Editor: Please tell our readers about your background.
O'Reilly: I became a partner at Connell Foley LLP in 2000. My practice is devoted primarily to employment and business litigation. I have represented clients in higher education and in a number of other industries including, pharmaceuticals, grocery and specialty foods, construction, paper manufacturing, insurance, chemical, energy, computer software, and real estate. I have litigated cases in federal and state court involving claims for wrongful discharge, breach of employment contracts, restrictive covenants and trade secrets, and alleged discrimination and retaliation under federal and state anti-discrimination and whistle-blower statutes. I regularly counsel clients in making employment-related decisions and have conducted a number of internal investigations of employee complaints.
Editor: What are some common workplace problem areas that frequently require investigations?
O'Reilly: Historically, workplace investigations have covered a fairly broad range of employee activity including, benefits fraud, substance abuse, workplace violence, criminal activities and even simple violations of work-related rules. The parameters and guidelines for these types of investigations, while by no means static, are generally well-established. In recent years, however, complaints of discrimination, particularly sexual harassment, whistle-blower activity, and internal fraud and corporate malfeasance have been on the rise and the rapid changes in applicable law have presented new challenges in conducting thorough investigations.
Editor: Have state and federal whistleblower statutes added to the complexity of determining the company's mechanisms for resolving workplace issues?
O'Reilly: Yes. For instance, in 2006 the New Jersey legislature expanded the scope of New Jersey's Conscientious Employee Protection Act ("CEPA") to provide protection to an employee who reports to any supervisor or public body "any violation involving deception of, or misrepresentation to, any shareholder, investor, client, patient, customer, employee, former employee, retiree or pensioner of the employer or any governmental entity." The statutory language is extremely broad and as a result brings under the CEPA umbrella a wide range of employee complaints. When dealing with a problem employee who an employer seeks to discipline or terminate, the employer must be cognizant of the reach of CEPA and ensure that it can establish and document its legitimate business reasons for taking any adverse employment action against such an employee. In addition to the broader protections, the New Jersey legislature also increased the penalties for CEPA violations. Certain remedies are now mandatory where a violation is established. The maximum civil fine for a first violation was increased from $1,000 to $10,000 and from $5,000 to $20,000 for each subsequent violation; and the cap on punitive damages awards, otherwise applicable by virtue of New Jersey's Punitive Damages Act, was eliminated.
Likewise, in the area of federal law the passage of the Sarbanes-Oxley Act has added complexity to a company's mechanisms for resolving certain workplace issues. Generally, the Sarbanes-Oxley Act requires that workplace complaints involving accounting and internal accounting controls, be reported to corporate officers and the company's Audit Committee. Under section 302, both Audit Committee members and officers signing financial disclosures are responsible for making certain disclosures regarding how a company's internal control processes are working. Analysis, comment and disclosure on the adequacy of internal control processes will depend in large part on reporting by employees. As a result, employers must encourage employees to report their concerns. Once the concerns are reported, however, the employer must identify and separate those concerns which present real issues from those that fall into the category of valid differences of opinion and business judgment. Again, when the reporting employee is a problem employee and the reported concern falls into the category of a valid difference of opinion or business judgment, dealing with the problem employee thereafter in terms of discipline and/or termination often becomes complicated.
Moreover, while generally only applicable to publicly traded companies, Section 301 requires an Audit Committee "to establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters," including anonymous employee reports. The law is not restricted to employee complaints, and has generally been read as requiring anonymous hotlines or similar internal complaint processes for the submission of confidential, anonymous submissions to publicly traded companies. These types of requirements, as well as the whistleblower provisions of Sarbanes-Oxley found in section 806, have added layers of financial control and disclosure requirements to publicly traded companies and thus, have complicated the way in which employers must now deal with workplace issues.
Finally, one area of general concern in conducting any internal investigation is the issue of the attorney-client privilege. Employers, and their counsel, often are faced with making difficult determinations as to whether to waive the privilege in furtherance of the defense of the company, how to protect the privilege where necessary, and how to carry out investigations in a way that comports with the company's objectives and needs regarding the protection of the privilege. Therefore, before commencing the investigation, it is necessary to understand the purpose of the investigation and the uses that may be made of the investigation report.
Editor: Is there a potential for criminal liability if an employee's complaint is not properly investigated?
O'Reilly: Yes. Section 1107 of the Sarbanes-Oxley Act amends the federal criminal laws to provide for possible imprisonment for up to ten years for retaliation against employees providing "truthful information" to a "law enforcement officer." Such liability applies regardless of whether or not the reported "truthful information" falls within the whistleblower provisions of the Sarbanes-Oxley Act, which covers reported information concerning securities fraud or the SEC. For the new criminal provisions to apply, the information must be provided to a "law enforcement officer." I am unaware of a judicial interpretation defining "law enforcement officer." Given the potential that investigators, such as those employed by the U.S. Department of Labor or the Equal Employment Opportunity Commission, could fall within in this definition, the possibility exists that employers could face criminal enforcement by the Department of Justice in such circumstances.
Editor: What key elements should a company include in its workplace policies to address incidents of harassment and discrimination?
O'Reilly: The primary key to an effective policy is the commitment of management to enforcing the policy in a fair and equitable manner, and communicating the policy and its principles to its workforce on a regular basis. There are, however, certain crucial elements that should be included in any workplace policy addressing harassment and/or discrimination. The first is to create a reporting obligation on persons that have either been subject to and/or have observed discriminatory acts. It is equally important to make sure that there are multiple avenues for reporting such incidents, beyond merely an employee's immediate supervisor (who may be the alleged harasser or person engaging in the alleged discriminatory practice).
The second is to articulate a commitment to taking such complaints seriously, and actually following up with this commitment. Any policy should at a minimum indicate that such conduct will not be tolerated, and warn that such actions can lead to discipline up to and including termination in the discretion of management. Key is that employees who make complaints are treated seriously, their complaints are treated in a timely and effective manner, and that prompt and appropriate remedial action is taken when an employer finds a violation of its policy. Although somewhat controversial, I also urge employers to include a policy statement that complaints found to be truly frivolous, and brought for an ulterior purpose, can also result in discipline up to and including termination.
Finally, it is imperative that an employer's policy addressing incidents of harassment and discrimination also make clear that retaliation is prohibited, and require employees to report acts of perceived retaliation. Many claims that would otherwise fail to state actionable conduct, become viable when fellow employees or supervisors take retaliatory acts against a perceived troublemaker. Periodically following up with complainants after the resolution of their initial complaints to insure against retaliation can be crucial.
Editor: Besides human resources, what other functional departments within the corporation should the law department call on when conducting an investigation of sexual discrimination or harassment as well as any whistle-blowing incident?
O'Reilly: I have already discussed the role of Audit Committee members and senior management and officers in investigations involving internal accounting, fraud and corporate malfeasance investigations. Because the adequacy of an investigation turns in large part on the information provided or uncovered in the investigation, a company's IT (information technology) or MIS (management information systems) department can be a valuable and indispensable resource in carrying out an investigation. The increasing use of electronic communications in the work place, such as emails and text messages, often provide a gold mine or mine field (depending upon what is uncovered) of information. It is better to find out about truly damaging electronic information during an investigation than in response to an initial request for production in the litigation that often follows.
Depending upon the type of complaint, it may also be useful to employ internal resources to verify allegations that involve the expertise or operational practice of a particular business unit. There is, however, one strong exception to this practice. While I generally advise clients to inform witnesses and complainants in sexual harassment and discrimination investigations that confidentiality can only be maintained when it is in the best interest of the company, Sarbanes-Oxley requires that anonymity be preserved for certain types of complaints. In that case, it may be necessary to employ outside consultants and/or counsel to preserve against the possibility that a complainant's identity will be revealed by the nature of the investigations or issues in controversy
Editor: When should outside counsel be called in to assist in an investigation?
O'Reilly: In addition to what I have already discussed, the Sarbanes-Oxley Act requires that an Audit Committee has the authority to engage independent counsel and other advisors as it deems necessary to carry out its duties. This can be particularly useful when accusations of malfeasance involve members of senior management and internal advisors might be influenced by the person or persons whose conduct is being investigated.
Editor: When an internal investigation reveals internal fraud or corporate malfeasance that is likely to effect a company's financial position and/or investor's expectations what do federal whistleblower statutes require?
O'Reilly: In addition to potential criminal reporting obligations, Section 409 of Sarbanes-Oxley requires companies to inform investors "on a rapid and current basis" of material changes in the company's financial condition or operations. In the past, Form 8-K requirements provided a five-to-fifteen day window for disclosing certain events. But now companies will be required to report all of those events, plus several others, within four days. This may mean that you may have to contact the SEC and relevant consultants, i.e. media/public relations, if certain types of material fraud are brought to light during an internal investigation.
Published October 1, 2006.