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The 2013 National Defense Authorization Act creates strong new protections for employees of federal contractors and subcontractors who “blow the whistle” on their own employers. The law encourages employees to report “gross mismanagement,” “gross waste,” “abuse of authority” and other misconduct related to federal contracts. Mark discusses these new protections.

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  1. 1. New WhistleblowingProtections for Employeesof Government ContractorsW. Mark GavreApril 9, 2013Salt Lake City25th ANNUAL EMPLOYMENT LAW
  2. 2.  Mistrust of corporations– Especially banks and financial institutions– Wall Street Mistrust of government contractors, i.e.,companies doing business with state, localand federal government– Government dependent on contractors– Government agencies weak and easilycorruptedWhy Whistleblowing?24826-7830-0435
  3. 3.  Fear of bad things happening, but difficultyof proving it Regulatory agencies spread thin, budget-cutting, loss of staff Therefore, the need for “insideinformation” to ferret out wrongdoingWhy Whistleblowing? (cont.)34826-7830-0435
  4. 4. “I don‟t think there‟s anything moreimportant than whistleblowers. It is veryclear that whistleblowers have made adifference time and time againin…ferreting out serious and significantproblems in the federal government. Atagency after agency we have morecontractors…than we have federalemployees….Whistleblowers as Heroes44826-7830-0435
  5. 5. If whistleblowers [are not protected], weare saying to contractors, we don‟t thinkwrongdoing by you is thatimportant….Whistleblowers are theunsung heroes in our fight to root outinappropriate and sometimes illegalbehavior…”– U.S. Senator Claire McCaskell (D. Mo.)Whistleblowers as Heroes (cont.)54826-7830-0435
  6. 6.  Passed in 1863 during the Civil Warbecause contractors sold defective goodsto the government – including armyuniforms made of “shoddy” that fell apart Strengthened in 1986 under PresidentReagan, and again in 2009 and 2010 Covers “false claims” submitted to thefederal government Treble damages and fines possibleExisting law – False Claims Act64826-7830-0435
  7. 7.  Person knowing about the false claim canfile a lawsuit on behalf of the government– Individual‟s identity kept confidential The government can pick up the lawsuit orthe individual can pursue it If the contractor loses (or settles) theindividual gets 15-30% of recovery Defense contractors and hospitals(Medicare) are primary targetsFalse Claims Act (cont.)74826-7830-0435
  8. 8.  March 2013 CIA contractor paid $3 millionsettlement for giving gratuities to CIAemployees to get contracts with the CIA March 2013 contractor paid $19 millionsettlement for overstating number of hoursworked by its employees on DOE project Manufacturer sold medical device to MDs forunapproved use – indirect false claim toMedicareFalse Claims Act Examples84826-7830-0435
  9. 9.  Sarbanes-Oxley (2002) and Dodd-Frank(2010) focus on corporate and securitiesfraud by public companies Both protect whistleblowers who report(internally or externally) what they“reasonably believe” to be some form offraud in the companyExisting Law – Sarbanes-Oxleyand Dodd-Frank4826-7830-0435 9
  10. 10.  “The purpose of [SOX] is protect people whohave the courage to stand against institutionalpressures and say plainly, „what you are doinghere is wrong‟….Congress chose languagewhich ensures that an employee‟s reasonablebut mistaken belief that an employer engagedin [fraudulent] conduct…or that a violation islikely to happen…is protected.” Wiest v. Lynch(3rd Cir., 3/19/13)Importance of SOX Whistleblowers4826-7830-0435 10
  11. 11.  Dodd-Frank (focused on Wall St.)encourages whistleblowers to reportwrongdoing to SEC and CFTC Whistleblower gets 10-30% of collectedpenalties of $1 million or more 8/21/12 first SEC award to whistleblower of$50,000 (30%) – may go to $300,000Dodd-Frank Whistleblower Awards4826-7830-0435 11
  12. 12.  Individuals rewarded for reporting tax fraud UBS (Swiss bank) helped U.S. taxpayersevade taxes by creating secret off-shoreaccounts to hide money IRS helped by UBS employee whistleblower UBS paid $780 million criminal fine anddisclosed thousands of Americans evadingtaxesIRS Whistleblower Program4826-7830-0435 12
  13. 13.  IRS collected over $5 billion from U.S.Taxpayers in back taxes, interest andpenalties In 2012 IRS paid whistleblower $104million despite criminal conviction for hispart in the UBS tax fraud scheme andserving 40-month sentence in prisonUBS Tax Fraud Case (cont.)4826-7830-0435 13
  14. 14.  Stronger whistleblower protections Applies to DOD and NASA contractors “Pilot” whistleblower protection programapplies to all federal contractors (except inintelligence area) for four years Applies to subcontractors also Effective July 1, 2013 for all new or modifiedgovernment contracts2013 National DefenseAuthorization Act (NDAA)4826-7830-0435 14
  15. 15.  Retaliation against whistleblowers illegal Employee protected if she reports what she“reasonably believes” is:– “Gross mismanagement” of a contract– “Gross waste” of federal funds– “Abuse of authority” relating to a contract– “Substantial danger” to public health or safety– “Violation of law, rule, or regulation”NDAA Whistleblower Protections4826-7830-0435 15
  16. 16.  Employee may report to:– Member of Congress– Inspector General of contracting agency– Government Accountability Office– Federal employee overseeing the contract– Any federal law enforcement agency– Court or grand jury– Company official responsible to investigatemisconductNDAA Whistleblower Reporting4826-7830-0435 16
  17. 17.  Employer may not “discharge, demote, orotherwise discriminate against” employee forreporting what she “reasonably believes”violates the law Reprisal illegal “even if it is undertaken at therequest of an executive branch official”Reprisals Prohibited4826-7830-0435 17
  18. 18.  Contractors and subcontractors must “informtheir employees in writing of their rights andremedies” under the law– “In the predominant native language of theworkforce” Employee rights and remedies “may not bewaived by any agreement, policy, form, orcondition of employment” All contracts must say the sameEducating Employees4826-7830-0435 18
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  24. 24.  Employee makes complaint to InspectorGeneral of agency Inspector General investigates and reportsto agency head within 180 days (may beextended by agreement of employee) Agency must act within 30 days Agency may order reinstatement, back payand benefits, damages and attorney feesNDAA – Complaining About Reprisal4826-7830-0435 24
  25. 25.  If agency finds no merit to complaint ordoes not act within 30 days,– Employee may file lawsuit in federal districtcourt,– With jury trial, and– Seek full remedies (reinstatement, back payand benefits, damages) and attorney feesEmployee Going to Court4826-7830-0435 25
  26. 26.  Three years from suspected reprisal foremployee to complain to InspectorGeneral 210 days for Inspector General andagency to act (may be extended 180 days) Two more years for employee to file alawsuit in federal courtNDAA Deadlines4826-7830-0435 26
  27. 27.  Reinforce Code of Conduct – tone at the top Ethics training for all employees Training for managers– Avoiding retaliation Effective complaint procedures– Review existing policies and procedures– Hotline and anonymous tip number– Better internal system can reduce externalreportsBest Practices4826-7830-0435 27
  28. 28.  Take reports/complaints seriously Investigate promptly Be prepared for complex investigations– Appropriate for particular allegations and facts– Good record keeping Maintain confidentiality of investigation– Disclose only on a need-to-know basis– Do not tell supervisor unless necessary• Helps avoid retaliationBest Practices (cont.)4826-7830-0435 28
  29. 29.  Complete investigation with report– Inform management Take appropriate action– Document Balance tension between investigatingclaim, reaching conclusions, responding toemployee, taking appropriate action, andavoiding retaliationBest Practices (cont.)4826-7830-0435 29
  30. 30.  W. Mark Gavredirect: (801) 536.6834email: mgavre@parsonsbehle.comThank You4826-7830-0435 30