Category Archives: whistle-blowing

Inquiries, Apologies and HR Lessons

Last month, we reported on an investigation into Barclays CEO James Staley’s handling of a whistleblower’s complaint at the British banking and financial services giant.

How did Staley find himself on British authorities’ radar? By enlisting Barclays’ internal security team in an effort to unmask an anonymous employee who had sent letters to Barclays officials alleging that an executive hired by Staley had “acted erratically” in a previous job.

Naturally, the bank’s leadership caught wind of Staley’s ill-conceived plan and the regulators’ inquiry that ensued. They were not pleased.

Barclays Chairman John McFarlane, for example, reportedly made his disappointment with Staley quite clear in a one-on-one meeting with the embattled chief executive. Meanwhile, the Barclays board determined that sanctions for Staley’s actions would include a “very significant compensation adjustment,” according to a statement from the bank.

Having already felt the wrath of the chairman and the board, Staley faced some pretty frustrated shareholders earlier this week.

As the New York Times reports, Staley took part in the bank’s annual meeting in London on Wednesday, where one shareholder called for him to step down from the stage upon which he and McFarlane stood to address those in attendance. Another asked that Staley step down from his role as CEO.

For his part, Staley offered an apology to investors, just weeks after going to the Barclays board with hat in hand.

“I feel it is important that I acknowledge to you—our shareholders—that I made a mistake in becoming involved in an issue which I should have left to the business to deal with,” the Times reports Staley telling investors. “I have apologized to the board, and I would today like to apologize to you as well, for that error.”

Staley is far from being out of the woods, of course. British regulators are still looking into his missteps. And that “very significant compensation adjustment” is still to come, with the board planning to make that tweak to his bonus after the investigation is complete.

Nevertheless, Staley was re-elected to the Barclays board at the recent shareholders’ meeting. And he seems to still have the support of his chairman. The Times quotes McFarlane as saying that Staley simply “thought he had a green light” to send the company’s internal security team in to identify the author of the aforementioned letters.

“He went through the green light and it was actually red,” said McFarlane, who has dismissed calls for Staley’s resignation. “The action for going through a red light is usually you do not lose your license.”

McFarlane and Staley have maintained that Staley believed he had the clearance to seek out the anonymous employee’s identity, with McFarlane saying that Staley “only wanted to contact the individual to get him or her to stop writing letters, because he believed they were malicious,” according to the Times.

Maybe so. But even Staley acknowledges that his response to those letters was out of bounds; a response that CEOs—and HR leaders—at other organizations would be wise to hold up as an example of how not to handle a whistleblower complaint.

More Woes for Whistleblowers

Even a CEO’s authority has its limits.

James Staley, the U.S. chief executive of British banking heavyweight Barclays was recently reminded of this fact, and offered other executives a case study in how not to handle a whistleblower complaint in the process.

As the New York Times reported this week, Staley finds himself being investigated by British authorities after he called on Barclays’ internal security team to try to uncover the identity of a whistleblower in an “‘honestly held’ but ‘mistaken’ belief that he had clearance to do so.” According to the Times, the Barclays security team even received assistance with the search from a United States law enforcement agency.

Staley’s effort did not sit well with the bank’s leadership, including Chairman John McFarlane, who the paper reports had “personally chastised” Staley, and had expressed his disappointment in the CEO’s actions directly to him.

The roots of McFarlane’s frustration trace back to last summer, when Stanley brought on Tim Main—a friend and former colleague of Staley’s at JPMorgan Chase—to chair Barclays’ global financial institutions group.

“Mr. Main, who was known for his team-building skills at JPMorgan, seemed like a great hire” for Staley, the Times wrote.

In order to join Staley at Barclays, Main left New York-based investment banking advisory firm Evercore Partners, where he had been “a star,” according to Roger Altman, the firm’s founder and chairman.

Just a month after Main’s hiring, however, Barclays officials received letters sent by an anonymous whistleblower who claimed that Main had “acted erratically” while at JPMorgan; a claim later supported by two JPMorgan employees who reported to Main during his time there.

Barclays did not disclose the details of the letter, but Staley reportedly took offense to the whistleblower’s allegations leveled against Main, which “related to personal issues from many years ago,” Staley wrote in an email to employees. “The intent of the correspondents in airing all of this,” he told workers, “was, in my view, to maliciously smear this person.”

In response to these claims, Staley twice asked Barclays’ internal security team to find the letter’s author. The inquiry didn’t reveal the whistleblower’s identity, and the bank ultimately disregarded his or her assertions.

While both Main and Staley have declined to comment on the situation, Staley did release a statement saying he has apologized to the Barclays board and “will accept whatever sanction it deems appropriate,” which will include a “very significant compensation adjustment,” according to the bank.

An independent law firm was commissioned to investigate Staley’s attempts to unmask Main’s anonymous former colleague, and determined that Staley “erred in seeking out the … whistleblower, but that his belief that he had clearance to do so was an honest mistake,” according to the Times.

That could very well be. But the Barclays brouhaha serves as just the latest example of the hostile treatment that whistleblowers continue to face.

Jeffrey Pfeffer, a professor of organizational behavior at Stanford University’s Graduate School of Business, told the Times as much.

“Whistleblowers are typically treated horribly, even in the government, let alone in the private sector,” said Pfeffer. “People don’t like to have problems pointed out.”

New Trade Secrets Law: The HR Angle

It’s incredibly rare these days for a proposed law to receive near-unanimous backing in the U.S. House and Senate but, by George, our nation’s politicians managed to pull off this miraculous feat recently, which culminated with President Obama affixing his signature yesterday to the Defend Trade Secrets Act.

The new law puts trade secrets on par with patents, copyrights and trademarks, which are already protected under federal law. The Defend Trade Secrets Act provides a “uniform set of rules for trade secret protection” throughout the United States (although it does not replace trade secret laws passed by individual states). The upshot is that companies whose trade secrets were violated in multiple states can now file suit in a federal court rather than trying to determine which state may (or may not) provide the best legal remedy.

Trade secret claims have long been a key component of employee non-compete agreement lawsuits, writes Chris Marquardt, a partner at Alston & Bird’s labor and employment law group. For this reason, the new federal law “not only gives employers another tool to protect their confidential business information, but will also likely shift many routine employment-agreement lawsuits into the federal court system,” he writes.

Employee non-compete agreements can vary widely from state to state and the new law is written in such a way as to recognize that “the statute should not override state laws” on such agreements, Marquardt writes. However, he adds, “only time will tell how broadly federal courts interpret the new law and how willing they are to use it to prevent employees from accepting new jobs in competition with a former employer.”

Brett Coburn, also a partner with Alston & Bird, writes that one of the less-frequently discussed aspects of the new law is one that will impact nearly all employers: “The law grants both criminal and civil immunity under both federal and state trade secrets laws to individuals who disclose a company’s trade secrets to the government” if the person has reason to suspect that a legal violation has occurred. It also requires employers to notify employees of this immunity “in any agreements that govern the use of trade secrets or other confidential information.”

To ensure compliance, Coburn writes, HR leaders and legal counsel will need to reexamine their company’s restrictive covenant and nondisclosure agreements, as well as policies regarding the protection of confidential information and employee whistleblower activities.

All Eyes on Volkswagen’s Amnesty for Answers

465782341 -- volkswagen2It’ll be interesting to see what comes of Volkswagen’s move to offer amnesty to all its bargaining-unit employees in hopes of uncovering just who was/is behind its emissions-cheating scandal.

According to a letter that went out Thursday from Herbert Diess, chief executive of the division that produces Volkswagen brand cars, employees have until Nov. 30 to come forward with information about who was responsible for installing software in 11 million diesel vehicles that disguised nitrogen-oxide output.

The letter, reviewed and reported on by the New York Times, says “people who provided information would not be fired or face damage claims [but] the company could not shield employees from criminal charges.”

In other words, the amnesty isn’t really designed for the really bad guys, “but rather, for the midlevel people who may have, without even knowing it, some relevant information,” Mike Koehler, a law professor at Southern Illinois University, told the Times.

It’s also, according to another legal source for that story — Alexandra Wrange, president of Trace International in Annapolis, Md. — “a tacit admission … that the usual reporting channels have been ineffective.”

You might call it a kind of pulling-out-all-the-stops kind of move, above and beyond the more commonplace no-retaliation policies contained in most whistleblowing programs, says Allan Weitzman, a Boca Raton, Fla.-based partner with Proskauer, whose list of specialties includes whistleblowing.

(At Volkswagen, it was an internal whistleblower who uncovered the false carbon-dioxide claims that the company made public last week. “German news media reports have said that internal investigators looking into the emissions-cheating software, which came to light in September, have been hampered by a reluctance among employees to come forward,” the Times story states.)

Weitzman joins in the general chorus of employment attorneys who consider Diess’ move new and different, to say the least.

“I know I’ve never heard of [this kind of corporate amnesty],” he says. “But these are unusual circumstances, and [as pointed out in the Times article as well], Volkswagen wants to show to governmental agencies that it has done everything it can to solve this problem; well, amnesty is pretty broad … I’d say ‘Yes, they have gone about as far as possible’ ” in this endeavor.

Is it the right move? Weitzman thinks so.

“I think it’ll work, too, if it has the support of the union, meaning [very simply] that the people who look to unions as their source of job security will participate in the amnesty program if their union supports it,” he says.

“And the union should support this,” he adds, “because the future of the union is tied to the future of Volkswagen, and if Volkswagen cannot solve this problem, it’s going to result in the unemployment of many, many union members.”

Das Deception: VW Probe Deepens

When a corporate scandal hits, it typically takes a while to identify all the key players.

So, it probably shouldn’t be shocking to learn that the ongoing investigation involving Volkswagen is now expanding to include managers who may have looked the other way as engineers installed software designed to manipulate emissions controls during laboratory tests in roughly 11 million Volkswagen diesel vehicles since 2009.

As the New York Times reports, “a person briefed on the inquiry” says the probe—being conducted by law firm Jones Day, at the behest of the Volkswagen supervisory board—could soon see as many as 10 Volkswagen employees being suspended.

While some of these individuals were engineers “directly involved in programming cars to cheat on emissions tests,” the Jones Day investigation is now taking a closer look at “managers [who] may have learned of the deception and failed to take appropriate action,” according to the Times.

So, it seems the seat could start to get pretty hot for some Volkswagen managers in the days and weeks to come. But the organization’s leadership is already under heavy fire for the part it played—or didn’t play, as it were—in gaming the emissions testing process for more than five years, and its top executive has already toppled from his perch.

On Sept. 3, Volkswagen opted to explain to federal regulators why many of its diesel automobiles were emitting more toxic emissions on the road than they did in the test lab. (The automaker’s alternative was losing Environmental Protection Agency certification for all of its 2016 diesel models.)

Michael Horn, CEO of Volkswagen’s U.S. business, appeared before Congress earlier this month. Horn testified that he was aware of potential issues as far back as spring 2014, but claimed he didn’t know for sure until this past September that the company had been using illegal software to deceive emissions testers.

At least three members of Volkswagen’s supervisory board “have said they learned of the illegal software from media reports on Sept. 18,” the Times reports. Now-former Volkswagen chairman Martin Winterkorn claims to have been in the dark all along, however. In a Sept. 23 statement announcing his resignation, Winterkorn said he was “ ‘shocked’ to learn of the deception and had committed no wrongdoing,” according to the Times, which notes that shareholder representatives have criticized Winterkorn’s failure to keep them informed as the controversy unfolded.

Former employees have joined the chorus as well, condemning “what they said was a culture inside Volkswagen that centralized decision making at company headquarters in Wolfsburg, Germany, and discouraged open discussion of problems, creating a climate in which people may have been fearful of speaking up,” the Times reports.

It may be months before this web is untangled, and we have a better sense of who knew what and when they knew it. But it’s probably safe to go ahead and classify the Volkswagen emissions saga as yet another reminder of just how wrong things can go in organizations that don’t effectively communicate with their people, and in cultures where employees are afraid to blow the whistle on unethical behavior.

DOL Budget Emphasizes Enforcement

President ObamaThe U.S. Department of Labor has released the president’s fiscal year 2015 budget request, which seems to sharpen the DOL’s focus on enforcing federal employment and labor regulations.

The release comes just weeks after a State of the Union Address in which President Barack Obama stressed, among other things, the need to create more jobs and help workers develop the skills they need to fill them. In a DOL statement, the department outlines plans to do that and more.

The DOL describes the budget as including “funding and reforms that will better prepare workers for jobs; protect their wages, working conditions and safety; provide a safety net for those who lose their jobs or are hurt on the job; and promote secure retirements.”

For example, the fiscal year 2015 budget aims to:

• Support reforms to improve training and employment programs, in an effort to help workers gain skills and return to work more quickly.

• Create additional jobs and careers by catalyzing new partnerships between community colleges and employers. The Opportunity, Growth and Security Initiative includes $1.5 billion in 2015 to support a four-year, $6 billion community college job-driven training fund to launch new training programs and apprenticeships designed to prepare participants for in-demand jobs and careers.

• Reach the long-term unemployed by proposing mandatory funding for a Job-Driven Training for Youth and the Long-Term Unemployed Initiative, consisting of programs targeted at allowing individuals to continue receiving unemployment insurance benefits while participating in short-term work placements.

The DOL also announced significant investments to be made in the department’s worker protection agencies, such as:

• nearly $14 million to combat the misclassification of workers as independent contractors;

• $565 million for OSHA to foster employer compliance with safety and health regulations and inspect hazardous workplaces, as well as strengthening its protection of whistleblowers against retaliation for reporting unsafe and unscrupulous practices; and

• a $41 million increase for the Wage and Hour division, to ensure workers receive appropriate wages and overtime pay.

Although many of the proposals contained in the budget “are more aspirational than [predictive of] actual policy changes, they do provide insight into what the agencies are prioritizing for the coming year,” says Ben Huggett, a Philadelphia-based attorney with employment and labor law firm Littler.

For employers and HR, this year’s DOL budget is most notable in that it “reflects the agency’s continued emphasis on enforcement,” says Huggett.

The proposal, he says, would grant the DOL $11.8 billion in discretionary funding, “much of which would support the enforcement of wage and hour, worker misclassification, whistleblower and employment safety laws.”

The boost to the Wage and Hour division is one of the “most significant and substantive proposals” put forth in the 2015 budget, he adds.

“This funding increase is in large part to pay for an additional 300 WHD investigators who would use risk-based approaches to target the industries and employers most likely to break the law.”

Huggett also singled out the possibility of a $13 million budget increase for OSHA in 2015 (bringing its total budget to $565 million) as indicative of the DOL’s commitment to enforcement.

“Approximately $21 million of this allocation would be used to enforce the various whistleblower statutes under OSHA’s authority,” he says. “When combined with last year’s rollout of an electronic web-based complaint form, it is clear that OSHA’s administration of the 22 different whistleblower statutes will continue to be a significant emphasis for the agency.”

The budget request will likely encounter criticism in Congress, where a number of proposals are likely to be rejected or modified, says Huggett.

Nevertheless, he adds, the budget request “confirms that employers can expect the aggressive enforcement of federal employment and labor laws to continue.”

Whistleblower Protections Keep Expanding

whistleTwo weeks from today, a bill will take effect that expands protection for whistleblowing employees in California. While only applicable to companies operating in the Golden State, one new wrinkle in the legislation should perk up the ears of employers everywhere.

On Jan. 1, 2014, California’s Senate Bill 496 will increase whistleblower protections for employees who have made internal reports alleging illegal behavior internally to a person with authority over the employee or to another employee with the authority to investigate, discover or correct the reported violation.

Interestingly, the law also subjects employers to liability for “anticipatory retaliation,” meaning companies can be held accountable for retaliating against an employee based on the mere belief that he or she might be a whistleblower.

Kenneth Sulzer, co-head of the California labor and employment law group with international law firm Proskauer, offers up an example.

“Say you have an employee who prepares an expense report for their manager, and that employee suspects the expenses were fudged a bit. That employee asks some questions, and is later fired for something else,” explains Sulzer. “But that employee has emails including those questions, and believes the supervisor anticipated he or she was going to make a complaint. Those emails record that the employee asked the questions, and, legally speaking, the employee has a factual leg to stand on.”

Again, such a claim could only be made in California at this point, and whether other states pursue similar legislation remains to be seen. But the enactment of the California bill signals the latest state-level move to provide a wider safety net for whistleblowers, and employers throughout the U.S. should take note, says Sulzer.

“We expect to see a substantial expansion in whistleblower protections in states around the country,” says Sulzer. “Driving this trend are several high-profile cases that have stoked the interest of the plaintiff’s bar, feeding on the public’s distrust of institutions, disparity of income and federal legislation such as the False Claims Act, Sarbanes-Oxley and Dodd-Frank, and the SEC whistleblower bounties.”

Provisions that leave employers potentially liable for “anticipatory retaliation,” however, could be “more problematic for employers than many other whistleblower protection laws,” says Sulzer, “as it provides a cause of action where an employee does not actually engage in whistleblowing, but is merely expected to do so, and provides a cause of action even where the employee’s job is to point out flaws and review quality of work.”

A New Online Avenue for Whistleblowers

online whistleblowerJust before Thanksgiving, the Leader Board highlighted some figures from the Securities and Exchange Commission’s latest report to Congress, showing more whistleblower complaints being brought to the SEC. A more recent United States Department of Labor announcement may help keep that number on the rise.

On Dec. 5, the DOL launched an online form that provides whistleblowing employees who have been retaliated against with a new way to reach out for OSHA assistance.

In addition to making complaints via phone or in writing, workers are now able to electronically submit whistleblower complaints to OSHA here. The form prompts users to include basic whistleblower complaint information, in order to be contacted for follow-up. According to OSHA, complaints are automatically routed to the appropriate regional whistleblower investigators. The complaint form can also be downloaded and submitted to the agency in hard-copy format by fax, mail or in person.

The aforementioned SEC report—in which the agency said it received 3,238 complaints in fiscal year 2013, an 8 percent increase over 2012—came less than two months after the SEC awarded a record $14 million to an unidentified whistleblower whose tip led to a significant enforcement action.

When the agency made that news public, experts predicted the award would spur more whistleblowers to bring information to the SEC, while worrying that some of these additional claims may lack merit.

Whether the latter proves true remains to be seen, but the number of whistleblowers complaints is clearly on the way up. And, the availability of this online form may further embolden whistleblowers to come forward without fear of reprisal. That’s the idea, anyway, according to Assistant Secretary of Labor for Occupational Safety and Health David Michaels.

“The ability of workers to speak out and exercise their rights without fear of retaliation provides the backbone for some of American workers’ most essential protections,” said Michaels, in a statement. “Whistleblower laws protect not only workers, but also the public at large, and now workers will have an additional avenue available to file a complaint with OSHA.”

Whistleblower Tips on the Way Up

whistleblowerThe Securities and Exchange Commission’s whistleblower program has been making headlines since October, when the agency announced it was awarding a record $14 million to an anonymous employee whose tip to the agency led to an enforcement action that recovered significant investor funds.

In announcing the payout, SEC Chair Mary Jo White expressed her hope that “an award like this encourages more individuals with information to come forward.”

At the time, experts told HRE the reward would almost certainly do just that, and also suggested that more large payouts were in the offing.

If a recent report to Congress offers any clue, the number of whistleblowers bringing information to the SEC is already on the rise.

In its annual report, the agency said it received 3,238 tips in fiscal year 2013, an 8 percent increase over the 3,001 tips received in 2012. The most common complaint categories reported by whistleblowers in the 2013 fiscal year were corporate disclosures and financials (17.2 percent), offering fraud (17.1 percent) and manipulation (16.2 percent), according to the report.

Though modest, the 8 percent uptick “shows the program is progressing with a full nationwide reach, and internationally as well,” says Steven Pearlman, a Chicago-based partner in Proskauer Rose’s labor and employment law group, and co-chair of the firm’s whistleblowing and retaliation group.

“This is a result of concerted efforts on the part of the SEC Office of the Whistleblower to publicize the program,” says Pearlman. “They’ve done quite well in that regard, [and] it is likely that the volume of tips will increase in the near-term as a result of the recent $14 million award. The question is whether the tips will be of sufficient quality.”

The number of would-be whistleblowers who may feel compelled to sidestep internal reporting processes is another concern for companies, he says, noting the recipient of the $14 million award went directly to the SEC rather than bringing the complaint to his or her employer.

“Unfortunately, we still remain in the dark as to what percentage of the tipsters reported internally before heading to the SEC. Companies are still legitimately concerned that this [whistleblower] program creates an improper incentive for employees to circumvent their internal compliance programs,” says Pearlman.

“Though the SEC has taken steps aimed at increasing the likelihood that tipsters will report internally before going to the government, we need data to see whether, and to what extent, those incentives are effective.”

An Online Assist for Whistleblowers

online whistleblowerWith whistleblower suits already on the rise, a new online submission form may help trigger another upsurge in retaliation claims.

The Office of Information and Regulatory Affairs recently approved an online retaliation complaint form that would allow employees to electronically submit claims under any of the 22 whistleblower statutes overseen by OSHA, which currently accepts only verbal or written whistleblower complaints.

An increase in the number of whistleblower complaints filed is “the only possible outcome” of making the form available online, says Sara Begley, the Philadelphia-based co-global practice leader for the labor and employment group and head of U.S. labor and employment with Reed Smith.

“The new option facilitates complaint filing for aggrieved individuals by removing procedural deterrents in the current OSHA system,” she says, “under which individuals must submit complaints in formal writing (a more time-consuming process) or orally (within the agency’s regular business hours).”

The greatest increase in complaints, she says, is likely to come from individuals who have already filed a charge or court complaint over an adverse employment action.

“It is those individuals who are most likely to be represented by counsel who are aware of the new OSHA option, and who will be eager to tap additional methods to exert settlement pressure on employers.”

To avoid formal agency involvement, HR leaders “should act quickly to bolster their internal complaint filing procedures,” says Begley, who recommends training on codes of conduct and policies against whistleblower retaliation, implementation of a 24-hour, internal online complaint mechanism “to match the ease of filing being offered by OSHA,” and workforce communications emphasizing that the organization will treat internal complaints seriously.

The form’s online availability could very well lead to an increase in retaliation claims, says Mark Spring, a Sacramento, Calif.-based partner with Carothers DiSante & Freudenberger.

But he’s not so sure it would lead to a drastic escalation in claims with real merit.

“I believe that employees [with] legitimate claims they feel strongly about are willing to spend the time to reach out and contact someone at OSHA to have their complaint processed.”

On the other hand, those with more questionable claims “are likely much less invested in the process,” continues Spring. “While such folks may not be willing to contact OSHA to have their complaint filed or processed, they may be willing to simply fill out an online retaliation form.”

While the intention may be to simplify and speed up the filing process, taking it online could actually wind up frittering away valuable time and resources at OSHA, says Spring.

“I would be very fearful that this online complaint process will turn into a giant private message board that employees and others use for purposes having nothing to do with the filing and processing of legitimate complaints.

“I would fear that the OSHA employees assigned to review and investigate the so-called ‘complaints’ that would be lodged in such a manner would get so bogged down with the volume and morass of information being submitted that the real, important violations [would] be difficult to find and [would] not be remedied and corrected [in as timely a way] as they could be.”