Hiss and Tell

WHEN AN EMPLOYEE in the accounting department of a waste hauling firm asked the company's district manager about certain cash withdrawals from a bank account, he found himself reassigned to other duties. Undeterred, he followed a hunch and snooped around, eventually discovering that company trucks were making after-hours visits to a landfill. Troubled by what he found, he told a corporate vice president, who thanked him for the information and promised to look into the matter.

Some months later, when the employee learned that the late-night disposal was still going on, he reported the situation to the local county prosecutor. Shortly thereafter, the accounting supervisor told the employee that he was terminated, ostensibly for persistent tardiness. Yes, the employee typically showed up later than other office workers. But no one in the company had ever mentioned that his late arrival affected his output. Besides, he tended to stay at his desk later than other employees, eventually putting in a full day.

For employees whose termination rights are not spelled out in a contract, any day might be their last one. Under the harsh, but prevailing, employment-at-will doctrine, an employee can be fired for just about any reason. During the past 20 years, however, a growing number of courts have blunted the severity of this rule by creating an exception that allows a worker to sue his or her employer if the termination violated an important public policy expressed in a state or federal law or regulation. One source of legal ammunition for would-be plaintiffs can be found in federal and state whistleblower laws.

Widespread corporate governance scandals led to the enactment of the Corporate and Criminal Fraud Accountability Act of 2002, commonly known as the Sarbanes-Oxley Act. The act applies to companies that have issued registered securities or are required to file reports with the federal Securities and Exchange Commission. The Sarbanes-Oxley Act protects employees who initiate or assist administrative or court proceedings by furnishing information on company misdeeds. Other federal laws, including, for example, the Americans With Disabilities Act and Title VII of the Civil Rights Act of 1964, prohibit retaliation against workers who engage in certain “protected activities,” which might involve merely criticizing allegedly illegal company practices.

While these federal laws tend to get a lot of publicity, an employer is more likely to run afoul of state laws. More states are enacting laws that forbid employers from retaliating against employees who complain about illegal workplace practices. These protections extend to employees who report occurrences internally, or who provide statements or testimony to outside investigators and prosecutors.

Eligible employees who report or complain about violations of federal, state and local laws are protected in some 16 states, and the laws vary considerably from state to state. A number of states, including Connecticut, Michigan, New York, Ohio and Pennsylvania, cover both private and public sector employees. Meanwhile, more than one-third of the states, including California, Colorado, Georgia, Maryland, North Carolina, Texas, Washington and Wisconsin, protect only state employees. Rhode Island protects independent contractors, while Indiana covers employees who work for companies with state government contracts. Some states, such as Nebraska, limit protection to employees at companies with a workforce of a certain size. New Jersey extends protection to an employee who discloses violations by companies with whom his employer has a business relationship. Connecticut protects employees who report breaches of public ethics. States such as California, Colorado, Florida and Georgia protect the disclosure of fraud, waste or gross misconduct, incompetence or inefficiency.

A few states require such disclosures to be made in writing or even under oath, while most have no requirements about such formalities or formats. Some state laws require that reports be filed with a specific government official or agency. Others require that an employee simply notify his employer.

An employee who is terminated under circumstances protected under state whistleblower laws may be entitled to reinstatement, back pay and restoration of any seniority or benefits, and damages. Nine states allow the award of attorney fees to plaintiffs who prevail.

Since laws vary from state to state, smart company owners should have their legal counsel check the whistleblower laws in the jurisdictions where they do business. The next step is to review current practices and then clarify and strengthen internal policies, as appropriate. If a company fosters an environment where employees are encouraged to report potentially troublesome goings-on, its chances of being successfully sued for retaliation will be considerably reduced.