More Whistleblowers in the Woodwork?

According to a recent report from the Securities and Exchange Commission, the agency has made just one payout from its whistleblower award program since the Dodd-Frank Act was enacted in 2010.

Other, larger numbers from that report, however, should be of greater concern to employers, according to one attorney.

The SEC also reports having received more than 3,000 whistleblower tips since the program was established, and indicates there are 143 notices of action for whistleblower complaints currently in the pipeline. Those figures portend a potential—if not likely—spike in the number of awards to be paid out in 2013, says Steven Pearlman, a Chicago-based partner in Proskauer’s labor and employment law department.

“Employers shouldn’t walk away from this data with any sense that we’ll see the same result next year,” says Pearlman, who is also co-chair of the firm’s whistleblower and retaliation group.

The onus is always on public companies and HR to encourage employees to bring whistleblower complaints through internal compliance programs, rather than going to the SEC or—in the case of a private company—to the Environmental Protection Agency or a licensing board, he says.

We find across the board that employees are more apt to go outside the company to, say, a plaintiff’s attorney, the SEC, the Department of Justice or another government agency, where they believe their complaint will be taken seriously and will get a response within a reasonable period of time.”

One method for encouraging employees to first bring complaints to the organization’s attention is the creation of a whistleblower liaison, says Pearlman.

“That’s something I don’t see companies doing enough of; in a formal way where the liaison is trained and understands how to interact with whistleblowers, and understands how to serve as a liaison to compliance and legal as well.”

Some companies create a dedicated position just to handle whistleblower-related activity, but “it’s certainly reasonable to take someone who’s currently a high-level HR person and add this on to their responsibilities,” he says. “Employers need to do what’s within their budgets, and they have to look at present personnel.”

Whatever the approach, employers “need to act now,” concludes Pearlman.

What’s in the pipeline is most concerning to me. When these bigger awards come out, it’s going to generate more tips and encourage more employees to go to the SEC. We know more individuals are going to be blowing the whistle.”