A Strange New Normal: The Pandemic and a New Virginia Law Usher in the Decade of the Whistleblower
As this year began, the nation’s attention was riveted on the impeachment proceedings triggered by a whistleblower complaint. Competing efforts to protect and “out” the whistleblower were on full display in the political arena. Fallout was not surprising, and recently the Inspector General who received and forwarded the whistleblower’s complaint was terminated.
This article is not a political one.1 We start here only because it illustrates the increasing frequency of whistleblower complaints, and the power of such allegations once they are made public. These realities are now much more acute for the thousands of businesses which have received some portion of the $3 trillion dollars distributed by Congress in the attempt to mitigate the devastating economic impact of the COVID-19 pandemic. On April 27, the independent oversight committee created to oversee the spending of this $3 trillion dollars launched it’s website and announced that a number of investigations are already underway. See https://pandemic.oversight.gov/.
In addition, every Virginia business, whether or not they receive federal funds, will now be subject to a new wave of complaints by current and former employees once a new whistleblower protection law passed by the General Assembly becomes effective July 1, 2020. With unemployment projected to hit historic highs in the next two weeks, and with the Congressional Budget Office projecting a slower than hoped for economic recovery, the circumstances are ripe for increased claims and litigation involving whistleblowers. In a word, the phrase “timing is everything” has new significance.
In this context, corporate boards of directors and senior management need to take advantage of this time and be proactive to avoid becoming the next target of a whistleblower claim. Business leaders would do well to consider what studies have shown about whistleblowers. For example, earlier this year, the Harvard Business Review published “Throwing Out Your Assumptions About Whistleblowing“ which concluded that the sudden increase in the willingness to speak out about problems in the workplace is not tied to an increase in criminal activity. Instead, this research on employee whistleblowing showed that a combination of the MeToo movement and the internal accountability systems implemented in the past 5 years are simply starting to work as designed. Data provided by a leading provider of employee hotline management systems, showed more than two million internal reports by employees who worked at more than 1,000 publicly traded companies.
This study, like many others,2 found that whistleblowers play a critical role in keeping companies healthy. Every organization has shortcomings and room for improvement and at times business practices get off the rails into dangerous areas. The sooner problems are identified the better. An effective internal complaint system is a key part of good corporate governance and can be used to learn and address issues early before they evolve into larger more costly problems. This new report identified three (3) lessons for managing whistleblower systems:
1. Contrary to assumptions, the higher number of complaints a company receives the better. This study showed that companies that received more hotline complaints had fewer lawsuits and smaller legal settlements, as this reflected that the company had created a culture that responds favorably to complaints (and where employees felt secure enough to make them). In other words, an active hotline system indicates that management is trusted, and allows the company to efficiently address problems. The key question for companies who implement a hotline system often becomes whether sufficient resources are devoted to investigating reports in a timely manner.
2. Secondhand reports can be valuable. While firsthand information is always preferable as being the most reliable when conducting an investigation, this study found that secondhand reports often serve as a critical initial source of information. It is important that they not be dismissed out of hand. The authors reported that in their review of the data, second-hand reports usually involved less personal bias and emotion, even if the information provided had not been entirely validated. Second-hand reports tend to identify patterns of behavior or highlighted significant incidents of misconduct or serious deviations. In contrast, many first-hand reports brought self-serving claims, which can often be idiosyncratic. As such, the report cautioned against following a practice or policy of disregarding second-hand reports as unfounded or unworthy of further investigation.
3. Don’t expect full details at first. The study also recommended that companies not take an initial lack of detail in a hotline report as a reason not to investigate. The data suggested that many whistleblowers reach out initially with very few details to see who will respond, and only provide detailed information once they can speak to someone they can trust.
In evaluating what steps to take management and corporate boards should ask themselves whether the company really has an effective internal system for receiving and responding to complaints which employees will use before going public. In considering this issue, companies may want to consider the following questions: (i) when was the last time the process for receiving employee complaints was reviewed to determine its adequacy; (ii) when was the last time the complaint process was used; (iii) how frequently has the complaint process been used; (iv) what types of complaints have been received; (v) is there more than one process used depending on the type of complaint – discrimination/harassment,3 safety complaint, pay/benefits, or a financial or business ethics issue – and is this wise; (vi) do employees understand the existing complaint process(es) and how to make a complaint; (vii) how quickly have we responded to complaints in the past; (viii) how equipped are we right now to respond to different forms of complaint; (x) does our system insure an independent review if the complaint involves allegations against a senior officer, and if not, a change be made; (xi) has the company ever disciplined or terminated an employee within a few months of having used the complaint process; and (xii) how are the investigations and any actions taken documented.
Rest assured, complaints of alleged retaliation by whistleblowers and qui tam claims are inevitably going to be filed against many companies in the coming months and years. The only question will be whether the employee uses an internal process to give the company the chance to address the concern first, or whether a disgruntled or former employee will go directly to a federal or state agency, or take the issue directly to court. For just one example, as part of the CARES Act, Congress appropriated $25 million to help beef up the Office of Inspector General for the U.S. Department of Labor (“OIG”) to carry out oversight of the unprecedent expansion of unemployment insurance benefits. On April 15, 2020, OIG released its Pandemic Response Oversight Plan, which will run at least through September 30, 2021, and on April 21, OIG issued its initial Advisory Report identifying “Initial Areas of Concern.” Likewise, there are a host of law firms whose sole focus is on representing whistleblowers and workers who claim to have been retaliated against for reporting unlawful acts or other acts of misconduct, or who are interested in reporting fraudulent activity in government sponsored programs.4 Virginia’s new Whistleblower Protection Ac, will only broaden the arsenal of claims that individuals may now bring.
Whistleblower Claims Related to the COVID-19 Pandemic
On March 20, 2020, Attorney General Barr publicly urged citizens to report suspected fraudulent schemes related to the pandemic and established a new National Center with a hotline and an email address to facilitate whistleblower complaints. As my partners, Jenny DeGraw and Erin Harrigan have pointed out, in concert with this national call, the federal prosecutors for Virginia, the FBI, and Virginia State Police announced the formation of the Virginia Coronavirus Fraud Task Force. Implicit in these announcements is the assumption that when the government quickly distributes close to $3 trillion, there are going to be situations where individuals and businesses seek to profit improperly by engaging in less than ethical practices and even outright fraud. But well-meaning business will undoubtedly make mistakes in navigating these brand-new programs, and their response to discovering these mistakes may create “issues” and new problems that far out-weigh the original mistake. And there will be companies that do everything right, but have a disgruntled employee who is looking for an avenue for either revenge or leverage in a situation.
It is not just the Department of Justice. For several years, OSHA has been aggressively courting whistleblowers to come directly to the federal agency and bypass company procedures by creating a high-visible and dedicated website, www.whistleblower.gov. This site provides detailed information and a very simple on-line process to file complaints under any of the more than 22 federal laws for which OSHA has enforcement authority.5 Thus, it was not surprising that the Washington Post recently reported that, in a matter of weeks, OSHA had received over 3,000 safety related complaints regarding employers’ struggle to provide a safe workplace. State agencies are also begun highly publicized investigations of companies who are operating during the pandemic. For example, on March 31, Virginia’s Attorney General Mark Herring announced that his office had notified 42 businesses that they were being investigated for price gouging based on consumer complaints received, and on April 27 the Attorney General of New York garnered publicity for its workplace safety investigation of Amazon. Beyond these reports to government agencies, lawsuits are also starting to be filed against employers—like Trader Joe’s in Kentucky for allegedly discharging an employee who criticized the company’s response to the virus on his Facebook page.
Virginia’s New Whistleblower Law – Effective July 1, 2020
As protectors of the “well-established” at-will doctrine, Virginia state courts have consistently dismissed whistleblower claims against employers except in vary narrow circumstances. As such, state law whistleblower claims have never been a real concern in Virginia. This traditional zone of protection will evaporate on July 1, 2020.
Governor Northam recently signed into law HB798, which expressly protects workers from all forms of retaliation if they have reported suspected illegal activity internally or externally, or have engaged in other forms of protected activity. This new law also creates a civil action where broad equitable relief (injunction and reinstatement) is available, as well as a recovery of lost wages and benefits along with attorney’s fees.6
The prohibited forms of retaliation under Virginia’s new whistleblower law are quite broad, including any of the following:
1. Reporting in good faith a violation of any federal or state law or regulation to a supervisor, any government body, or law enforcement officer;
2. Being requested by a government body or law enforcement official to participate in an investigation, hearing or inquiry;
3. Refusing to engage in a criminal act that would subject the employee to criminal liability;
4. Refusing an employer’s order to perform an action that violates any federal or state law or regulation when the employee informs the employer that the order is being refused for that reason; or
5. Providing information to or testifying before a government body or law enforcement official conducting an investigation, hearing or inquiry into any alleged violation by an employer of any federal or state law or regulation.
Most whistleblower protection statutes require the employee’s complaint to be tied to specific unlawful conduct regulated by the particular statute. For example, under the False Claims Act, protected activity has to be tied to complaints about the alleged government fraud. In the nuclear field, a whistleblower must complain about a violation of the Energy Reorganization Act. There is no such requirement or limitation in new Virginia whistleblower law. An employee can complain about a perceived violation of any federal or state law and is protected from virtually any form of negative response or a change in his/her terms or conditions of employment. Moreover this new Virginia law expressly allows an employee to seek an injunction and other equitable relief from a court based on a supervisor’s threat to take action.
Although broad, the new Virginia law does not give the whistleblower carte blanc. The law will not protect a whistleblower who: (i) makes statements or disclosures knowing them to be false or in reckless disregard of the truth; (ii) discloses data protected by law or a legal privilege; or (iii) permits disclosures that would violate federal or state law or would impair the right of another to the continued confidentiality of communications provided by common law.
Procedurally, there is no need for the new Virginia whistleblower to first go to OSHA or any other federal or state agency and make a complaint. Instead, the employee can go directly to the court and is encouraged to do so quickly as claims must be filed within one year of the alleged retaliatory act. Encouraging the quick filing of claims appears consistent with the equitable nature of the relief that courts may award. Undoubtedly, we will see early claims under this new statute by existing employees asking a local judge to stop a threatened termination by issuing a temporary injunction, and others where former employees insist on being reinstated.
While this new whistleblower statute does not provide for an award of general compensatory and punitive damages, it seems inevitable that plaintiff lawyers will seek to push the envelope. We expect that they will bring separate common law, wrongful discharge claims alleging a violation of public policy based on this new statutory protection, and seek both compensatory and punitive damages against both the company and individual owners or managers alleged to be the bad actor. See VanBuren v Grubb, 284 Va. 584, 733 S.E.2d 919 (2012) (allowing wrongful discharge claims against the owner and supervisor who is the wrongdoer). In short, this new whistleblower claim is likely to generate a lot of litigation in the next several years.
Consider the New Normal
Even if your company’s policies and procedures satisfy the type of review suggested at the beginning of this article, the current situation is far from “business as usual.” Most internal complaint processes do not contemplate that large portions of the workforce and/or key compliance personnel are working remotely. Likewise, disruptions during the pandemic will likely have adversely impacted a company’s ability to move nimbly and responsively when complaints are received.
Given what appears to be an inevitable increase in whistleblower claims, it is incumbent on companies to ensure that its existing internal complaint system is still a viable one, and to make decisions now to make sure that proper steps will be taken in a timely manner if and when a complaint is filed in the next 3-6 months. Here are a few specific additional steps to consider:
- Complaint System: Looking at the “facts on the ground” at your company see whether changes need to be made to ensure that a whistleblower can file a complaint internally and it will properly be tracked. If an internal complaint line needs to be routed to different numbers or emails, those changes should be put in place quickly and the new information posted so that is easily accessible and is not confusing. If the complaint process normally requires an in-person meeting, reassess whether this type of meeting is required in all instances. Likewise, evaluate other aspects of the “established” procedures to ensure that they will work in the current situation, and not become unintended barriers that push the employee to go to the government. In this regard, if a third-party hotline is being utilized, it is important to periodically verify that it is still available.
- Review Protocols: Determine if protocols and systems used when responding to complaints or conducting investigations need to be updated to reflect changed circumstances. The reality is you company may now have less capability to respond in a timely manner to a whistleblower complaint. With key individuals working remotely, it may be very difficult to utilize pre-existing protocols. Figuring out how to conduct an investigation while maintaining confidentiality and the need for in-person interviews is important. If key people normally relied upon to conduct investigations have been furloughed or otherwise unavailable due to COVID-19 issues, additional steps, such as lining up third party investigators may be needed. While some delay is certainly reasonable, it is important that whistleblower complaints are not ignored. Each complaint must be acknowledged and a time table should be set for investigating so the whistleblower knows that s/he is not being ignored.
- Communications to the Workforce: If changes in reporting channels or protocols are implemented, it is critical that they be communicated out to the workforce, and done in a manner that drives home the company’s non-retaliation policy.
- Internal Education: The pandemic is changing the law in a number of different areas and it is happening overnight. As my white collar defense colleagues have pointed out,7 “routine” business actions that have been followed for years may now be illegal and fall under intense scrutiny as these new federal loans, laws, and regulations related to COVID-19 have created new levels of exposure for companies, as well as their officers, directors and managers.
- Retaining Documents: For businesses that converted to a remote work environment almost overnight, employees may be using personal devices for business purposes. Likewise, if a reduction in force is about to occur, steps need to be put in place to ensure that all key information (email, texts and other electronically stored information) held by all key employees, including those who are to be or were terminated, is preserved and to prevent them from taking documents in violation of confidentiality agreements. Document retention is a key issue especially if a whistleblower complaint has been received.
- Key Advice: When a whistleblower claim is received, especially one that uses the company’s internal reporting system, it will become more important than ever that the company determine which complaints are significant enough to involve outside counsel versus those that can be handled internally. Certainly any situation involving allegations against senior officers, complaints about the possible misuse of federal funds, an allegedly false report to a government agency, or an alleged cover up of past mistakes, warrant a prompt call to outside counsel Additionally, where an employee has already engaged outside counsel, it makes sense to engage counsel to advise the company who will be able to direct any investigation.
Life as we knew it prior to March, 2020 has changed drastically, and time will tell how lasting some of those changes will be. What is clear is that employment law in Virginia will change dramatically as of July 1, 2020, and these changes will radically alter the longstanding business friendly climate that was accepted as “normal.”8 Among the most important, and underreported changes, is Virginia’s new Whistleblower Protection Act which will apply to employment decisions made after July 1, 2020. The best antidote for disarming this change in the law is to have both: (i) an effective and easy to use internal complaint system that encourages whistleblowers to come forward to the company with concerns and (ii) a well-trained management team that does not view every complaint as a personal attack but takes each seriously and ensure that each is investigated promptly and identified problems are addressed.
Now is the time for senior managers and boards of directors to make sure the systems in place are working, and if there is no system for internal complaints beyond an open door policy to consider implementing one. The stakes are especially high for organizations who have taken loans from the federal government or who have or enter into contracts to provide goods and services to the federal or state government. Federal and state prosecutors and enforcement agencies are on high alert to detect and route out fraudulent behavior. In this process good companies can easily find themselves under scrutiny, and creating a system that encourages internal reporting of concerns and free flow of information is critical to avoiding serious accusations of wrongdoing.
The pandemic has impacted every organization to one degree or the other, even those which have continued to operate as a critical industry. As Virginia and other neighboring states begin to adjust and relax the stay-at-home directives and other business restrictions, each organization is going to be facing a flood of important business decisions. It would be easy to put a review of the internal whistleblower system on the back burner and to assume it will work just fine. Resist this impulse. Take the time now – before it is needed – to make sure you system works and that the “current” reality has not changed the ability to respond quickly should a complaint be raised.
One of the first areas likely to generate a complaint is from an employee who is concerned that the company is not providing a safe work environment. Complaints of this nature could come when employees are recalled to return to work or even sooner if the company has a worker develop COVID-19.9 This is an immediate area of concern for all businesses, and managers must be trained to respond appropriately to complaints of this kind. When emotions run high, statements can be made in the heat of the moment can create needless legal problems – supervisors who are unable or unwilling to be trained to handle this responsibility without generating bigger problems must be removed.
There are also going to be claims under the new Family Friendly Coronavirus Relief Act, which provides paid sick leave and extended Family Medical Leave Act, especially if schools do not reopen in August. There also likely to be claims by employees who are not rehired or who are laid off later this year if the economy does not rebound as hoped. Given the dramatic changes in the laws that will govern employment in the Commonwealth and the EEOC’s recent decision to rescind its long-standing Policy Statement which challenged the use of mandatory pre-dispute arbitration agreements, Virginia business may also decide that now is also the time to re-evaluate the benefits of adopting a comprehensive dispute resolution plan which will result in the resolution of most employment-related claims outside the court system, through the use of mediation and mandatory binding arbitration.
The costs of responding to these employment-related claims will be significant, but will pale in comparison to the expense and distraction that will come from a federal or state audit or investigation into the work done on a federally-funded project or use federal funds received under a pandemic loan program. Now is the time to make the time to review your internal process to make sure that you have a system you can rely on in light of the new realities of remote work by so many employees. Time invested now in this effort will help you avoid a much larger investment of time in the future, and equally important encourage your employees to come to the company with their concerns rather than immediately taking the issue to a lawyer or a government enforcement agency.10
1 This is not to say that politics will not impact this area. When Congress returns next week a new issue – whether businesses who reopen during the pandemic should be protected from liability- will become the latest battleground between the two parties. https://www.bloombergquint.com/politics/pelosi-schumer-reject-liability-limit-for-companies-that-reopen
2 See https://hbr.org/2018/11/research-whistleblowers-are-a-sign-of-healthy-companies; https://knowledge.wharton.upenn.edu/article/whistleblowers-in-business/; https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/whywouldanemployerwanttohaveawhistleblowerorethicshotline.aspx
3 In FY 2019 alone, the EEOC’s Offices in Richmond and Norfolk, Virginia received a total of 2,265 charges alleging various forms of discrimination or harassment, and in 1,055 of those charges (46.6%) claimed retaliation for engaging in protected activities. In 2009, claims of alleged retaliation were made to the EEOC in only 31.8% of all charges filed. https://www1.eeoc.gov/eeoc/statistics/enforcement/charges_by_state.cfm#centercol.
4See https://www.zuckermanlaw.com/ ; https://www.employmentlawgroup.com/what-we-do/whistleblower-protection-rewards/whistleblower-retaliation-attorney/; https://www.spigglelaw.com/virginia-whistleblower-lawyer/
5 We have significant experience in defending whistleblower complaints filed with OSHA and decided through an administrative system instead of the courts. See, Whistleblowers in the Workplace: A New World Order
6 The Governor separately signed into law the Virginia Values Act which, among other sweeping changes, repeals a provision added to the Virginia Human Rights Act in 1995 to prohibit common law public policy wrongful discharge claims based on allegations of employment related discrimination, harassment and retaliation claims. This change will likely lead to efforts to have the Supreme Court of Virginia reconsider whether there is now a common law public policy wrongful discharge claim that protects whistleblowers in Virginia. See, e.g., Lawrence Chrysler Plymouth Corp. v Brooks, 251 Va. 94, 465806 (1996); Conner v Nat’l Pest Control Ass’n, 257 Va. 286, 513 S.E.2d 398 (1999), Dray v New Mkt Poultry Products, 258 Va. 187, 518 S.E.2d 312 (1999) Rowan v Tractor Supply Co., 263 Va. 209, 559 S.E.2d 709 (2002) (whistleblower cases where court found no common law claim existed)
7 See articles by my partners, Jenny DeGraw and Erin Harrigan: https://www.gentrylocke.com/news/doj-and-commonwealth-of-virginia-to-investigate-potential-hoarding-of-coronavirus-medications-and-other-essential-medical-supplies/; and https://www.gentrylocke.com/news/when-it-comes-to-covid-19-criminal-implications-prosecutors-are-casting-a-wide-net/ .
8 In addition to the Virginia Values Act reference above (which creates a new set of state law anti-discrimination claims which are not subject to the federal caps on damages), the General Assembly passed new law prohibiting the use of noncompete agreement with “low wage” employees (those making less than $59,000), created a claim for new wage theft when dispute arise about pay, created a claim to challenge independent contractor/employee classifications, and raise the minimum wage in Virginia. The last provision will not be effective until May 1, 2021.
9 Remember too that when two or more employees act in concert to address safety concerns in the workplace they may claim protection under Section 7 of the National Labor Relations Act. This protection applies even when there is no union involved.
10 It should be pointed out that the implementation of a dispute resolution plan that requires the use of mandatory arbitration will not prevent the filing of a whistleblower complaint to a state or federal agency or lessen the costs of a government investigation into such a complaint. The arbitration will simply keep the employee from seeking monetary and equitable relief in a public forum where the civil court system will resolve the issues and determine damages.
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