Whistleblowing has been a part of the legal lexicon in this country since the Civil War when, in response to contractors defrauding the government, President Lincoln signed the False Claims Act (FCA).  Now, even without the recent political spotlight in Washington, employer and employee advocates are aware that federal and state laws have prompted increased whistleblowing in both the public and private sector. Many of these laws now provide both protection to whistleblowers and in some instances, significant rewards and financial inducements. Additionally, government increasingly relies on whistleblowers as a key adjunct to enforcement efforts.

This article will provide a basic understanding of the many whistleblowing laws. We then turn to the basic question for lawyers counseling clients facing whistleblowing allegations—what do you do when your client has a whistleblower in the organization?

The FCA is the legal progeny for many whistleblowing laws. The FCA encourages individuals to report fraud upon the U.S. government by providing a potential share of the amounts recovered. Whistleblowers must first give the Justice Department an opportunity to directly manage a claim; if the government does not take over the claim, the whistleblower can proceed with a legal action in the capacity as a relator for the benefit of the United States. FCA whistleblowers often recover between 15-30% of the recovered reward. Many states have enacted their own versions of the FCA to encourage whistleblowing in state and local governments.

The IRS has its own whistleblowing program providing significant payments for successful recovery of taxes due the U.S. In 2018, the IRS recovered about $1.8 billion with the help of whistleblowers, of which $300 million was paid to whistleblowers as a reward. The US Department of Labor, under the auspices of OSHA, manages over 20 whistleblowing statutes covering workplace safety, pollution, transportation and other areas.  The Sarbanes-Oxley Act (SOX) passed in 2002, along with the Dodd-Frank Act passed in 2010, provide extensive opportunities and protections to encourage whistleblowing in the areas of financial regulation, reporting and securities regulation in the private sector. Dodd-Frank provides a reward program encouraging individuals with knowledge of financial irregularities to report their information to the Securities and Exchange Commission; this program has enabled the SEC to recover $2 billion in financial penalties.

Texas lacks a comprehensive whistleblowing law that protects private sector whistleblowers from retaliation.  The Texas Whistleblowing Act, Gov. Code Sec. 554.001 et seq., only provides basic protections Texas public sector whistleblowers.  The Texas Medicare Fraud Prevention Act, Tex. Hum. Res. Code Sec. 36.001 et seq., protects and encourages whistleblowing in the administration of Medicare in Texas.  There are several other statutes in Texas providing protection to whistleblowers in workers compensation programs, under Texas employment discrimination statutes, as well as healthcare workers in Texas.

Lawyers usually receive the call from a panicked client well after allegations surface which could arise from a whistleblower.  Whistleblowers may often be anonymous or may even be unknown to an employer as the whistleblower deals with government investigators and/or private legal counsel. Moreover, retaliation against whistleblowers is usually a separate claim or offense on its own and snares many unwary employers.

One of the first steps for the lawyer assisting a client facing whistleblowing allegations is to convince the client to take the matter seriously. This can be hard to do at times but whistleblowers may be working with regulators or government investigators or private counsel.  The employer may not know the whole story at the early stage.

Additionally, counsel should identify a small group of managers who will receive privileged legal advice pertaining to managing individuals involved in a whistleblowing matter.  Effectively this is a need-to-know group but when dealing with whistleblowers, keep the group small and limited to those whose involvement is most critical.

It is also common for management to want to identify the person(s) involved.  If that individual has not come forward, the focus should be on understanding the merits of the claim and gathering relevant facts that will help in later dealings with regulators. Outing a whistleblower, even inadvertently through a document preservation notice for example, can have disastrous consequences.  Halliburton v. Admin. Rev. Bd., 771 F.3d 254 (5th Cir. 2014).   

Where the individual is known, assisting management can be more difficult because every workplace interaction could come under scrutiny. The key to success is to help the client treat this employee no different than anyone else under the same circumstances. If employee misconduct is suspected such as removing or copying information, unauthorized accessing of computer systems or even unrelated employment or performance problems, the employer must be able to establish that it followed normal processes and applied rules and regulations as it did in similar situations. Changes in job duties or responsibilities similarly should be justified under regular procedures and processes.

Whistleblowers working with knowledgeable counsel usually do not seek to engage in unpermitted "self-help" activities. However, employers do need to take steps to insure that existing policies and procedures for workplace security, monitoring and enforcement are carefully managed and applied. The temptation to seize electronic devices or use other techniques for analyzing phones or computers or system access can be strong.  Lawyers need to insure that they understand their client's policies and past precedent to insure both compliance with any applicable legal regulations as well as avoiding retaliation claims.

Whistleblowing statutes present a variety of situations that overlay the whistleblowing process.  For example, with FCA or similar state statutes, the first notice of an issue is the filing of a legal claim or a demand for negotiation. By contrast, Dodd-Frank whistleblowers may have made an internal claim and simultaneously may be working with enforcement officials (and even private counsel) behind the scenes. A common theme in is to help the client manage the client's communication about the claim or investigation. A good practice is to immediately train the group working under privilege about when, where and how to communicate about the matter at hand.  Likewise, conducting an internal investigation under privilege is often appropriate (decisions to waive privilege as to the investigation itself can be made later.)

The employer can be at a disadvantage in whistleblowing matters because it lacks information and control. Effective management of the whistleblower helps an employer to focus on the merits of the claims and avoid creating new claims in favor of the whistleblower.

Jeff Heller is of counsel at Vorys, Sater, Seymour and Pease, LLP in Houston.  He previously was Associate General Counsel for BP plc managing global employment law matters.  This article was based on a presentation given to the ACC Houston Chapter in June 2019.  Special thanks to Jason Zuckerman at Zuckerman Law in Washington, D.C. for his perspectives from the "other side".