Corporations, Take Heed as Government Steps Up Protection of Whistleblowers

Steven J. Pearlman and Lloyd Chinn

Corporate Counsel

10-15-2012

On August 8, 2012, U.S. Department of Justice Inspector General Horowitz announced the creation of an Office of Inspector General Whistleblower Ombudsperson. It appears that the DOJ took a page from the playbook of private sector employers, as a number of leading companies have turned to various forms of ombudsperson programs to address whistleblower reports and foster early conflict resolution. It has been reported that the DOJ likely took this step in hopes of reestablishing credibility with whistleblowers, particularly in light of the controversy over Operation Fast and Furious—a crackdown by the Bureau of Alcohol, Tobacco, Firearms, and Explosives on the smuggling of weapons from U.S. gun dealers to Mexican drug cartels.

The DOJ likely found, too, that now is the right time to make such a move given the efforts Congress and other agencies have taken to promote whistleblowing, such as the creation of the Securities and Exchange Commission’s Office of the Whistleblower. It would behoove corporations to monitor the results of this program and contemplate whether to follow suit, as they may conclude that this tool will lessen the chances that whistleblowers will immediately head to the SEC for a bounty—a fear that is well founded in light of Dodd-Frank’s incentive structure.

What the Ombudsperson is Expected to Do

The ombudsperson is expected to act independently and will assume the following responsibilities: monitoring whistleblower reports and ensuring they are efficiently investigated; monitoring investigations and resolutions of whistleblower retaliation claims; communicating with whistleblowers regarding the status and resolution of their cases; and serving as a liaison with other whistleblower protection agencies, such as the U.S. Office of Special Counsel, as well as whistleblower advocacy organizations.

It is likely that this list will be expanded in the future to include institution and oversight of formalized training, updating whistleblower policies, and periodic reporting-out on the types and volume of whistleblower complaints.

Why Did the DOJ Create This Post?

Although agencies have attempted to step up and streamline their whistleblower protection processes, the Whistleblower Ombudsperson position is unique in the government employment context. The DOJ’s creation of this position appears to reflect its belief that, although the OIG has responsibility for ferreting out waste, abuse, and mismanagement, more needs to be done to encourage good-faith whistleblowers to voice their concerns early, without fear of retribution. The creation of this position also reveals the DOJ’s view that whistleblowers—who often witness misconduct first-hand—can provide superior insight into abuses that may otherwise be difficult to detect and regulate.

It is not surprising to see the OIG instituting a Whistleblower Ombudsperson position at this time in light of recent high-profile government whistleblower complaints, such as those associated with Operation Fast and Furious. Many considered this operation a failure, especially when some of the firearms involved in OFF turned up at the murder scene of a border patrol agent. A special agent blew the whistle on purported defects in this operation, and claimed he repeatedly made reports to the ATF Office of Professional Responsibility that were overlooked. His complaint, like the complaints of other whistleblowers related to OFF, continues to receive substantial media attention.

The OFF scandal should not be considered in isolation in attempting to understand why the DOJ created the Whistleblower Ombudsperson post. Government employee whistleblower advocates stress a history of mistrust between whistleblowers and the government, despite the existence of formal protections. For example, although the Office of Special Counsel and the Merit Systems Protection Board exist to investigate claims and protect the rights of government employee whistleblowers, whistleblower advocates have argued that whistleblowers still are treated with disdain and that formal protections often are ineffective. They point to the recent resignation of a former special counsel at the U.S. Office of Special Counsel amid a highly publicized scandal, and what they characterize as a low number of instances where whistleblowers have prevailed before the MSPB.

The creation of the ombudsperson position also dovetails with other recent government efforts to encourage whistleblowing. For example, the aforementioned Office of the Whistleblower, which is responsible for administering the bounty program in the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Those provisions allow a whistleblower to receive between 10 percent and 30 percent of the monetary recovery when he or she voluntarily provides original information that leads to a successful enforcement action and sanctions exceeding $1 million.

On August 21, 2012, the Office of the Whistleblower issued its first round of bounties. Likewise, in February 2009, Congress enacted the American Recovery and Reinvestment Act of 2009, a sweeping stimulus package that included whistleblower protections. ARRA’s whistleblower provisions provide unusually robust protections to individuals who report possible waste, fraud, and/or abuse of funds. Plus, individuals continue to exercise their rights under the qui tam provisions in the False Claims Act. Similar to Dodd-Frank’s whistleblower bounty provisions, the FCA provides successful whistleblowers a share of the recovery where the government has been defrauded.

When this macro context is examined, it becomes apparent that the DOJ created the whistleblower ombudsperson position with hopes of restoring government employees’ confidence in the OIG’s commitment to investigate and ability to effectively address whistleblowers’ reports of misconduct and prevent retaliation. Likewise, the DOJ likely has been encouraged by the success the SEC Office of the Whistleblower reportedly has enjoyed and by the many steps Congress has taken to heighten protections for whistleblowers.

The “Unknown,” and How This Position May Evolve

The creation of the Whistleblower Ombudsperson position raises certain important questions that cannot yet be answered. For instance, what measures will be taken to ensure the ombudsperson acts, and is perceived as acting, independently? It is imperative that whistleblowers perceive the ombudsperson as being independent and fair, and believe that he will maintain their confidences to the greatest extent practicable. It also is worth noting that while the creation of this new position may lead to an uptick in whistleblower complaints, new complaints could also be made by disgruntled employees who seek leverage in the employment relationship. Thus, it would behoove the DOJ to start developing a triage system and methods of quickly ferreting out unmeritorious complaints.

Implications for Private Sector Employers

Corporations remain concerned that Dodd-Frank’s bounty provisions encourage employees to bypass internal reporting—and rightly so. So they have considered a variety of methods of encouraging whistleblowers to report internally, and some have enjoyed success through ombudsperson programs that are similar in a number of respects to the one the DOJ has instituted.

Such employers have quickly learned the critical importance of ensuring that employees perceive ombudsperson programs as safeguarding confidentiality and being impartial and independent. Notably, though, some question whether communications in this context between employees and ombudspersons are privileged. Courts have addressed this issue on a case-by-case basis, and some courts have recognized a privilege under Federal Rule of Evidence 501 and under an implied contract theory. Also, although many employers would prefer that employees utilize human resources or compliance channels, experience has shown that a well-crafted program need not supplant those functions, and may in some cases be more attractive options to employees because they are perceived as neutral.

In sum, it appears that the DOJ has taken a page out of the playbook of private employers—and that private employers now have an opportunity to learn from the government’s experience in using this powerful compliance tool. Indeed, in-house counsel and human resources and compliance professionals should monitor the administration and results of the DOJ’s new program in connection with constantly improving their own whistleblower programs, and should pay special attention to whether this garners employee confidence and minimizes the instances of whistleblower litigation. Likewise, corporations that are uninterested in exploring ombudsperson programs still would benefit from tasking human resources or compliance professionals with many of the duties assigned to the OIG whistleblower ombudsman, such as serving as a liaison to and facilitating regular and appropriate communications with the whistleblower.

Proskauer Rose Whistleblowing and Retaliation Group co-heads Steven Pearlman and Lloyd Chinn are partners in the labor and employment law department. Mr. Pearlman can be reached at 312-962-3545 or spearlman@proskauer.com, and Mr. Chinn can be reached at 212-969-3341 or lchinn@proskauer.com.