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For corporate attorneys, some of the most frequently overlooked and problematic of all claims for their clients are those alleging retaliation for complaints about fraud, misconduct or some form of discrimination. That’s bad news for companies at a time when such “whistleblower” claims are clearly on the rise. One important way to avoid such litigation — while also protecting the company and its shareholder interest — is to develop and adhere to a standard of “best practices.” Awards in whistleblower suits have become much heftier than other types of employment claims in recent years. According to Jury Verdict Research, between 1997 and 2003, the median award in whistleblower suits was $338,386, outpacing all other types of employment claims. Discrimination claims, for example, rose to a median award of $178,500 over the same time period. There’s a major reason for the heightened risk for employers in retaliatory claims: The cases often have a jury appeal because of their simplicity. Employees need only show that they exposed some conduct they believed was unlawful and then soon after suffered an adverse employment action, such as a demotion or discharge. The company involved has a much higher burden of proof — while facing allegations of misconduct, the company must convince a jury that the timing was merely coincidental and not retaliatory. The burden of whistleblower claims on companies has only grown heavier with the Sarbanes-Oxley Act of 2002 (SOX). The law gives broad protection to employees of public companies who reveal any type of corporate conduct that violates Securities and Exchange Commission policies. Congressional focus on SOX has raised public awareness of corporate accountability and the powers afforded an individual employee litigating against their former employer. Employees are now armed with information, and the media has raised the volume. After the Enron and Arthur Andersen scandal, Time magazine named three whistleblowers as its persons of the year, placing them on the same level as presidents and Nobel Peace Prize laureates. Highly publicized allegations of accounting fraud brought by former employees have recently hit companies in a broad spectrum of industries — from Coca-Cola and Intel, to DaimlerChrysler, HealthSouth and the Food and Drug Administration. In 2003 alone, according to the U.S. Department of Labor, 181 whistleblowers invoked SOX in litigation against former employers. To date, more than 300 workers filed complaints accusing companies of retaliating against them for pointing out financial misconduct under SOX — and that is only one of the 13 federal whistleblower protection laws already on the books. Many of these laws were implemented by the Occupational Safety and Health Administration and have been on the books for decades, originally offering protection to workers who expose safety or health issues in industries such as trucking, nuclear power and airlines. For all of these reasons, whistleblower claims will likely continue to rise in the foreseeable future. There are several steps, however, that companies large and small can take to ensure a culture of compliance and disclosure. This will not only prevent some claims, but also place companies in the best possible position to defend claims before a jury, should a conflict arise. � Enact a code of conduct articulating ethical standards for the work force, particularly among high-level employees who have access to privileged financial information. The code must include standards to promote honest and ethical conduct, accurate and timely disclosure of information, compliance with applicable governmental rules and regulations, prompt internal reporting of violations and accountability for adherence to the code. Above all, management must know that retaliation is prohibited against an employee who reveals fraud or other violations that fall under any of the whistleblower protection laws. � Employees should be directed to report illegal or unethical behavior. The company must provide anonymous reporting procedures, and explicitly prohibit retaliation against employees who report violations. Employees should also know how to report complaints and the process of how they are investigated. Typically, the compliance officer will be responsible for investigating any reports of financial, ethical, legal or other misconduct. For public companies, there are SOX obligations as well, including establishing an audit committee to adopt procedures for handling complaints received by the company regarding accounting or auditing matters. � Ensure the code’s objectives are carried out in practice. The general counsel’s office or the chief compliance officer should ensure the code of conduct is regularly distributed to employees. Distribution can be done through the company intranet, and in hard copy along with employees’ paychecks. Human Resources should require formal review and acknowledgement of the code as part of the annual performance review process. � The company’s employment lawyer must also remain abreast of changing whistleblower laws in states where the company does business. California has strengthened its whistleblower law, requiring employers to post the statute’s provisions inside offices and factories and setting up a hot line to the state attorney general. Illinois implemented a law adding protection for whistleblowers at private companies. New Jersey now requires posting and annual distribution of information about its whistleblower law. � Maintain sound record-keeping practices for employee discipline. Performance management is frequently critical in the resolution of whistleblower claims. Human resources must train managers on the importance of accurately assessing employee performance. All too often, managers will avoid written assessments of their employees in annual reviews. Then, when they contend they terminated a whistleblower because of performance deficiencies, their paper trail is missing. � Establish sound communications among business, human resources and legal departments to minimize risk from termination decisions. For example, termination decisions must be reviewed before they are implemented to see whether that employee revealed any fraudulent activity. In a recent case involving Coca-Cola, the whistleblower was terminated as part of a reduction in force shortly after reporting his complaint to management, which was apparently not communicated with the legal team. Negative publicity, as well as costly investigations, ensued. � Communication is also key when advising whistleblowers of the outcome of investigations. Companies should avoid the temptation of disclosing as little as possible, because doing so may cause the whistleblower to escalate the complaint outside of the organization. Instead, there should be communication with the complainant, and full explanation of the company response and reiteration of their position on zero tolerance for retaliation. David Garland is co-chair of the Employment and Labor Department at Sills Cummis Epstein & Gross P.C., with offices in Newark, N.J., and New York. Lynne Anne Anderson, a member of the firm, also contributed to this article.

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