Seen Accounting Fraud? New and Powerful “Whistleblower” Protections for Employees

ACTUAL CASE HISTORY: Charles, a contract manager at an aircraft parts company that sold products to the federal government, knew that the prices charged to the air force were higher than they were allowed to be under the applicable federal contract, and federal regulations. He mentioned this to his boss, but was told that he didn’t really understand the contract. After reviewing the contract language, Charles was confident that the charges were too high. When he spoke to his boss again, he was told to “forget about it.” He expected to soon be fired. He feared more, though, being indicted.

Charles suspected that the overcharges were known at the highest levels of the company. Charles contacted us, and we took the steps necessary to (a) establish that Charles had resisted the improper overcharges, (b) report the false bookkeeping to the company’s highest officers, and (c) formally request an investigation. Handled correctly and proactively, Charles kept his job, and was later even rewarded by the federal government for his reporting of the fraud against the government.

LESSON TO BE LEARNED: These days, there are enormous pressures on companies to increase revenues, cut costs, and achieve greater profitability. As news accounts have shown us over the past few years, sometimes that pressure results in falsification of numbers, improper accounting, accelerated reporting of sales, and the like. Fortunately, Congress has recently placed into law powerful new protections for those who come forward to report such accounting fraud.

When we counsel clients, we always remind them that, in every business deal, we weigh both rewards and risks. In our experience, more business deals falter on issues of “risk,” than on issues of reward, or price. SkloverWorkingWisdom™ highlights this aspect of workplace negotiating. It’s fair to say that there’s little riskier in the world of employment than raising issues of accounting fraud on the job.

The recent public scandals involving corporate mismanagement and fraud - including those at Enron, WorldCom and HealthSouth, among others – have prompted Congress to pass legislation that gives new, important rights and protections to employees who “blow the whistle” on corporate wrongdoing at publicly traded companies. In particular, The Sarbanes-Oxley Act protects employees who disclose information or participate in investigations related to violations of securities laws, SEC rules and regulations, and federal laws regarding shareholder fraud.

Under the new law, employers (and those who act as the agents of employers, such as their attorneys) may not discriminate against, retaliate against, or in any way harass employees who provide information about fraud, improprieties or illegality to an internal company official – such as the employee’s supervisor or another corporate officer assigned to investigate such claims – or a federal agency, or a member of Congress.

WHAT YOU SHOULD DO: If you become aware of such wrongdoing, the law gives you 90 days after the apparent violation of law or regulation has occurred to file a complaint with the U.S. Dept. of Labor. Once a complaint is filed, your protections arise, and the DOL has a strict timetable to complete its investigation, issue a preliminary order, hold a hearing, and render a final order.

Cases resolved in favor of a whistle-blowing employee can provide for such remedies as reinstatement with full seniority status, back pay with interest, and attorney’s fees and costs. These new protections are in addition to any existing protections available under state or federal laws.

For many reasons, especially the complexity and newness of the law, those considering “blowing the whistle” at work should obtain competent legal advice as soon as possible.

If you would like to obtain a “model” memo to help you object to retaliation on the job, [click here].