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In the wake of the Enron Corp.’s accounting scandal and other recent misdeeds in corporate America, whistleblowers are practically national heroes. Time magazine crowned a trio of whistleblowers as the publication’s “persons of the year” in 2002. Congress that same year passed the Sarbanes-Oxley Act, which codified various protections for workers who blow the whistle on corporate wrongdoing. But the rise of the whistleblower has also created a new set of challenges for some employment lawyers. While whistleblower protections have proved effective in uncovering corporate fraud, some lawyers say they have also provided a cloak for poorly performing workers to drape themselves in when the going gets tough. The delicate nature of these situations and the high stakes involved � including stiff criminal and civil penalties � are forcing employment attorneys to revise some of their tactics and to widen the circle of lawyers involved. “These things are so problematic because they not only involve the human resources issue of non-retaliation, but they now raise this much broader panorama of issues,” says Victor Schachter, an employment partner at Fenwick & West. Schachter describes a recent incident in which an employee whose job performance had increasingly come under criticism made allegations of accounting improprieties within the company. The allegations set in motion an accounting investigation, which in turn threatened to halt an imminent evaluation of the employee’s own performance. That’s because any adverse action against the employee could have been interpreted as evidence of retaliation for blowing the whistle. Situations like this have become increasingly common, says Schachter. “I’ve seen a mini-explosion of whistleblower claims by people who are marginal performers, if not malingerers,” he says. In this particular incident, the whistleblowing claim turned out to be legitimate, but the company still negotiated the employee’s termination. Under Sarbanes-Oxley, an employee who provides information or assists in an investigation relating to a company’s alleged 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 legitimate so long as the employee “reasonably believes” that a violation has occurred. Employee advocates say attempts to portray whistleblowers as inept employees underscore the need for strong whistleblower protections. Jeffrey Ross, a plaintiffs attorney at Oakland, Calif.’s Dickson Ross, says that “once high-performing, well-respected employees blow the whistle, suddenly they become, in retrospect, terrible, if not incompetent, employees.” Ross adds that his firm has been handling an increasing number of whistleblower retaliation cases. For their part, management-side lawyers claim that whistleblower protections are ripe for abuse by poorly performing employees looking to inoculate themselves against employers. “It’s a natural place to go to protect your flank,” says Fred Alvarez, who heads the employment law practice at Wilson Sonsini Goodrich & Rosati. Dealing with the situation has forced employment attorneys to come up with new strategies. “It doesn’t tie your hands,” says Brian Ashe, a partner at Seyfarth Shaw. But it does require slowing things down. “If you are at all precipitous in significantly disciplining the employee,” says Ashe, “you’re going to buy yourself a retaliation claim that’s going to be expensive.” While employment lawyers have long advised corporate clients on ways to avoid retaliation claims involving sexual harassment and discrimination, the recent boom in whistleblowing has changed the rules of the game � and has also raised the stakes. Sarbanes-Oxley contains both criminal and civil penalties. One provision imposes up to 10 years imprisonment for retaliating against an informant. A broader range of legal issues raised by Sarbanes-Oxley could also require a wider legal team when a company is faced with a whistleblowing situation. Boris Feldman, a securities litigation partner at Wilson Sonsini, says he now regularly pairs up with the firm’s labor and employment group when whistleblower matters arise. “From minute one, it’s both an HR issue and a securities law issue,” says Feldman. Securities attorneys, for example, would notify the company’s audit committee of the allegation and spearhead an investigation to determine whether the fraud claim has any merit. In some cases, the financial investigation might even be farmed out to a separate law firm. The whistleblowing phenomenon is not limited to financial issues at public companies. Although Sarbanes-Oxley affects only publicly traded corporations, employment attorneys in California are dealing with whistleblowing claims at all types of companies. California common law prohibits retaliation in cases that involve violations of public policy, which can cover whistleblowing about anything from accounting fraud to pollution, regardless of the public or private nature of the affected company. And unlike Sarbanes-Oxley, which routes whistleblowing retaliation claims to the Department of Labor for an investigation and possibly a hearing in front of an administrative judge, state law allows for jury trials. “If the jury starts to think, ‘I’ve got a corporate criminal here because they’re cooking the books,’ it’s a much easier sell for the plaintiffs,” says Alvarez. Alexei Oreskovic is a reporter for The Recorder , the American Lawyer Media newspaper in San Francisco, where this article first appeared.

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