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Are inept employees hiding behind whistle-blower claims when their jobs are in danger? That’s the belief of some management-side lawyers, who say that they’ve been forced to revise their advice to clients as a result. These attorneys point to the high stakes for retribution against a whistle-blower, including stiff criminal and civil penalties. “I’ve seen a miniexplosion of whistle-blower claims by people who are marginal performers, if not malingerers,” says Victor Schachter, an employment partner at Fenwick & West. Fred Alvarez, the head of the employment law practice at Wilson Sonsini Goodrich & Rosati, agrees: “It’s a natural place to go to protect your flank.” Schachter cites a recent matter for a client he declined to name. An employee whose job performance had increasingly come under criticism made allegations of accounting improprieties against Schachter’s client. The allegations set the wheels in motion for an accounting investigation, while at the same time threatened to halt an imminent evaluation of the employee’s own performance. Any adverse action against the worker could have been interpreted as evidence of retaliation for blowing the whistle. Though the whistle-blowing claim turned out to be legitimate, Schachter’s client still managed to negotiate the employee’s termination. Jeffrey Ross, a plaintiffs attorney at Dickson Ross in Oakland, says that he’s also seen a sharp rise in the number of whistle-blower retaliation cases his firm handles. But he maintains that companies are to blame, not employees. “Once high-performing, well-respected employees blow the whistle, suddenly they become, in retrospect, terrible, if not incompetent, employees,” says Ross. He adds, “It’s a very typical response.” Whether a whistle-blowing complaint is valid or not, it has to be handled very carefully, says Brian Ashe, a partner in the San Francisco office of Seyfarth Shaw. “It doesn’t tie your hands,” he says, but it does require slowing things down. Otherwise, the company could take a financial hit. “If you are at all precipitous in significantly disciplining the employee, then you’re going to buy yourself a retaliation claim that’s going to be expensive,” Ashe says. Businesses also have to take into account the expanded protections for whistle-blowing � and the increased penalties for retribution � contained in the Sarbanes-Oxley Act. Under the two-year-old law, an employee who provides information or assists in an investigation relating to a company’s violation of federal fraud laws or Securities and Exchange Commission rules cannot be fired or discriminated against for coming forward. And the allegation need not turn out to be true so long as the employee “reasonably believes” it to be a violation. A company official who tries to punish a whistle-blower will also face a range of criminal and civil penalites. Section 1107 of Sarbanes-Oxley, for example, imposes up to ten years’ imprisonment for retaliating against an informant. The law also lays out a range of fines for perceived retaliation. Attorneys note that a company’s risk isn’t limited to the penalties in Sarbanes-Oxley and other federal and state laws. Reports that a company is cooking the books can have instant and disastrous consequences for its stock price. Allegations of financial impropriety raise “the exposure of the claim from one plane to a completely other plane,” says Alvarez. “The damage to the company is going to be in the market cap.” These extra considerations mean that a broader legal team is often called into action. Boris Feldman, a securities litigation partner at Wilson Sonsini, says that he regularly pairs up with the firm’s labor and employment group when whistle-blower matters arise. “From minute one, it’s both an HR issue and a securities law issue,” Feldman says. The securities attorneys notify the client’s audit committee of the allegation and spearhead an investigation to determine whether the fraud claim has any merit. In some cases, the financial probe will even be farmed out to a separate law firm. Fenwick’s Schachter agrees that more resources are needed to handle whistle-blower claims that target a company’s financial or accounting practices. “These [situations] are so problematic because they involve not only the human resources issue of nonretaliation,” he says “but they now raise this much broader panorama of issues.”

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