April 6, 2023
Becoming a whistleblower in the context of corporate or other financial wrongdoing is not necessarily an easy road. It can be challenging and intimidating to take on the burden of calling out fraud and other illegal actions by bringing such actions to the attention of law enforcement authorities. Corporate cultures are often built around the ideas of just doing what you are told, not rocking the boat, and putting the concerns of the business over your own. In short, it often takes courage and determination to do the right thing by presenting evidence of illegality carried out by those around you, including your superiors and/or company management.
At the same time, the personal and societal rewards for doing so can be great. Whistleblowers throughout history have done a tremendous service for society and even the companies themselves (even if the current management might not feel that way) by coming forward with evidence of wrongdoing, such as Medicare or Medicaid fraud that hurts taxpayers or securities fraud which harms investors. Additionally, for certain types of illegal acts, the whistleblower can individually stand to reap a large financial reward for their efforts.
In the case of a fraud claim pursued under the federal False Claims Act (FCA), a whistleblower can receive between 15 and 30 percent of the financial penalties levied on a defendant, and numerous defendants have paid hundreds of millions of dollars in such fines. A whistleblower who provides information to the SEC leading to a successful enforcement action leading to monetary sanctions exceeding $1 million is eligible to receive an award of between 10 and 30 percent of the monetary sanctions imposed in such an action. Past SEC enforcement actions have led to whistleblower rewards in the amounts of $114 million, $110 million, and $50 million, respectively.
Thus, there can be hugely significant benefits to coming forward as a whistleblower, but of course there are risks as well. Those individuals who have much to lose as potential targets of an FCA lawsuit or SEC investigation clearly may be motivated to take action to prevent such legal enforcement actions from happening. And, given that they have already shown a willingness to break the law in one area, they may well be tempted to further their wrongdoing by taking retaliatory action against those who would shine a light on their misconduct.
There are, however, robust laws in place to deter such retaliatory action, as discussed below. In any case, it is important for a potential whistleblower to work with experienced whistleblower counsel to avoid such retaliatory action before it happens and, should it happen, take swift measures to counter such action.
What is Retaliation?
The US Department of Labor generally defines retaliation to occur when an employer (through a manager, supervisor, administrator or directly) fires an employee or takes any other type of adverse action against an employee for engaging in protected activity. An adverse action is an action which would dissuade a reasonable employee from raising a concern about a possible violation or engaging in other related protected activity.
What is an example of retaliation?
Examples of retaliation against an employee whistleblower include not only terminating that person’s employment, but also suspending, threatening, harassing, demoting or otherwise discriminating against an employee for engaging in the protected act of reporting illegal actions in the workplace.
For example, if an employee files an FCA lawsuit against their employer, that employer may not transfer that employee to a less desirable department or location within the company based on the fact that the lawsuit was filed. Similarly, if an employee provides the SEC with information regarding federal securities laws violations by the employer, management may not direct other employees to harass that employee in an attempt to intimidate them or motivate them to quit their job.
Whistleblower Protections under the FCA and CFCA
The FCA and California False Claims Act (CFCA) include anti-retaliation provisions to protect workers who pursue a whistleblower lawsuit. Such provisions protect workers not just from being fired for coming forward with a whistleblower claim, but also protect workers from being demoted, harassed, threatened, suspended or otherwise discriminated against in the workplace.
Pursuant to the FCA, if an employee is subjected to such retaliatory behavior as a result of pursuing a whistleblower claim, then the employee can pursue legal action against the employer for reinstatement in the same position, twice the amount of back pay they were denied plus interest, compensation for any special damages they suffered as a result of the discrimination, and attorney’s fees.
Whistleblower Protections under the SEC Whistleblower Program
Pursuant to federal law, no employer may – either directly or indirectly – discharge, demote, suspend, threaten, harass, or in any other manner discriminate against a whistleblower because of the lawful acts of a whistleblower in providing information to the SEC in pursuing a whistleblower action.
If an employer is found to have wrongfully retaliated against an employee in pursuing a whistleblower action, the employee can obtain: 1) reinstatement in their prior position; 2) 2 times the amount of back pay otherwise owed to the employee; and 3) compensation for litigation costs and attorney’s fees.
In addition to the above protections, SEC regulations prohibit any person from taking any action to prevent a whistleblower – whether that whistleblower is an employee of the potentially offending entity or not – from communicating with the SEC about a possible securities law violation, and any person who does act to prevent a person from reporting is subject to an SEC enforcement action for having done so. Said SEC regulations also prevent any person from inducing another to sign an agreement indicating they will not report securities law violations to the federal government.
Further Whistleblower Protections Under California Law
In addition to the specific protections against retaliation under the FCA and SEC Whistleblower Program, California law provides additional whistleblower protections which apply to a broader context of whistleblower actions.
California Labor Code section 1102.5 makes it illegal for an employer or any person acting on behalf of that employer to, among other things:
“[M]ake, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct the violation or noncompliance, or from providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employer’s job duties.”
The California statute goes on to state that any employer or person acting on behalf of the employer “shall not retaliate against an employee for disclosing” such types of information to government agencies or to supervisors. In short, the statute means that a California employee cannot be retaliated against by an employer for proper whistleblowing of corporate wrongdoing – such as violation of the FCA or state or federal securities law – to the government or internally within the company.
More recently, California’s “Silenced No More Act”, implemented in 2022, provides further protection to employees against retaliation by preventing employers from implementing policies that prevent whistleblowing. Pursuant to the Silenced No More Act, employers are prohibited from entering into certain contracts with employees that prevent the employee from discussing illegal acts in the workplace relating to prohibited sexual assault, sexual harassment, workplace discrimination, workplace discrimination, or retaliation against an employee.
Specifically, a nondisparagement or other contractual provision that restricts an employee’s ability to disclose information related to conditions in the workplace shall include, in substantial form, the following language: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”
Thus, by express law in California, an employer may not ask an employee agree to avoid disclosure of illegal acts in the workplace.
Work with Experienced Counsel to Prevent and Protect Yourself from Retaliation
In general, potential FCA and SEC whistleblowers are strongly encouraged to work with experienced legal counsel in pursuing their FCA claim or developing and providing whistleblower tips to the SEC in order to maximize their opportunity to obtain a significant financial reward and to properly protect themselves against retaliation.
If you have information that you believe may form the basis of an FCA action or SEC Whistleblower Reward Program submission, contact our office today to schedule a confidential consultation with one of our experienced Whistleblower attorneys.