In-house counsel do not represent the whistleblower’s interest. Danger lurks for whistleblowers who provide information to in-house counsel or provide that information without first reporting potential violations to the relevant external authorities. When dealing with internal compliance issues, employees should always retain outside counsel. Two significant cases illustrate the risks involved in internal whistleblowing.
In the first case, the plaintiff worked for a defense contractor. The employer, pursuant to its Code of Business Conduct, conducted an internal investigation into a claim that the employer defrauded the U.S. government through kickbacks and inflating costs. That investigation was overseen by the company’s legal department. Later, in 2005, the plaintiff filed a False Claims Act complaint against his employer. Pursuant to the complaint, the plaintiff sought the documentation associated with the original investigation from his employer. His employer, instead, claimed that the documents were protected by attorney-client privilege because the investigation was headed by the employer’s counsel. The court agreed: internal investigations headed up by the company’s counsel are primarily to obtain or provide legal advice and are protected by attorney-client privilege.
Because information given to in-house counsel pursuant to an internal compliance investigation may be protected under attorney-client privilege, whistleblowers need to be careful with what they disclose to their internal compliance department. If that department is directed by counsel, then documentation given to the department may be used solely for the defense of the company, and the whistleblower may lose evidence he needs to pursue a complaint with the SEC.
In another case, the plaintiff was fired shortly after reporting securities law violations allegedly committed by the company to senior management. The plaintiff filed suit against the employer, claiming whistleblower retaliation under the Dodd-Frank Act. Ordinarily, whistleblowers have extensive protection against retaliation and interference in their ability to report possible securities law violations. To protect against retaliation, the SEC may take legal action against employers who retaliate against employers, whether through discharge, demotion, suspension, harassment, or other forms of discrimination. Congress has also created a private right of action for whistleblowers to file a retaliation complaint in federal court. Further, when another party, employer or not, prohibits a whistleblower from contacting the SEC to report a possible securities law violation, the SEC may take direct enforcement action against the interfering party.
However, in this case, the Supreme Court ruled that someone who has not reported to the SEC at the time of the retaliation is not a “whistleblower” under the Dodd-Frank Act and is not afforded any of the retaliation protections otherwise available to whistleblowers. After this ruling, it is vital that whistleblowers report first to the SEC in order to obtain whistleblower status. Otherwise, the whistleblower forfeits his statutory right to retaliation protection and is far more vulnerable to firing or other retaliatory action by his employer.
Have you come across information that could indicate that your employer or another party is committing fraud? Our Birmingham whistleblower attorneys are here to provide confidential counsel for potential whistleblowers. Contact us today to schedule your free consultation.