Corporations Have Undermined Compliance Programs by Arguing That They Can Fire Employees Who Report Violations inside the Company

The Chamber of Commerce has commenced a well-financed and aggressive lobbying campaign to undermine America’s most effective whistleblower law, the False Claims Act. To justify its anti-whistleblower campaign the Chamber published a report entitled, “Fixing the False Claims Act: the Case For Compliance-Focused Reforms.” The purpose of this blog series is to combat the Chamber’s misinformation, and explain why the False Claims Act must be protected. Whistleblowers and their supporters are strongly urged to read this blog series and share it with friends.

Fact Number 12:

The Chamber of Commerce and its members have argued for the past 30 years that internal disclosures to corporate compliance programs or company managers are not protected whistleblower activities. This argument has undermined compliance programs. In 1984, Brown & Root fired a corporate compliance inspector and argued that whistleblowers who only reported their concerns within the company had no rights, and could be fired at-will. 

In that case, President Ronald Reagan’s appointed Secretary of Labor ruled that internal disclosures were protected, and ordered the whistleblower to be reinstated. Brown & Root disagreed, and appealed the case to the U.S. Court of Appeals for the 5th Circuit. The court backed Brown & Root. The 5th Circuit explicitly held that in order to be a whistleblower, an employee must contact a “competent organ of government.”

Since that decision, corporations who are active members of the Chamber of Commerce have aggressively argued that contact with internal compliance programs is not a protected activity. The FCA has not undermined compliance programs.

Instead, it has been the Chamber of Commerce and its members who have aggressively, and successfully, urged courts to uphold the termination of whistleblowers who report their allegations of fraud to internal corporate compliance programs. To demonstrate this point, we examined whistleblower cases decided under two long-standing laws that protect whistleblowers: the federal banking whistleblower protections laws and the FCA.

Banking Law Cases: Whistleblower protection provisions have existed under federal banking laws for over 20 years. In every case where the issue has been litigated, companies have argued that employees who disclosed bank fraud internally could be fired. The banks prevailed in all the cases. Whistleblowers who raised their concerns to their managers or to compliance programs lost their jobs.

False Claims Act Cases: A review of the False Claims Act revealed a similar pattern. Under the 1986 version of the FCA, every reported case in which internal whistleblowing was an issue, the employers argued that internal reporting of fraud was not protected. There is not one reported case in which a company argued that employees who disclosed allegations to compliance departments should be protected as a matter of law.

 All of the published rulings under the banking whistleblower laws have held that internal disclosures are not protected. These findings are reflected in Chart of Cases Under Federal Banking Whistleblower Laws. Unfortunately, the employers’ narrow views on protected activity prevailed in the vast majority of court cases filed under the FCA. Below is a circuit-by-circuit review of the controlling rule on internal protected disclosures under the 1986 version of the FCA various federal judicial circuits:

U.S. Federal Circuit Court Precedents: Where Corporations Have Undermined Compliance Programs

In addition, an Action Alert has been issued by the National Whistleblower Center so members of the public inform their representatives that the False Claims Act should not be “reformed” as proposed by the Chamber.