Increasingly, employers (estimated at a 300+% spike since approximately a decade ago according to the IRS) are falling prey to employee whistle-blowers that can leave a company or firm bankrupt beyond recovery. Granted, in any civilized society there should always be a strong mechanism in place for reporting illegal and or dangerous business practices to the proper authorities. The drastic rise in whistle-blower initiated claims however includes a disproportionately high number of simply disgruntled former employees using this tipping method in retaliation for both real and imagined offenses.
And government agencies are aggressively encouraging whistle-blowing as a means of backdooring in federal corporate oversight.
By way of example, the Dodd-Frank Wall Street Reform and Consumer Protection Act offers a whistle-blower provision that encourages giving tips to the Securities and Exchange Commission. The final rule permits them to go first to the SEC rather than their own firms, thus putting their firms at risk of falling under SEC scrutiny.
Under the provision, a whistle-blower who provides “original information” to the SEC in a case that results in $1 million+ sanctions, could be awarded up to 30% of the penalties levied. An SEC’s Office of the Whistleblower spokesperson stated that while he has no data to indicate whether the number of whistle-blower tips have increased since its rule implementing the act went into effect Aug. 12, there has been a “significant increase in the number of quality tips.” The SEC expects to will receive upwards of 25,000 new tips annually. Companies argued unsuccessfully for a requirement that employees first go to their own companies with any whistle-blower complaints before the go to the SEC. Employers feel that this bounty program will undermine their own internal compliance policies and will have a drastically reduced ability to monitor the every day mechanisms that keep companies in business. Companies can justifiably presume there will be more whistle-blowing claims, especially by disgruntled former employees and whether the claims are eventually proven false, the resultant legal defense costs will skyrocket for these companies.
Our advice is for companies to foster a workplace environment wherein employee complaints are non-judgmentally received and reviewed by supervisors and to ensure that employees recognize their rights in reporting issues via a well-crafted employee handbook. When the steps to reporting unpleasant workplace situations are clearly outlined (and recorded), employees feel empowered that their legitimate complaints are being taken seriously. There will always be a group of retaliatory malcontents in any company, but combatting this malice with a pro-active employee reporting policy will leave the onus of the legitimacy of questionable claims on the troublemakers and cause their separation from a content corporate workstaff.
One course of action that we recommend, and it may appear partial, but it is my job to know this, is to conduct background checks on potential new hires who will be handling financial, employee and client information. (I’ll cover the related mandatory Red Flagg employee and client data security rules of the new FCRA laws in a future article.)
Our Operatives: Street smart; info savvy.
As always, stay safe.