Avoiding Whistleblower Complaints

Tuesday, August 1, 2006 - 00:00

The Editor is fortunate to report on a discussion with David R. Jimenez, Associate General Counsel and Vice President of Employee Relations, The Hartford Financial Services Group, Inc.; and Rebecca E. White, Managing Director and Head of the Employment Law Group, UBS Investment Bank who participated in the web program entitled Understanding Developments In Whistleblower Law 3 Years After Sarbanes-Oxley 2006 recorded in January 2006 by the Practising Law Institute. For more information about the program, visit www.pli.edu.

Editor: How have Sarbanes-Oxley's whistleblower provisions impacted the mechanisms that companies use in resolving whistleblower complaints?

White: Since whistleblower complaints generally have regulatory components, companies should provide mechanisms for coordination among colleagues with securities litigation and compliance expertise. Once the identity of a whistleblower is revealed, coordination with the whistleblower's business unit and the human relations department is critical to address the whole host of issues that need to be considered when resolving that person's complaint. Companies have adopted whistleblower policies that carefully prescribe how such complaints should be investigated and resolved.

Investigating Sarbanes-Oxley whistleblower complaints can be a challenge because they are sometimes vague and broad reaching. For example, a complaint may include allegations of financial improprieties intertwined with allegations of discrimination or harassment. It is a continuing balancing act to ensure that investigations are conducted thoroughly and efficiently, while not expending too much time and resources on what may turn out to be frivolous claims by a disgruntled employee or former employee.

Jimenez: Sarbanes-Oxley is fairly new, and there are, at this time, limited judicial precedents that provide guidance on responding to and resolving SOX whistleblower complaints. These complaints may also involve senior executives and, as stated, may involve a host of matters that involve traditional employment law issues as well as regulatory and compliance-oriented matters. SOX complaints are also different from traditional complaints because they may inhibit the company's ability to consider the range of options available for addressing a traditional employee complaint. For example, a whistleblower complaint may not be as easy to resolve or settle as other traditional employee complaints, given the broader number of stakeholders that may be involved or interested in the matter. For these and other reasons, I agree that a collaborative approach that cuts across different legal specialties is likely the best way to assess a SOX whistleblower complaint. Given the complexity of these matters, I also believe it is important to focus resources on establishing internal protocols that will review adverse employment actions and thereby help avoid the kind of behavior that may lead to a whistleblower complaint.

Editor: What procedures are in place to ensure that the proper balance is maintained?

White: In the Enron investigation, Sharon Watkins was initially an anonymous whistleblower. Her complaint was thought to be credible because it contained a detailed analysis of the company's accounting activities. Unfortunately, we cannot always discern at the outset whether whistleblower complaints are raised by executives who know what is taking place and reasonably believe that there is a Sarbanes-Oxley infraction or, by contrast, where they are raised by discontented, disenfranchised employees who are bitter and want to punish the company, regardless of the lack of any factual basis for their complaints. The scope of the investigation we perform varies depending on the facts available and how detailed and narrowly construed or broad the allegations are.

Jimenez: The Hartford strives to effectively manage and resolve our employee complaints promptly and in a manner that is comprehensive, given the issues involved. We have an internal group that investigates EEO matters including complaints of harassment and discrimination, as well as a special investigations unit that investigates matters involving fraud and corporate asset protection. Both units work with employment lawyers to determine what is the appropriate investigation, given the allegations and known facts. For issues that go beyond the typical employment law realm, the employment law attorneys will also bring other attorneys "into the loop" of the investigation. Our expectation is that the investigators and the attorneys can make the appropriate assessment about how to proceed with an investigation.

Editor: What about the potential for retaliation against the whistleblower?

Jimenez: We have policies in place that make clear our prohibition against retaliation towards whistleblowers, or more broadly, against any employee reporting a concern about the workplace. Our employee orientation program provides training to all new employees about our Code of Ethics and Business Conduct including the provisions that prohibit retaliation. All employees also receive regular online training that reinforces these policies. In addition, in the context of an investigation, we remind the involved managers of our policies against retaliation.

Beyond training, we recognize that whistleblower and retaliation complaints often surface in the context of an adverse employment action - which is typically a termination of employment. This is one reason we feel it is vital to review all termination decisions by managers. If management is planning to terminate an employee and that particular employee has asserted a complaint in his or her past tenure with the company, we will review the historical matter as well as the rationale for the current employment action. I am confident that our review of these matters has helped us avoid complaints of retaliation and possibly whistleblower complaints. I recognize this may appear daunting for large companies, particularly those with large, decentralized field organization, but a centralized review process will help your organization avoid many of the complaints we are talking about. At the very least it will provide you with an early warning that if you approve the termination, you may be faced with a significant whistleblower and/or retaliation complaint. Additionally, the fact that managers are aware that their employment actions will be reviewed also serves to deter retaliatory behavior.

White: Our global and regional policies clearly and strictly prohibit any retaliatory action against an employee who raises a complaint to one of our designated reportees. These provisions, along with those encouraging employees to report suspected illegal activities, are reiterated in our Employee Handbook under the Sexual Harassment Policy and our Open Door Policy and also included in our Code of Ethics. The policy indicates that we do not tolerate any adverse employment actions - including discharge, suspension, demotion, harassment, threats or other discriminatory action - against an employee because he/she reports any such suspicious behavior, testifies or otherwise cooperates during an investigation. In cases where the manager knows the identity of a whistleblower who is a current employee, at the beginning of every investigation, we counsel the manager that he/she must conduct "business as normal" and that any retaliation against the whistleblower is strictly prohibited.

Editor: What are the implications on a company's international operations?

White: Most public global institutions have global whistleblower policies in place. We developed our global policy, along with lawyers from different regions, so that we could provide a global framework of general principles that comply with Sarbanes-Oxley Section 806. The global policy outlines the appropriate procedures for reporting up the ladder and the general architecture of the system. Our individual business groups then implement their own regional whistleblower procedures that comply with local laws and requirements. For example, in the UK the policy covers complaints relating to workplace accidents and other issues that would not be covered by Sarbanes-Oxley (but might be covered by some state whistleblowing provisions on health and safety, e.g., New York).

The global policy should make the prohibition against retaliation loud and clear. "Retaliation" may have different connotations in different regions. For example, there are places where yelling at an employee is not considered wrong, but in other places that could be viewed as a negative, adverse employment action against that worker.

Worker privacy is another area where significant regional differences exist and impact the manner in which whistleblower complaints may be investigated. In the U.S., as long as employees know that they have no reasonable expectation of privacy with respect to their email and Internet use in the workplace (most corporate policies provide for this), review and monitoring of employee email is not generally an issue. However, in most European countries, one needs to develop a different strategy for investigating a Sarbanes-Oxley whistleblowing complaint since employees have more guarantees of workplace privacy. (In Germany, for example, it may be a criminal offense to review an employee's email or Internet activities.)

Editor: Should allegations of senior management's misconduct be investigated internally or externally?

Jimenez: When The Hartford is put on notice of an employee complaint, we examine the particulars of the allegation so that we can determine the best way to proceed with our review of the matter. Whether the matter is investigated internally or externally really depends on a host of issues including the allegations and issues involved, whether the company has an internal resource available that can handle the matter, and whether there are any conflicts of interest that are best handled by using an external resource. The level of the manager may be a factor but is not likely to be the sole factor considered. Some organizations have the corporate resources available to conduct an investigation internally and some simply do not. We are fortunate to have resources available that can respond to most employee complaints. For this reason, most of our investigations are handled internally.

White: If an issue is sensitive, even though in-house counsel is eminently qualified to conduct the investigation, I would probably have outside counsel involved in the process in order to maximize the preservation of attorney-client privilege and add another layer of objectivity to an investigation involving senior management. Ideally in-house counsel would work hand in hand with outside counsel on such an investigation.

Editor: At what point in the investigation should you contact regulators?

White: There is always a balance between determining when to self report and reporting when it might be premature to do so (i.e., insufficient facts have developed). That can be further complicated when there is a small issue that morphs into a large-scale problem. We work closely with our compliance department and regulatory lawyers on the issues of whether and when to self report. There is frequently an expectation by regulators that companies will waive the attorney-client privilege, so this should be considered when conducting an investigation.

Editor: What impact does this have on your ability to take notes during an investigation?

Jimenez: The taking of notes and creation of reports really depends on the particulars of the investigation. For many typical employment law matters, investigative notes, statements and investigative reports are the norm. For matters that have regulatory implications, I would recommend working with your compliance experts and your outside counsel on determining what are the appropriate protocols and records to consider.

White: Interview memos created by a law firm are arguably protected by the attorney-client privilege and work product doctrine, but, as indicated, the company may be asked to waive the privilege. In a matter where relatively few people need to be briefed on the results of the investigation and it is not that complex, I may ask an outside firm to provide an oral report of the situation. Then, if we need a final report written, we might request it later.