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Companies Getting Stimulus Funds Subject to Greater Whistle-Blower Laws

March 13, 2009
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Many private employers suffering from the recession probably cheered in February when President Barack Obama signed the $787 billion stimulus package into law. But these companies may not be aware that if they receive funding through the package, they will be subject to more stringent laws regarding whistle-blower protection.

Under the package’s McCaskill Amendment, private employers that receive funding will be subject to the same whistle-blower protections as government entities.

Traditionally, private-company employees are protected by whistle-blower laws only if they are raising concerns around public-interest issues, such as safety hazards. But employees at private companies getting stimulus money will be protected by whistle-blower laws if they raise concerns that the company is grossly wasting or mismanaging the funds.

The scope of the whistle-blower protection is broad and could be subject to interpretation, experts say.

"This could go very far," said Dan Westman, a partner and co-chair of the employment and labor practice group at Morrison & Foerster.

Much of the funding is going toward health care and IT as part of the push to securely digitize medical records, Westman said. "You could have an employee at a company that is working on this saying that it’s being done in an inefficient way and is a gross waste of funding," he said.

Also significant under the new rules is that internal disclosures are protected. "This is very important because there are some state whistle-blower protection laws that only protect employees if they report a violation to an outside party, like a law enforcement agency or regulatory agency," said Jason Zuckerman, a principal at the Employment Law Group, a Washington-based law firm that represents whistle-blowers.

The language of the law also puts more of an onus on employers than on the employees, experts say.

"The provisions in the stimulus bill are being spun by the plaintiff’s side as best-practices whistle-blower law," said Don Meindertsma, a partner at Conner & Winters who represents management in whistle-blower cases. "By that I mean it’s heavily weighted in favor of employees."

The McCaskill Amendment isn’t on companies’ radar at all, experts say. And if the government makes an effort to educate employees about it, companies could be flooded with calls from potential whistle-blowers, said Roy Snell, CEO of the Society of Corporate Compliance and Ethics, a Minneapolis-based association that represents more than 1,300 corporate compliance professionals.

"Companies are going to have to sort through these calls and focus on the fraud and abuse and do those first, and then sort through the calls about mismanagement and try to separate those from just bad decisions," Snell said. "I think when they write these laws they don’t often understand the operational impact."

To address these issues, companies have to make sure they educate their managers about the laws and the implications, experts say. "Frankly, good companies should have been doing this already," Snell said.

But this might be the beginning of increased focus on whistle-blower protections, Zuckerman said.

Given all the abuses at companies, particularly in the mortgage industry and financial services, the Securities and Exchange Commission and other regulatory agencies are looking at how they can improve these laws, he said.

"I represent several individuals at large mortgage underwriters and large banks that blew the whistle on fraudulent practices and they were ignored or retaliated against,"
Zuckerman said. "I think more than ever it’s apparent that it’s in companies’ best interest to make sure that ethics and compliance are part of their corporate culture."

—Jessica Marquez

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