employer’s trade secrets, the employer could sue for misappropriation of trade secrets. Such whistleblowers may have protection under the Defend Trade Secrets Act (the “DTSA”), which includes a safe harbor provision for whistleblowers in certain circumstances. The DTSA provides immunity from civil or criminal liability under any federal or state trade secret law for disclosure of a trade secret that is made either: (1) in confidence to government officials or to an attorney “solely for the purpose of reporting or investigating a suspected violation of law” or (2) in a complaint or other document in a legal proceeding, if that document is filed under seal. Whistleblowers may invoke this immunity when faced with an employer’s claim for misappropriation of trade secrets, but only if they disclosed the documents in one of these two circumstances.[5]

Potential whistleblowers also should consider whether their actions might violate the Computer Fraud and Abuse Act (“CFAA”) if they use their computers to access their employer’s documents to provide support for their whistleblower claims. In general, whistleblowers should not fear prosecution under the CFAA so long as they access a computer with authorization and do not obtain information located in areas on the computer to which their access is prohibited. In Van Buren v. United States, 141 S.Ct. 1648 (2021), the Supreme Court held that an individual violates the law only when she accesses information that she is prohibited from accessing. This ruling protects whistleblowers, who prior to the Court’s opinion may have faced a CFAA claim by the employer for gathering documentary evidence for the purpose of supporting a whistleblower claim even though the whistleblower had not exceeded her authorized access on the employer’s computer. Even so, the interpretation of the CFAA under Van Buren means whistleblowers should be careful not to access areas of a computer that are off limits to them (i.e., specific folders with restricted access for only certain levels of employees to which the whistleblower does not belong), regardless of whether their purpose is to gather evidence to support their whistleblower claim.

Finally, employees should understand that the whistleblower laws discussed above do not protect disclosures to the press. In the case of Ms. Haugen, it is possible that Facebook could pursue an action against her for providing internal documents to media outlets, including claims for breach of contract or misappropriation of trade secrets. KMB partner Lisa Banks spoke with CNN about these potential risks in Ms. Haugen’s case.

Conclusion

Whistleblowers like Ms. Haugen are integral to holding companies accountable and assisting state and federal agencies in investigations against companies that may have engaged in serious misconduct. Strong public policy favors allowing whistleblowers to raise complaints without fear of retaliation from their employers. Whistleblowers have a number of protections available to them if they share documents with government regulators, law enforcement, or Congress, yet they should proceed cautiously and consult with an attorney before disclosing documents to the press. An experienced whistleblower lawyer can assist employees in understanding the scope of their rights and how to proceed in a manner that maximizes the protections and incentives available to them.

[1] See U.S. ex rel. Cieszynski Lifewatch Servs., Inc., 2016 WL 2771798, at *5 (N.D. Ill. May 13, 2016)

[2] See, e.g., U.S. ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1062 (9th Cir. 2011) (concluding that the relator’s “grabbing of tens of thousands of documents” was too overbroad and unreasonable to warrant protection from liability for breach of contract for violating the employer’s confidentiality agreement).

[3] Tides v. The Boeing Co., 644 F.3d 809 (9th Cir. 2011).

[4] Compare Pacheco v. Waldrop, 84 F. Supp. 3d 606, 609 (W.D. Ky. 2015) (holding that complaints made to newspapers did not qualify as protected disclosures for the purpose of protections under the Kentucky Whistleblower Act) with Dep’t of Homeland Sec. v. MacLean, 574 U.S. 383, 398-99 (2015) (holding that the federal employee-whistleblower’s public disclosures made to media were not “specifically prohibited by law” and were therefore entitled to protections under the Whistleblower Protection Act); Chambers v. Dep’t of Interior, 602 F.3d 1370, 1378-79 (Fed. Cir. 2010) (concluding that statements made by a federal government employee to a newspaper about a substantial and specific danger to public health or safety were protected disclosures under the Whistleblower Protection Act).

[5] See FirstEnergy Corp. v. Pircio, — F. Supp. 3d —, 2021 WL 857107, at*4-5 (N.D. Ohio Mar. 8, 2021) (concluding that the defendant-employee who shared documents with his attorney, who then provided documents to the government, was protected by the immunity provision of the DTSA because he provided these documents solely for the purpose of reporting a violation of the law).

Copyright Katz, Marshall & Banks, LLP

Article By Alia Al-Khatib of Katz, Marshall & Banks, LLP

For more articles on whistleblowers, visit the NLR Criminal Law / Business Crimes section.

Protections for Employees Who Report Workplace Discrimination

While thousands of employees each year submit complaints of discrimination against their employers, many more experience workplace discrimination and do not submit a formal complaint or even report it internally. A 2016 study by the Equal Employment Opportunity Commission (EEOC) noted that three out of four individuals who experienced harassment never spoke with a supervisor, manager, or union representative about the harassment. Other studies estimate that only one percent of people who experience workplace discrimination file a formal discrimination charge.

Types of Discrimination Charges Filed

Even with a high level of underreporting of harassment and discrimination in the workplace, the EEOC reported that workers filed 67,448 charges of workplace discrimination in fiscal year 2020.[1] The EEOC breaks down the data by the characteristics of the individual who filed the complaint. The breakdown reflects the various bases for protection under federal anti-discrimination laws, specifically disability, race, sex, age, national origin, color, religion, and genetic information. In the EEOC data from fiscal year 2020, retaliation claims made up 55.8% of all charges filed, which was the most common claim asserted. Retaliation claims are often coupled with claims of discrimination because they generally require complaints about, or opposition to, discrimination in the workplace. Because of this overlap in claims and the reality that workers may have multiple characteristics or identities that entitle them to protections, the total of the percentages of the types of claims asserted is greater than 100%.

Following retaliation claims, discrimination claims based on disability were the most common in fiscal year 2020, making up 36.1% of all workplace discrimination claims. Fiscal year 2020 may have seen an even greater increase in disability-related charges due to the COVID-19 pandemic. The EEOC continues to update its guidance periodically on the impact of COVID-19 on workplace discrimination laws related to disability. Discrimination based on race made up 32.7% of claims, and discrimination based on sex made up 31.7%.

The breakdown by category is consistent with charge filing patterns in past years. One study conducted by the Center for Employment Equity of the University of Massachusetts Amherst analyzed all discrimination charges filed with the EEOC (or a comparable state agency) from 2012 to 2016. It determined that discrimination charges based on disability and race were the most common and that disability-related claims had become more frequent than charges based on other protected categories. In an article published by staff at the Center for Employment Equity, they determined that 63% of employees who filed a complaint eventually lost their jobs.

Protections from Retaliation

The data from the EEOC and Center for Employment Equity underscores an unfortunate reality for employees who come forward to report discrimination—they face the possibility of retaliation by their employer, which, at its most extreme, results in a loss of their job. Fortunately, there are legal protections in place for employees who face retaliation for complaining about workplace discrimination.

Employees who engage in protected activity, either by participating in an investigation of workplace discrimination, complaining of workplace discrimination, or opposing discrimination in the workplace, are protected from retaliation. This means that an employer cannot take any “materially adverse action” against these employees. Such actions include anything that would deter a reasonable worker from coming forward to complain about discrimination in the workplace.  This includes actions short of termination, like demotions or salary reductions. The law protects not only current employees and applicants, but also former employees and third parties who have a close relationship with the employee who experienced discrimination. Employees who face retaliation for reporting discrimination in the workplace may be entitled to monetary compensation for the harm caused by the retaliation, including back wages, reinstatement to their former position if they were terminated, compensation for emotional distress caused by the employer’s actions, and reimbursement of their attorneys’ fees and costs.

While no employee should face retaliation for reporting workplace discrimination or harassment, the data demonstrates that it is an unfortunate reality in workplaces. If you believe you have faced discrimination, harassment, or retaliation, you should contact an employment attorney to determine your options and how to proceed.

Importance of Seeking Legal Counsel

The Center for Employment Equity’s analysis highlighted another reality faced by employees who filed discrimination charges with the EEOC. Upon examining the outcome of each charge and excluding charges that were closed because of administrative reasons, it noted that monetary benefits and changes to workplace practices were relatively infrequent. In less than 20% of charges, employees received a monetary benefit.  Less than 10% resulted in changes to employer practices. This data does not account for employees who made complaints of discrimination and were able to reach a resolution with their employer prior to filing a charge.

This data showing the poor outcomes from filing discrimination charges demonstrates the importance of seeking legal counsel if you believe that you have faced discrimination in the workplace. An attorney can advise you on the merits of your claim as well as the appropriate deadlines for filing a charge and lawsuit, and can advocate for you before the employer, both before and after submitting a discrimination charge. For current employees, such advocacy may help to shield you from retaliation or to exit from your employment on more favorable terms. In addition to seeking legal counsel, you can begin to take other steps to assist your case by doing the following:

  • Document the mistreatment you experience.

  • Create a detailed timeline of instances of discrimination, which will assist an attorney who may assess your potential claims.

  • Retain employment-related documents, like employee manuals; employment offer letters and agreements; and information concerning commission, equity, and benefits plans.

  • Do not record conversations without the consent of the other party and without first seeking advice from legal counsel. Each state has different recording law statutes that require all parties or at least one party to consent to recording. It is important not to violate these laws, which can carry civil and sometimes criminal liability.

This list only identifies basic steps that you can take if you believe you have experienced discrimination or harassment in the workplace. If you have faced workplace discrimination, you should consult with an employment attorney for advice on your potential claims

[1] The number of charges filed has decreased steadily in recent years, with 72,675 charges of workplace discrimination filed with the EEOC in fiscal year 2019 and 76,418 filed in 2018. There may be multiple explanations for this decrease, though this year’s decline may be in part explained by the COVID-19 pandemic, which left many employees without work for much of 2020 and required others to work remotely.

This article was written by Alia Al-Khatib of Katz, Marshall & Banks, LLP.
For more articles regarding workplace discrimination, please visit our Labor and Employment News section.

Whistleblower Rewarded Over $2 Million for Exposing Contractor of Military Helicopters That Provided Unsafe Helicopters, Risking the Lives of Military Members Deployed to War Zones

An Illinois-based aviation services company and its subsidiary in Florida have agreed to pay the government $11,088,000 to resolve allegations that they violated the False Claims Act by breaching their contract to maintain military aircraft that were “fully mission capable.”

The aviation service companies own and maintain helicopters.  They had contracted with the Department of Defense to supply helicopters for use in transporting cargo and personnel in support of missions in Afghanistan and Africa.  However, according to a whistleblower, the aviation companies schemed to maximize profits by failing to provide the resources needed to maintain the helicopters.  This resulted in the helicopters not being airworthy.  Yet, the companies continued to certify the helicopters as “fully mission capable.”  Thus, it was alleged, the companies knowingly risked the lives of military personal who were using the aircraft while deployed in war zones and committing fraud against U.S. taxpayers.

The same companies also paid an additional amount to resolve a separate matter brought by the Federal Aviation Administration (FAA) against them for deficiencies in helicopter maintenance work.

This lawsuit originated from a former employee of the aviation service companies who brought suit under the qui tam, or whistleblower, provisions of the False Claims Act. Whistleblower lawsuits allow private parties, known as “relators,” to bring suit on behalf of the government and to share in any recovery, usually 15% to 25% of the settlement amount.  In this case, the whistleblower will receive $2,162,160.  The False Claims Act allows the government to intervene and prosecute an action, as it did in this case.  Fraud in government contracting is often exposed by individuals with knowledge that the fraud is occurring, as in this case. Whistleblowers may be employees, clients, or competitors of the wrongdoer.  Such individuals can use their inside knowledge to bring fraud to the attention of the government, saving lives and protecting taxpayer money.

© 2021 by Tycko & Zavareei LLP

Miami Condo Collapse: What Role Can Whistleblowers Play to Prevent Such Tragedies?

In the early morning hours of June 24, 2021, a 13-story condominium building in the town of Surfside on Miami Beach, Florida, collapsed. Tragically, four people have been confirmed dead, and search and rescue crews continue their efforts to find other survivors, with at least 156 people still unaccounted for. According to recent reports, nearly three years before the collapse, in October 2018, a consultant found evidence of “major structural damage” to concrete slabs beneath the pool deck and beams and walls of the parking garage under the building. While the cause of the collapse remains unknown, the 2018 report suggests that the complex’s management association knew of the potentially severe structural damage to the building.

This tragedy was not the first time a building has collapsed in the County. In 1974, the federal Drug Enforcement Agency building in downtown Miami collapsed. In response, Miami-Dade County created a recertification process for buildings over 40 years old to ensure these buildings’ structural integrity. Because of weather conditions in South Florida and exposure to corrosive salt air, damage to rebar and steel beams can impact the structural integrity of a building over time. The Miami-Dade County Code requires inspections to be conducted to evaluate the general structural condition of the building and to ensure building safety. The association was set to begin plans to repair the building this year, in connection with this recertification process.

This recent disaster leaves many wondering what could have been done to prevent it, and how we can avoid such tragedies. Employees and contractors in the construction industry are uniquely positioned to discover safety risks and other violations in building projects. As such, they can play a significant role in alerting the government, and in turn the public, of serious risks. What laws exist to protect and incentivize these whistleblowers?

Protections for Whistleblowers in Florida

Florida provides broad protection to employees who report legal violations. For employees in the public sector, the law protects public employees, as well as independent contractors with a government agency, who report to an appropriate government agency violations “that create a substantial and specific danger to the public’s health, safety or welfare.” The state’s private sector whistleblower law also protects private employees who disclose wrongdoing to a government agency. Significantly, the law also protects private employees who have “objected to, or refused to participate in, any activity, policy, or practice of the employer which is in violation of a law, rule, or regulation.” An employee who faces retaliation for reporting wrongdoing may be entitled to damages, including lost wages, benefits, and other types of compensatory damages.

False Claims Acts

Protections under the federal False Claims Act (FCA) apply across a wide range of industries, including in the construction industry. The FCA prohibits the intentional presentation of false claims to the government for payment, which includes providing false information in connection with any claims for payment. If a construction whistleblower discovered a violation of the FCA – for example, if a company received federal funds to complete building repairs that were not completed – he or she could file a lawsuit on behalf of the federal government, known as a qui tam. An individual who brings a successful qui tam lawsuit can receive 15 to 30 percent of the damages received by the government. The FCA also includes worker protections so that an individual who brings a qui tam action or tries to stop the FCA violations may be entitled to relief if he or she experiences retaliation on the job.

Like many other states, Florida has a statute modeled on the federal FCA that protects employees for reporting an employer who presents false claims to the state or otherwise misappropriates state property. An individual who brings an action under the Florida FCA may be entitled to a percentage of the amount recovered by the government. Similar to the federal FCA, individuals who report violations under Florida’s FCA are also protected from retaliation for trying to stop such violations or bringing a qui tam action.

Conclusion

News reports state it may take months to know what caused the horrific collapse of the condo building in Miami. Miami-Dade County will undoubtedly evaluate how it may prevent such tragedies in the future. In Miami and elsewhere, whistleblowers can play an integral role in protecting public safety. Federal and state laws provide protections and incentives to those who come forward to report potential violations.

Katz, Marshall & Banks, LLP
For more articles on whistleblowers, visit the NLR Criminal Law / Business Crimes section.

DOL Judge Awards Airline Pilot $500,000 in Compensatory Damages in AIR21 Whistleblower Retaliation Case

In a decision finding that Delta violated the anti-retaliation provision of the AIR21 whistleblower protection law, Judge Morris awarded pilot Karlene Petit $500,000 in compensatory damages for emotional distress, humiliation, and reputational harm.

Delta Pilot Suffers Retaliation for Raising Safety Concerns

While working as a first officer for Delta, Petit reported safety concerns, including inadequate flight simulator training, deviation from line check evaluation procedures, pilot fatigue, and inadequate training and falsification of training records. Soon after Petit raised her concerns, Delta grounded her from flying and referred her for a mental health evaluation. Delta’s selected psychiatrist diagnosed Petit with bipolar disorder, precluding her from maintaining the medical certificate necessary to operate commercial aircraft. The psychiatrist that Delta retained to evaluate Petit conducted no interviews in making his determination and failed to consult with the physician that had determined for several years that Petit was mentally fit to fly.

After the diagnosis, Petit sought another examination from a panel of physicians at the Mayo Clinic.  Those physicians submitted a unanimous report concluding that Petit had no mental health impairment. Twenty-one months later, Delta reinstated Petit to flight status, after inflicting significant harm to Petit’s reputation and career considerably.

In his decision, Judge Morris held that Delta’s referral of Petit for a mental  health evaluation was an adverse action in violation of the AIR21 whistleblower protection law because it placed at issue her career and livelihood.  Formally questioning a pilot’s mental fitness stigmatizes that pilot in the eyes of the close-knit aviation community.  Judge Morris also concluded that Petit’s submission of the safety complaint was a contributing factor in Delta’s decision to refer her for a mental health evaluation.

Evidence Warranting Award of $500,000 in Compensatory Damages

In determining an appropriate award of compensatory damages, Judge Morris surveyed awards under AIR21 and other whistleblower protection laws and found that compensatory damages are typically low, ranging from $3,000 to $100,000.  He found that a higher award was warranted in Petit’s case because the retaliation was egregious and will continue to inflict harm for the remainder of Petit’s career.  Judge Morris cited these factors in support of a $500,000 compensatory damages award:

  • The length of time Petit was unable to fly for Delta due to the retaliation – nearly two years;
  • The cruelty of informing Petit on Christmas Eve of Delta’s finding that she suffered from bipolar disorder;
  • Petit’s credible reports of sleeplessness due to the retaliation;
  • The strain of multiple psychological tests Petit was subjected to because Delta wrongly diagnosed her with a mental health disorder;
  • The permanent damage to Petit’s reputation as a pilot, regardless of the ALJ’s findings, including permanent records in her FAA medical file that could create special reporting requirements to the FAA;
  • Delta’s reporting the medical results that included the diagnosis to the FAA, in direct violation of Petit’s contract with the company and after the Mayo Clinic doctors had cleared her.

Further, Judge Morris found that throughout the years-long process during which Delta retaliated and Petit attempted to clear her record, Petit reasonably feared that her career as a pilot was over. She had worked tirelessly to become a successful pilot and had a lifelong passion for aviation, and the prospect of losing the career and position that she had worked so hard to achieve caused her to suffer severe mental distress and suffering. And due to the staffing structure in the airline industry, Petit will continue to work under the supervision of many of the Delta employees who retaliated in the first place, and will continue to be the subject of gossip and speculation about her ability to fly, regardless of the results of the case. Therefore, the retaliation will likely harm Petit’s future prospects of promotion, and Delta’s retaliation will cause permanent harm to her career and reputation.

© 2020 Zuckerman Law
For more, visit the NLR Criminal Law / Business Crimes section.

Virginia Employees Protected From Retaliation for Raising Concerns About COVID-19 Workplace Safety Issues

On June 29, 2020, the Virginia Safety and Health Codes Board moved forward with an emergency workplace standard to curb the spread of COVID-19. These standards would apply to all Virginia employers and places of employment under the jurisdiction of the Virginia Occupational Health and Safety Administration.

Pursuant to 16 VAC 25-220, Emergency Temporary Standard, employers would be required to:

  • Mandate physical distancing on the job, i.e., “keeping space between yourself and other persons while conducting work-related activities inside and outside of the physical establishment by staying at least 6 feet from other persons. Physical separation of an employee from other employees or persons by a permanent, solid floor to ceiling wall constitutes physical distancing from an employee or other person stationed on the other side of the wall.”
  • Clean and disinfect all common spaces, including bathrooms, frequently touched surfaces, and doors at the end of each shift, and where feasible, disinfect shared tools, equipment, and vehicles prior to transfer from one employee to another.
  • Provide personal protective equipment to employees and ensure its proper use in accordance with VOSH laws, standards, and regulations applicable to personal protective equipment, including respiratory protection equipment when engineering, work practice, and administrative controls are not feasible or do not provide sufficient protection.
  • Assess the workplace for hazards and job tasks that could potentially expose employees to SARS-CoV-2/COVID-19 and ensure compliance with the applicable standards for “very high,” “high,” “medium,” or “lower” risk levels of exposure.
  • Inform employees of methods of self-monitoring and encourage employees to self-monitor for signs and symptoms of COVID-19 if they suspect possible exposure or are experiencing signs of forthcoming illness.
  • Notify their own employees who were at a worksite with an employee who subsequently tested positive for active COVID-19, other employers whose employees were also present, and the building/facility owner of the affected site within 24 hours of discovery of possible exposure.
  • Develop and implement policies and procedures for employees to report positive results from antibody testing, and while an employee who has tested positive for SARS-CoV-2 antibodies may return to work, employers are not required to allow an employee who has received such a test to return.

In addition, the emergency workplace standard prohibits employers from:

  • Discriminating against or discharging an employee because that employee voluntarily provides and wears their own personal protective equipment, if such equipment is not provided by the employer, as long as that equipment does not create an increased hazard for the employee or other employees.
  • Discriminating against or discharging an employee who has raised a reasonable concern about SARS-CoV-2/COVID-19 infection control to the employer, the employer’s agent, other employees, or a government agency, or to the public through print, online, social, or any other media.

These workplace safety standards are set to go into effect on July 15, 2020, and employers could be fined up to $13,000 for failing to comply.

The United States Department of Labor Occupational Safety and Health Administration (OSHA) has issued guidance to employers to protect workers but has not adopted a binding rule. OSHA provided guidance to employers on preventing worker exposure to SARS-CoV-2/COVID-19 in March 2020, and in June 2020 it released guidance on returning to work. The guidance on returning to work states that employers should continue to be flexible and allow employees to work remotely when possible, use alternative business operations such as curbside pickup to serve customers if feasible, implement strategies for basic hygiene and disinfection at work, encourage social distancing, apply procedures for identification and isolation of sick employees, and provide employee training on the various phases of reopening and necessary precautions. Further, employers should not retaliate against employees for adhering to OSHA’s safety guidelines or raising workplace health and safety concerns. Though these guidelines are not binding, employers are bound by the General Duty Clause of the Occupational Safety and Health Act of 1970, which requires that they provide a safe workplace free from serious hazards.

Virginia’s recently-enacted whistleblower protection law, which became effective July 1, 2020, will protect workers that disclose violations of the emergency workplace standard. In particular, the new Virginia whistleblower protection law provides a private right of action for an employee who suffers retaliation for “in good faith report[ing] a violation of any federal or state law or regulation to a supervisor or to any governmental body or law-enforcement official.” Va. Code § 40.1-27.3(A)(1).

The statute proscribes a broad range of retaliatory acts, including discharging, disciplining, threatening, discriminating against, or penalizing an employee or taking other retaliatory action regarding an employee’s compensation, terms, conditions, location, or privileges of employment because of the employee’s protected conduct. Id. at § 40.1-27.3(A).

A prevailing whistleblower under Virginia’s whistleblower protection law can obtain various remedies, including:

  • An injunction to restrain a continuing violation;
  • Reinstatement to the same or an equivalent position held before the employer took the retaliatory action; and/or
  • Compensation for lost wages, benefits, and other remuneration, together with interest, as well as reasonable attorneys’ fees and costs. at § 40.1-27.3(C).

© 2020 Zuckerman Law

For more anti-retaliation legislation, see the National Law Review Labor & Employment law section.

New York Compounding Pharmacy Settles Fraudulent Billing and Kickback Allegations in Whistleblower Lawsuit

Upstate New York pharmaceutical companies FPR Specialty Pharmacy (now defunct) and Mead Square Pharmacy, along with their owners, agreed to pay $426,000 to settle fraudulent claims and kickback allegations brought forth by a whistleblower. According to the U.S. government, the pharmacies submitted fraudulent claims for reimbursement to federal healthcare programs for compounded prescription drugs in violation of the False Claims Act and the Anti-Kickback Statute. The pharmacies allegedly sold prescription drugs to federal healthcare program beneficiaries in states without a license, improperly induced patients to purchase expensive custom compounded medications by waiving all or part of the substantial co-payments required under the federal healthcare programs, and paid sales representatives per-prescription commissions to illegally induce writing more prescriptions.

“The rules governing federal healthcare programs require pharmacies dispensing prescriptions to their members to be licensed with the appropriate state authorities to request reimbursement for the cost of the medications.  The pharmacies violated the False Claims Act by dispensing and requesting reimbursement for hundreds of prescriptions of “Focused Pain Relief” cream dispensed to federal healthcare program beneficiaries located in states where the pharmacies were not licensed to operate by the appropriate state authorities, and by failing to disclose that they were not licensed.  The Pharmacies also violated the False Claims Act by billing federal healthcare programs for prescriptions dispensed in states where they had obtained their state licenses under false pretenses, including by failing to inform state authorities that they had previously dispensed drugs in the states without a license and by failing to disclose” one of the pharmacy owners’ “criminal history on pharmacy license applications.”

Additionally, the pharmacies violated the Anti-Kickback Statute by engaging in two separate illegal practices, according to the government.  First, the pharmacies regularly charged federal healthcare program beneficiaries co-payments substantially below program requirements (which often exceeded $100) to induce them to purchase its pain cream, “Focused Pain Relief,” for which the federal healthcare programs paid hundreds and sometimes thousands of dollars each.  Second, the Pharmacies often paid illegal kickbacks to their sales representatives by giving sales commissions for the number of prescriptions written by the physicians the sales reps marketed.

Manhattan U.S. Attorney Geoffrey S. Berman said:  “Pharmacies, like other participants in the healthcare industry, must follow the rules.  The defendants here brazenly flouted basic rules on licensing and kickbacks to line their pockets with dollars from federal healthcare programs.  That is a prescription for intervention by my office and our partners.”

Similar to this case, there have been many instances in which whistleblowers exposed company fraud against the Medicare system.

© 2020 by Tycko & Zavareei LLP

For more on pharmaceutical fraud, see the National Law Review Biotech, Food & Drug law section.

New York Compounding Pharmacy Settles Fraudulent Billing and Kickback Allegations in Whistleblower Lawsuit

Upstate New York pharmaceutical companies FPR Specialty Pharmacy (now defunct) and Mead Square Pharmacy, along with their owners, agreed to pay $426,000 to settle fraudulent claims and kickback allegations brought forth by a whistleblower. According to the U.S. government, the pharmacies submitted fraudulent claims for reimbursement to federal healthcare programs for compounded prescription drugs in violation of the False Claims Act and the Anti-Kickback Statute. The pharmacies allegedly sold prescription drugs to federal healthcare program beneficiaries in states without a license, improperly induced patients to purchase expensive custom compounded medications by waiving all or part of the substantial co-payments required under the federal healthcare programs, and paid sales representatives per-prescription commissions to illegally induce writing more prescriptions.

“The rules governing federal healthcare programs require pharmacies dispensing prescriptions to their members to be licensed with the appropriate state authorities to request reimbursement for the cost of the medications.  The pharmacies violated the False Claims Act by dispensing and requesting reimbursement for hundreds of prescriptions of “Focused Pain Relief” cream dispensed to federal healthcare program beneficiaries located in states where the pharmacies were not licensed to operate by the appropriate state authorities, and by failing to disclose that they were not licensed.  The Pharmacies also violated the False Claims Act by billing federal healthcare programs for prescriptions dispensed in states where they had obtained their state licenses under false pretenses, including by failing to inform state authorities that they had previously dispensed drugs in the states without a license and by failing to disclose” one of the pharmacy owners’ “criminal history on pharmacy license applications.”

Additionally, the pharmacies violated the Anti-Kickback Statute by engaging in two separate illegal practices, according to the government.  First, the pharmacies regularly charged federal healthcare program beneficiaries co-payments substantially below program requirements (which often exceeded $100) to induce them to purchase its pain cream, “Focused Pain Relief,” for which the federal healthcare programs paid hundreds and sometimes thousands of dollars each.  Second, the Pharmacies often paid illegal kickbacks to their sales representatives by giving sales commissions for the number of prescriptions written by the physicians the sales reps marketed.

Manhattan U.S. Attorney Geoffrey S. Berman said:  “Pharmacies, like other participants in the healthcare industry, must follow the rules.  The defendants here brazenly flouted basic rules on licensing and kickbacks to line their pockets with dollars from federal healthcare programs.  That is a prescription for intervention by my office and our partners.”

Similar to this case, there have been many instances in which whistleblowers exposed company fraud against the Medicare system.

© 2020 by Tycko & Zavareei LLP