The New Whistleblower's Handbook

by Stephen Kohn

  • Punitive or exemplary damages. Punitive damages are available under state public policy tort claims and some federal statutes (including First Amendment or witness retaliation claims filed under the Civil Rights Act of 1871). Even if available under law, punitive damages are not automatically awarded. According to U.S. Supreme Court precedent, employees must demonstrate that the employer’s “conduct” was “motivated by evil motive or intent” or that the employer acted with “reckless or callous indifference to the federally protected rights of others.” The Supreme Court of Mississippi upheld a punitive damage award of $1.5 million because “people” should not be fired because they report “illegal acts.”

  • Other relief. Outside of the big-ticket items listed above, the “make whole” remedy available under federal law can be aggressively and creatively applied in order to ensure that whistleblowers are truly made whole. An important question to ask is how can this very general rule be molded to ensure that any particular worker gets all the benefits necessary to be truly made whole? This includes relief related to the loss of status and career opportunities, which always flow from a termination or other adverse action. The types of relief awarded under this rule include the following:

  • Monetary compensation for lost overtime pay that an employee would have earned but for the discharge;

  • Restoration of vacation time;

  • Interest on all damages;

  • Restoration of seniority;

  • Restoration and/or compensation for all lost benefits, such as parking privileges and financial compensation for having lost access to a company car;

  • Positive recommendations from the employer;

  • Back pay awards to take anticipated salary increases into consideration;

  • Compensation for forced sale of assets due to a prolonged unemployment;

  • All job search expenses (including the use of a “headhunter”);

  • Removal of negative information from a personnel file;

  • Reinstatement of stock options and employee savings plans;

  • Restoration of lost retirement benefits;

  • Medical expenses (including future expenses);

  • A letter of apology from the company president to all employees;

  • A notification from the company to all employees that it violated the law when it fired the whistleblower;

  • Company-wide training for managers about the rights of whistleblowers.

  • Qui tam damages. Proof of damages in a False Claims Act and other qui tam cases are totally different than the proof necessary in an employment retaliation case. Under the rewards provision of the False Claims Act, damages are not tied to the harm suffered by an employee. Instead, they are set by the economic harm experienced by taxpayers. If the whistleblower can prove a violation of the False Claims Act, the wrongdoer must pay the government three times the amount of any fraud/wrongful billing (in addition to a fine for each violation), and the whistleblower is entitled to a percentage of the monies obtained by the government (15 percent to 30 percent).

  This same formulation holds true for all qui tam claims. The statute sets the percentage reward: Internal Revenue Code (15 percent to 30 percent); Securities Exchange Act (10 percent to 30 percent); Commodity Exchange Act (10 percent to 30 percent).

  PRACTICE TIP

  Before filing a claim review, read the actual text of the federal whistleblower protections laws cited in Checklist 2, as the statutes themselves usually set forth the relief available under each law. The sources for this rule cite case precedents setting forth the specific types of damage awards available in retaliation cases.

  RULE 27Make the Boss Pay Attorney Fees

  One of the first major problems encountered by any whistleblower is the ability to locate and retain competent legal counsel. Whistleblower cases are complex and often hard fought. The defendant may be a powerful or well-connected special interest and cases can go on for years. Without an attorney, most whistleblowers will lose their cases.

  Under the “American Rule,” absent a statute, parties to civil lawsuits are responsible for paying their own attorney fees, regardless of who wins or loses a lawsuit. Often, attorneys work for clients on a “contingency fee” basis and accept a percentage of a recovery as compensation for their fees. Contingency fee agreements are typical in whistleblower-reward cases. However, in employment cases this arrangement can be highly problematic. For example, assume an employee had an income of $50,000 per year. He or she was wrongfully fired, and after a two-year battle won the case and obtained a $100,000 judgment. A 40 percent contingency payment would only provide the attorney who represented the client with a $40,000 fee, an amount that could not adequately compensate an attorney who had to litigate a whistleblower case.

  Moreover, in cases in which an employee suffered harm but was not fired (such as a hostile work environment case or a denial of a promotion), the amount of monetary damages may be very low.

  To resolve this problem and encourage attorneys to represent whistleblowers, Congress included attorney fee provisions in almost every federal whistle-blower law. The reason for including the payment of fees and costs as part of the damages in employment cases was explained by Congress in the Senate Report on Civil Rights Attorney Fee Awards Act of 1976, codified as 42 U.S.C. § 1988: “If private citizens are able to assert their civil rights, and if those who violate the nation’s fundamental laws are not to proceed with impunity, then citizens must have the opportunity to recover what it costs them to vindicate these rights in Court.”

  Section 1988 permits employees who win their cases to obtain fees in civil rights cases, including retaliation cases filed under Title VII of the Civil Rights Act of 1964 and First Amendment cases filed under the Civil Rights Act of 1871. The statutory attorney’s fee provisions in whistleblower laws are all modeled on this Section 1988.

  The U.S. Supreme Court recognized that fee-shifting statutes were intended by Congress to “ensure effective access to the judicial process” by properly compensating attorneys in order to ensure that employees had the ability to “attract competent counsel” to represent their claims. As Justice Alito held in the 2010 case of Perdue v. Kenny: The statutory fee provisions are intended “to ensure that federal rights are adequately enforced.”

  Under these provisions, if the employee wins the case, the company must pay the employee’s counsel at reasonable market rates. Attorneys can be paid fees in the hundreds of thousands of dollars (or even millions of dollars), and the payment of attorney fees is not directly tied to the amount of money awarded to the employee, or the sum the employee was able to pay an attorney as part of a retainer agreement. As explained in the Perdue case, a “reasonable fee is a fee sufficient to induce a capable attorney to undertake the representation of a meritorious civil rights case . . . but that does not produce windfalls to attorneys.”

  When determining which law should be used to pursue a whistleblower case, it is absolutely necessary to check and make sure the law has an attorney’s fee provision. Most federal whistleblower protection laws do, including the FCA, the Consumer Products Safety Act, the Dodd-Frank Act antiretaliation provisions, and the environmental and nuclear safety laws.

  The amount of attorney fees can and often do exceed the amount of damages awarded to the employee. This permits an attorney to spend the time necessary to carefully litigate a whistleblower case. It enables a whistleblower’s counsel to compete with big firms, afford aggressive discovery, and fight a case as hard as the most obstinate employer.

  The following are the basic rules governing awarding attorney fees and costs to employees who win a whistleblower case:

  • Properly document all costs incurred and the amount of time an attorney spends working on every aspect of the case. If the whistleblower wins, the attorney will be required to submit a detailed statement of all hours worked on the case and all costs incurred. Without proper documentation a client may not be able to obtain reimbursemen
t for all costs, and a court may refuse to require a defendant to pay for attorney fees that are not adequately documented.

  • In setting a reasonable fee, the court will apply a “lodestar” calculation in which the reasonable amount of time spent working on the case is multiplied by the “reasonable” market rate for the attorney’s services. The market rate is not tied to the amount of fees actually charged by the attorney, but is established by the general market rates governing “complex civil litigation.” In other words, fees are not limited due to the inability of a client to pay and/or the fact that an attorney may charge public interest clients a reduced hourly fee. The “market rate” is governed by the rates charged by attorneys engaged in non–public interest work, such as antitrust litigation. Often the market rate is pegged to the amount of fees charged by large for-profit law firms that represent paying defendants. Attorneys should not be penalized because they choose to represent whistleblowers or other public interest clients at a reduced rate.

  • Reasonable market rates vary from location to location and from court to court. Some of the factors taken into consideration in setting a fee include the “novelty and difficulty of questions presented” in the case, the “results obtained” by the attorney, the “undesirability” of the case, and the “customary fee” charged for similar types of cases.

  • There is no proportionality rule. The amount of attorney fees is not conditioned by the size of the judgment obtained. The Supreme Court confirmed this rule in 1986, when it upheld an award of $245,456.26 in attorney fees in a case in which the damages awarded to the victim of the discrimination were limited to $33,350.00. If an employee obtains injunctive relief only (no monetary judgment), there is still no cap on attorney fees and costs.

  • Prevailing employees can obtain compensation for expert witness costs only if the statute permits payment for expert witnesses.

  • The attorney fee provisions also permit payment for paralegal and law clerk fees.

  • Attorney fees are permitted for work performed during every phase of a case, including administrative proceedings.

  • Applications for attorney fees and costs are generally submitted after the court issues a judgment for the employee.

  • The rates of attorney fees are not determined by the fee agreement entered between the attorney and the client, but are established by the controlling market rates. This is very important because many clients cannot afford full-market rates and their day-to-day billings reduced.

  • Attorney fees are permitted even if an employee is only partially successful in his or her case.

  • Reasonable costs incurred by the client or the attorney are compensable, including travel costs, meals, hotel and airline expenses, deposition costs, arbitration costs, telephone fees, copy costs, subpoena fees, and filing fees.

  PRACTICE TIPS

  Each whistleblower statute must be checked to ensure that attorney fees are either covered explicitly under the law, or eligibility for fees are included in the Civil Rights Attorney Fee Act, 42 U.S.C. § 1988. Here are key Supreme Court decisions on how to calculate statutory fee awards:

  • Perdue v. Kenny, 559 U.S. (2010) (fee enhancements)

  • Hensley v. Eckerhart, 461 U.S. 429 (1983) (“lodestar” method)

  • Blum v. Stenson, 465 U.S. 886 (1984) (determining fee rate)

  • Missouri v. Jenkins, 491 U.S. 274 (1989) (use of current rates; paralegals)

  • City of Riverside v. Rivera, 477 U.S. 561 (1986) (no proportionality)

  • Blanchard v. Bergeron, 489 U.S. 87 (1989) (fee not controlled by agreement)

  RULE 28Hold Companies Accountable for Paying Hush Money

  “This corporate code of silence . . . creates a climate where ongoing wrongdoing can occur with virtual impunity.”

  Senate Report, Sarbanes-Oxley Whistleblower Act

  In 1987 in Stevensville, Texas, attorneys for the powerful multinational corporation Brown & Root/Halliburton pressured a journeyman electrician, Joseph J. Macktal Jr., to accept a settlement of his whistleblower case. Macktal had been fired from the Comanche Peak nuclear power construction site after raising safety concerns. The Nuclear Regulatory Commission (NRC) had validated many of his allegations, and he had a case pending with the U.S. Department of Labor under the federal nuclear safety whistleblower law.

  Brown & Root wanted his silence and was willing to pay. Macktal’s attorneys wanted their fees and strongly urged him to accept the company’s offer. His attorneys even threatened to quit his case if he did not sign the deal. Macktal was mad. He felt trapped. He documented his opposition to the settlement, and even recorded his lawyers delivering a threat: If you do not remain silent, Brown & Root will “follow you to the ends of the earth.” Macktal thought he had no choice. He signed the deal.

  As part of the settlement, he agreed not to testify about any of his nuclear safety concerns. If subpoenaed, he would do his best to “resist” service. He agreed to keep the entire deal “strictly confidential,” and if he ever told anyone about the secret settlement, Brown & Root could sue him, retrieve all their settlement money, and force Macktal to pay all the company’s attorney fees and costs. Disclosure meant bankruptcy.

  The settlement ate at Macktal’s conscience. He knew it was wrong. He was a whistleblower; he had safety concerns. In September 1988 Macktal did something that no other whistleblower had ever done. He hired new attorneys who were willing to challenge the legality of the settlement. He filed motions with the NRC and the DOL seeking to have his agreement declared void. He went further. He released his “strictly confidential” agreement to the press and demanded that the government regulators protect the public interest. Macktal placed everything at risk to do the “right thing.” If the agreement’s legality was sustained, he all but admitted to massive liability, risking a Brown & Root counter-lawsuit for breach of contract.

  Macktal’s actions were unprecedented. No one knew how the NRC or DOL would rule. The NRC acted first, and blew it. It issued a decision finding that paying witnesses not to provide testimony to the NRC was not a safety violation. The NRC refused to take action against Brown & Root. The ruling set Macktal up for a counterclaim.

  Backed against the wall, Macktal and his attorneys went to Congress and found a sympathetic ear with the staff of the U.S. Senate Subcommittee on Nuclear Regulation. The committee staff (and their bosses) were outraged by the settlement agreement. They understood the insidiousness of the agreement and how paying witnesses not to testify could threaten the integrity of the entire nuclear regulatory scheme. The subcommittee took action. They subpoenaed Brown & Root and their high-priced corporate attorneys, demanding documents related to the Macktal agreement and other “hush money” deals the nuclear power industry had demanded from its workers. They called the NRC officials on the carpet and grilled them on the Macktal agreement.

  The chair of the subcommittee, John Breaux from Louisiana, did not hold back: “It is shocking to me that we should even have to hold a hearing on such questions. It seems self-evident that it is wrong to pay witnesses not to testify, regardless of context. Yet we find that in the area of nuclear regulation the practice may be common.”

  Senator Alan K. Simpson from Wyoming was slightly more blunt: “This stinks!”

  Under pressure, the NRC reversed its ruling. It issued a new decision finding that such agreements violated public policy. And then it went further. The NRC sent a letter to every nuclear utility in the United States, demanding that every such “hush money” settlement be turned over to the NRC. Additionally, every worker who ever signed such an agreement be notified, in writing, that the agreement could not be enforced and that all workers were free to contact the NRC and disclose safety concerns. Numerous Macktal-style agreements became public, and the nuclear industry was given a big black eye.

  The DOL initially balked, but then issued a series of decisions outlawing restrictive settlements under the federal nuclear and environmental whistle-blower laws it admini
stered. The first Macktal decision ruled that the settlement as a whole could be enforced, but the specific clause in the agreement restricting Macktal’s right to blow the whistle to government agencies was void. Macktal challenged that ruling in the U.S. Court of Appeals for the Fifth Circuit. He demanded that the DOL void the entire deal and reinstitute his labor case.

  The Fifth Circuit agreed with Macktal and held that it was all or nothing—the DOL could not effectively rewrite the agreement by striking one clause. They sent the case back to the DOL. Following the Fifth Circuit’s ruling, the DOL issued a series of Macktal decisions, holding:

  • The DOL had the authority to review all settlements and approve each and every term;

  • If a settlement contained restrictions on an employee’s right to blow the whistle, testify, provide information to government regulators, or engage in any statutorily protected activity, the entire agreement was void;

  • If the settlement was voided, the employee had the right to continue his or her labor case, as if no settlement had ever been issued;

  • If the company had paid money to the worker, the employee could keep the settlement money and still pursue his or her case.

  On the basis of the Macktal precedent, the DOL ruled that inserting “gag provisions” in a settlement was an adverse action, permitting an employee to sue his or her employer for retaliation, and obtain damages and attorney fees. The U.S. Court of Appeals upheld that ruling.

  Consistent with Macktal, on August 23, 2016 the Director of the Department of Labor’s Whistleblower Protection Program issued policy guidelines instructing OSHA to reject any settlement agreement that contained restrictions on employee whistleblower rights. OSHA investigators were asked to keep an eye out for any settlement agreements that contained a provision that: