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LABOR & EMPLOYMENT LAW — 03/12/09

Sweeping new whistleblower law may cover all employers who receive stimulus funds

With little public notice, the American Recovery and Reinvestment Act of 2009 (ARRA) adopted new whistleblower protections for employees of private employers and state and local governments who disclose waste, fraud, gross mismanagement or a violation of law related to stimulus funds. Employers who receive funds made available by the economic stimulus bill should become familiar with the Act's broad whistleblower provisions in order to minimize their exposure to whistleblower claims, advises Daniel Westman, an attorney with Morrison & Foerster and a leading authority on whistleblower laws.

Westman outlines below the key whistleblower components of the stimulus bill:

Covered employers. The Act's whistleblower provisions cover "non-Federal employers" who receive "covered funds." Who is included within the definition of a "non-Federal employer" is not clear. The federal government and its agencies are clearly excluded from that definition. However, given the overall intent of the Act that stimulus funds should not be wasted, prudent employers should assume that the whistleblower provisions apply to any employer who receives a contract, grant or other payment appropriated or made available by the stimulus bill, including private employers, federal government contractors and subcontractors, and state and local governments and their contractors and subcontractors.

Protected conduct. Protected conduct under the Act's whistleblower provisions includes a disclosure of information by an aggrieved employee to a person with supervisory authority over the employee, a State or Federal regulatory or law enforcement agency, a member of Congress, a court or grand jury, the head of a Federal agency, or an inspector general. The employee must reasonably believe the disclosed information is evidence of:

Although the Act does not define "reasonable belief," other whistleblower protection laws, such as Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, apply a standard of objective reasonableness, which evaluates the reasonableness of a belief based on the knowledge available to a reasonable person in the same factual circumstances with the same training and experience as the aggrieved employee.

Unlike analogous whistleblower laws that extend to private employers, the Act's whistleblower provisions expressly cover internal disclosures, including disclosures made by employees in the ordinary course of performing their job duties.

Historically, federal and state whistleblower laws have been written to distinguish between the types of complaints protected in the government sector and those protected in the private sector. Typically, whistleblower laws protecting government sector employees were broadly written to protect concerns about mismanagement, waste, and abuse with respect to public funds. In contrast, whistleblower laws protecting private sector employees were more narrowly drawn to protect only concerns about the public health or safety, or violations of law. Because the Act involves the provision of public funds to employers in both the government and private sectors, the Act melds together the categories of protected complaints typically found in whistleblower laws applicable to the government and private sectors. Accordingly, the Act greatly expands the subject matters of protected complaints in private sector employment to include the categories of mismanagement, waste and abuse with respect to stimulus funds.

Burden of proof. The Act prohibits a broad range of retaliatory employment actions, including termination, demotion, or any other discriminatory act, which the U.S. Supreme Court, in Burlington No & Santa Fe R.R. Co v White, 548 US 53 (2006), defined as any material act that would dissuade a reasonable person from engaging in protected conduct.

To prevail in a whistleblower action, an aggrieved employee must establish that the protected conduct was "contributing factor" to the reprisal, which the Act clarifies can be proved through temporal proximity or by demonstrating that the decision-maker knew of the protected disclosure. An employer can avoid liability only by demonstrating by "clear and convincing evidence," a high evidentiary burden, that it would have taken the same action in the absence of the employee engaging in protected conduct.

Exhaustion, private right of action. Actions brought under the stimulus bill's whistleblower provisions must be filed with the Inspector General of the appropriate government agency. Unless the inspector general determines that the action is frivolous, does not relate to covered funds, or has been resolved in another Federal or State administrative proceeding, the inspector general must conduct an investigation and make a determination on the merits of the whistleblower retaliation claim no later than 180 days after receipt of the complaint. Within 30 days of receiving an inspector general's investigative findings, the head of the agency shall determine whether there has been a violation, in which event the agency head can award a complainant reinstatement, back pay, compensatory damages, and attorney fees, and can require the employer to engage in unspecified "affirmative action to abate the violation." If an agency files an action in federal court to enforce an order of relief for a prevailing employee, the court may also award exemplary damages.

If an agency head has denied relief in whole or in part or has failed to issue a decision within 210 days of the employee's filing of a complaint, the complainant may bring a de novo action in federal court, and either party may demand a jury trial. The Act expressly states that predispute arbitration agreements do not apply to these whistleblower provisions.

Best practices. In addition to the whistleblower provisions in the stimulus bill, employers engaged in government contracts should be aware of potential whistleblower liability under the False Claims Act, 31 U.S.C. § 3730 (h), and analogous state legislation, that prohibits retaliation against an employee who has taken actions "in furtherance of" a False Claims Act enforcement action. In addition, employees of private contractors may have a claim of common law wrongful discharge in violation of public policy, a tort remedy that provides access to a jury trial and punitive damages. Employers should implement and consistently follow procedures that document the legitimate, non-discriminatory and non-retaliatory reasons for employment actions to avoid costly whistleblower litigation.

For more information on this and other topics, consult CCH Employment Practices Guide or CCH Labor Relations.

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