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Whistleblower Laws Call for Sound, Clearly Defined Policies

A tidal wave of new lawsuits claiming retaliation against so-called whistleblowers has been hitting business owners in recent years.

While businesses work to prevent lawsuits that can hurt their bottom lines — claims regarding workers’ compensation, discrimination and sexual harassment, to name a few — retaliation litigation accounted for 41 percent of all discrimination claims in 2013. That’s up from 23 percent in 1997, according to the U.S. Equal Employment Opportunity Commission.

The rise in such lawsuits appears to be linked to changes in whistleblower protection laws on state and federal levels that broaden the scope of employee protection.

A whistleblower is an employee who makes a complaint alleging a company’s misconduct, such as health and safety code violations, shareholder fraud, financial mismanagement or other illegal activities. Once a complaint is filed against a company, the employer cannot retaliate against the employee for taking that action. Some laws even prevent anticipatory retaliation or taking action against an employee based on a belief that he or she might report suspected illegal activity.

A series of whistleblower-friendly protection laws took effect in California at the start of this year. Instead of requiring whistleblowers to submit complaints to authorities, such as the U.S. Securities and Exchange Commission or the Occupational Safety and Health Administration, one aspect of these new laws broadens protections to employees who simply report a complaint to internal management.

Retaliation Defined

Retaliation from employers can come in many forms, including reduction of hours, blacklisting, reassignment, intimidation and termination.

Whistleblower claims usually arise from employees after termination, said Christopher Wright, a partner at Kirby Noonan Lance & Hoge LLP in San Diego.

“They’re suing for wrongful termination, claiming discrimination after complaints were made to their employer.” Wright said.

After a claim is made against an employer, the whistleblower must prove that he or she engaged in protected activity such as reporting fraud and was terminated for it.

Sometimes plaintiffs pursue legal action even if their claims are weak or unjustified, said Mike Aguirre, a partner at Aguirre & Severson LLP with over 30 years of experience practicing law in California, particularly in business fraud.

“There are people who will look for anything they can to gain an advantage,” Aguirre said. “They try to get more money or more pay by making a mountain out of a molehill. You have people looking to exploit weaknesses in the company.”

But regardless of such claims’ merits, Aguirre advises those with “a whistleblower problem” not to retaliate.

“You will only make things worse,” he said.

Policies Can Protect

Successful plaintiffs may recover back pay from employers as well as financial compensation for emotional distress, punitive damages and attorney’s fees. An employer may also be required to reinstate the employee.

In addition to damaging a company’s financial situation, whistleblower lawsuits can also damage a company’s reputation. Employers can avoid whistleblower complaints by ascribing to a few practices.

Avoiding Trouble

The first step is avoiding retaliation. Many times company owners do not want to believe that their company is engaging in illegal activity, and so a whistleblower may cause frustrations. Rather than deepening the problem by reacting, employers should look at the complaint as an opportunity to get the business back on a lawful track.

All companies should have a complaint policy in place. A few laws, such as the Sarbanes-Oxley Act, make it so that certain publicly traded companies are required to have specific complaint handling policies in place. However, private companies should follow suit organizing a policy to address complaints. Once the policy is in place, employers should train and educate employees on how to use the system, making it clear that anyone who comes forward will not suffer retaliation. The earlier a company knows of suspected illegal activity, the sooner it can correct its course.

“Prevention is better,” Aguirre said. “Putting a system of internal controls and setting the tone at the top is the key.”

Aguirre also suggests setting up a preemptive connection with a defense attorney before complaints are even filed, arranging a knowledge relationship to better equip business owners with the risks and the law concerning whistleblowers.

“There’s nothing like having someone you trust that you can call,” Aguirre said. “Getting good legal advice upfront will help you avoid problems.”

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