Observations on Mediating Whistleblower Disputes

Richard D. Fincher, Mediator
Workplace Resolutions LLC

Summary
In 2002, three highly visible whistleblowers became Time Magazine’s “People of the Year.” They were Sherron Watkins of Enron, Cynthia Cooper of WorldCom, and FBI Special Agent Coleen Rowley. Each was a direct participant in exposing scandals in her organization. Their media status—along with the recent Sarbanes-Oxley statute—reshaped the American view of whistleblowers and encouraged more employees to assert that they have become victims of retaliation by their employers.

Mediating whistleblower disputes requires specialized knowledge above and beyond what is necessary for ordinary employment mediation: unique knowledge of applicable law, burdens of proof, and the administrative law process, plus special sensitivity and patience toward the claimant.

Who are whistleblowers?
Employees who feel they have uncovered unlawful or unethical activity have three choices: remain silent, resign to distance themselves from the unlawful activity, or report the allegations (i.e., blow the whistle).  Those who proceed to complain, speak out, or report some conduct against their employer for an alleged violation of a statute or public policy become whistleblowers. Contrary to public belief, most whistleblowers initially choose to report the disclosure via an internal channel and not “go public.”

Whistleblower law
The plain legislative purpose of whistleblower protection is (a) to encourage employees to report safety violations, (b) to encourage witnesses of violations to come forward, and (c) to enforce laws through the employment of those who follow the law, not those who break it. Whistleblower allegations are disparate treatment claims. They focus on the intent of the decision maker. The key difference between retaliation claims under employment discrimination laws and whistleblower laws is that under whistleblower laws the protection does not arise from a plaintiff characteristic (such as age, race, or gender) but from plaintiff conduct, such as disclosing or reporting a safety or financial concern.

Three common fact patterns
This mediator has observed three fact patterns concerning whistleblower claims. The first pattern involves an employee who is still employed by the employer and who has sustained limited damages. The employee may have filed a formal charge or instead may have retained counsel with the intent of privately resolving the dispute prior to formal litigation

The second pattern involves an employee who was involuntarily terminated or who resigned while undisputedly in a disciplinary process prior to the protected disclosure. For example, the employee received a five-day suspension for lack of attendance three weeks prior to the protected disclosure to the Nuclear Regulatory Commission (NRC.)

A third pattern involves employees who were involuntarily terminated or who resigned who were not in a disciplinary process prior to the protected disclosure. Most employees who resigned claim a constructive discharge, which occurs when an employer allegedly creates such intolerable conditions of employment that the employee is forced to quit.

When are mediations held?
When is a dispute ready for mediation? This usually occurs after counsel has had sufficient time to gather basic information and be able to value the case and after both parties have reached a mindset to meet and discuss settlement. In many cases, the parties require some litigation before accepting ADR as a viable option.

Issues unique to the whistleblower
Whistleblower claimants usually arrive at the mediation exhausted and highly emotional. They often have not slept well for days and are highly agitated by the prospect of confronting the wrongdoers. They are often depressed and in a panic over their careers. They are prone to a variety of mental stresses. They feel betrayed, with some guilt and shame in their situation. It is common for plaintiffs to speak of protecting numerous others still employed in the company. They are likely to say, “I am not doing this for the money.” Demands for a public apology are common.

Claimants arrive with a strong sense of unfolding justice. They feel that they have been victimized by threatening the company’s core culture. Their anxiety is enhanced by the belief that their careers hang in the balance. They often refer to connections or advice received from a network of other whistleblowers. It is common for plaintiffs to come with newspaper articles of other litigation. Usually these apparent comparisons are not helpful to the case at-hand.

Whistleblowers start out believing that their employers would willingly modify the adverse action once they have heard the whistleblowers’ explanations. Claimants believe in the technical services provided by their employer (eg-nuclear power plants) and are shocked to learn the executives they admire have retaliated against them for exposing wrongdoing. Most whistleblowers are disappointed to find strangers representing the company at the mediation (the defense team is typically composed of in-house and retained lawyers, with only one line manager present, often in the caucus room). This reality decreases the plaintiffs’ sense of prevailing justice.

Issues unique to the employer
The employer arrives at the mediation with substantial knowledge of the facts. The company has already conducted an extensive internal investigation. The employer’s settlement authority is rarely disclosed to the mediator. Consistent with the analytical legal framework indicated above, employers commonly assert the following defenses:
(a) There was no valid disclosure or reporting; thus there is no protected activity.
(b) The articulated reason for the adverse action is non-discriminatory (e.g., based on job performance) and is the valid reason, not pretext.
(c) The allegedly retaliating supervisor was not a decision maker in the adverse action, (e.g., they were two different people who were not talking with each other) 
(d) There is no causal connection between the protected activity and the adverse action (e.g., the temporal proximity (time period) is too remote, often more than six months).

Mediating “False Claims Act” disputes
False Claims Act actions (“qui tam”) permit a person to sue to recover funds unlawfully obtained or retained by contractors cheating the federal government. The law prohibits a person from knowingly submitting a false statement or invoice to receive payment from the government. The phrase “qui tam” loosely means “a person who sues on behalf of the King.” This Act is known as a “bounty” statute.

Scenario of Medicare fraud
Mary Johnson is a successful drug sales representative. She uncovers evidence of her employer’s Medicare fraud connected to sales of a cancer drug and reports the purported fraud to the federal Food and Drug Administration (FDA). Mary files a “qui tam” action, seeking $1.6 million for her disclosure, or 15 percent of the funds to be recovered by the government. The local U.S. Attorney General declines to prosecute. A trial date has been set in nine months. You are selected as the mediator.

Since 1986, the False Claims Act has been used to recover $20 billion for the federal government. The Act has ample provisions for damages, making it an attractive avenue for prosecutors. Successful plaintiffs share in the government’s recovery, receiving from 15 to 30 percent of the judgment. Prevailing plaintiffs also receive attorney fees, costs, and damages. Under the law, plaintiffs are referred to as “relators.” Claims alleging fraud under this Act commonly fall into several categories that include healthcare, defense procurement, research, and false cost reporting. A “first to file” provision prohibits multiple whistleblowers from filing separate cases covering the same fraud.

Mediating “Sarbanes-Oxley law” disputes
The Sarbanes-Oxley Act of 2002 (SOX) differs substantially from prior whistleblower statutes in its scope: it protects private sector employees raising concerns about shareholder fraud. In this Act, the subject matter of the protected disclosure substantially broadens beyond the categories of danger to the public health and safety found in the environmental and nuclear energy statutes.

Prompted by the Enron accounting scandal, the whistleblower protections of the Sarbanes-Oxley Act prohibit publicly traded employers from retaliating against employees who have disclosed or reported conduct the employee reasonably believes constitutes a violation of corporate securities law or regulations.

Scenario of accounting fraud

A senior accountant for a publicly traded company submits an internal written complaint to the CFO alleging the company is withholding payment of expense invoices to increase its balance sheet, presumably to boost the company’s stock price. One week later, he is placed on a corrective action plan for unrelated performance issues. Three months later, he is transferred to a less desirable city. He resigns rather than relocate with his family. He files a SOX claim alleging accounting fraud and retaliation. You are selected as the mediator.

SOX complaints can be mediated at various points in the litigation process, but these claims are more difficult to settle because of the broader scope of employees and stakeholders involved in the action. The terms of SOX settlements are often complex; they can easily involve the Audit Committee of the Board of Directors, public relations, in-house counsel, and regulatory compliance functions. In addition, the DOL requires the parties to submit settlement agreements to it for approval.

Summary
Mediating complex whistleblower disputes is difficult. Plaintiffs often arrive with feelings of anger, fear, and depression. These emotions must be expressed and explored to enable movement toward resolution. At least in the beginning, the case is not “all about the money.” Employers rarely agree to discuss the underlying unlawful conduct, leaving the plaintiff highly dissatisfied with the process. The sophisticated mediator must use his or her entire range of skills to bring the parties to the same page by emphasizing their interests in settlement.

About the author
Richard Fincher is a full-time mediator and arbitrator of workplace disputes and litigation. He has special experience mediating claims in the nuclear energy industry and with state government employees. Dick serves on the employment mediation and arbitration panel of the American Arbitration Association. He is also on the federal mediation panels of the Nuclear Regulatory Commission, Department of Energy, EEOC Resolve, Postal Redress, and Department of the Interior. He has mediated and arbitrated over 1000 workplace and commercial matters.

Dick is adjunct faculty at the Scheinmen Institute for Conflict Resolution (ICR) at Cornell University. In 2006, he served as National Vice-President for the Association for Conflict Resolution (ACR). He has received distinction as an Advanced Practitioner in Employment Mediation and an Advanced Practitioner in Labor and Employment Arbitration, from ACR. He is a graduate of Cornell University and the DePaul University College of Law.  Dick can be reached at 602-953-5322 or rdf@workplaceresolutions.com.