The 2013 National Defense Authorization Act creates strong new protections for employees of federal contractors and subcontractors who “blow the whistle” on their own employers. The law encourages employees to report “gross mismanagement,” “gross waste,” “abuse of authority” and other misconduct related to federal contracts. Mark discusses these new protections.

1. New Whistleblowing
Protections for Employees
of Government Contractors
W. Mark Gavre
April 9, 2013
Salt Lake City
25th ANNUAL EMPLOYMENT LAW SEMINAR
parsonsbehle.com

2.  Mistrust of corporations
– Especially banks and financial institutions
– Wall Street
 Mistrust of government contractors, i.e.,
companies doing business with state, local
and federal government
– Government dependent on contractors
– Government agencies weak and easily
corrupted
Why Whistleblowing?
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3.  Fear of bad things happening, but difficulty
of proving it
 Regulatory agencies spread thin, budget-
cutting, loss of staff
 Therefore, the need for “inside
information” to ferret out wrongdoing
Why Whistleblowing? (cont.)
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4. “I don‟t think there‟s anything more
important than whistleblowers. It is very
clear that whistleblowers have made a
difference time and time again
in…ferreting out serious and significant
problems in the federal government. At
agency after agency we have more
contractors…than we have federal
employees….
Whistleblowers as Heroes
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5. If whistleblowers [are not protected], we
are saying to contractors, we don‟t think
wrongdoing by you is that
important….Whistleblowers are the
unsung heroes in our fight to root out
inappropriate and sometimes illegal
behavior…”
– U.S. Senator Claire McCaskell (D. Mo.)
Whistleblowers as Heroes (cont.)
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6.  Passed in 1863 during the Civil War
because contractors sold defective goods
to the government – including army
uniforms made of “shoddy” that fell apart
 Strengthened in 1986 under President
Reagan, and again in 2009 and 2010
 Covers “false claims” submitted to the
federal government
 Treble damages and fines possible
Existing law – False Claims Act
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7.  Person knowing about the false claim can
file a lawsuit on behalf of the government
– Individual‟s identity kept confidential
 The government can pick up the lawsuit or
the individual can pursue it
 If the contractor loses (or settles) the
individual gets 15-30% of recovery
 Defense contractors and hospitals
(Medicare) are primary targets
False Claims Act (cont.)
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8.  March 2013 CIA contractor paid $3 million
settlement for giving gratuities to CIA
employees to get contracts with the CIA
 March 2013 contractor paid $19 million
settlement for overstating number of hours
worked by its employees on DOE project
 Manufacturer sold medical device to MDs for
unapproved use – indirect false claim to
Medicare
False Claims Act Examples
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9.  Sarbanes-Oxley (2002) and Dodd-Frank
(2010) focus on corporate and securities
fraud by public companies
 Both protect whistleblowers who report
(internally or externally) what they
“reasonably believe” to be some form of
fraud in the company
Existing Law – Sarbanes-Oxley
and Dodd-Frank
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10.  “The purpose of [SOX] is protect people who
have the courage to stand against institutional
pressures and say plainly, „what you are doing
here is wrong‟….Congress chose language
which ensures that an employee‟s reasonable
but mistaken belief that an employer engaged
in [fraudulent] conduct…or that a violation is
likely to happen…is protected.” Wiest v. Lynch
(3rd Cir., 3/19/13)
Importance of SOX Whistleblowers
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11.  Dodd-Frank (focused on Wall St.)
encourages whistleblowers to report
wrongdoing to SEC and CFTC
 Whistleblower gets 10-30% of collected
penalties of $1 million or more
 8/21/12 first SEC award to whistleblower of
$50,000 (30%) – may go to $300,000
Dodd-Frank Whistleblower Awards
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12.  Individuals rewarded for reporting tax fraud
 UBS (Swiss bank) helped U.S. taxpayers
evade taxes by creating secret off-shore
accounts to hide money
 IRS helped by UBS employee whistleblower
 UBS paid $780 million criminal fine and
disclosed thousands of Americans evading
taxes
IRS Whistleblower Program
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13.  IRS collected over $5 billion from U.S.
Taxpayers in back taxes, interest and
penalties
 In 2012 IRS paid whistleblower $104
million despite criminal conviction for his
part in the UBS tax fraud scheme and
serving 40-month sentence in prison
UBS Tax Fraud Case (cont.)
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14.  Stronger whistleblower protections
 Applies to DOD and NASA contractors
 “Pilot” whistleblower protection program
applies to all federal contractors (except in
intelligence area) for four years
 Applies to subcontractors also
 Effective July 1, 2013 for all new or modified
government contracts
2013 National Defense
Authorization Act (NDAA)
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15.  Retaliation against whistleblowers illegal
 Employee protected if she reports what she
“reasonably believes” is:
– “Gross mismanagement” of a contract
– “Gross waste” of federal funds
– “Abuse of authority” relating to a contract
– “Substantial danger” to public health or safety
– “Violation of law, rule, or regulation”
NDAA Whistleblower Protections
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16.  Employee may report to:
– Member of Congress
– Inspector General of contracting agency
– Government Accountability Office
– Federal employee overseeing the contract
– Any federal law enforcement agency
– Court or grand jury
– Company official responsible to investigate
misconduct
NDAA Whistleblower Reporting
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17.  Employer may not “discharge, demote, or
otherwise discriminate against” employee for
reporting what she “reasonably believes”
violates the law
 Reprisal illegal “even if it is undertaken at the
request of an executive branch official”
Reprisals Prohibited
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18.  Contractors and subcontractors must “inform
their employees in writing of their rights and
remedies” under the law
– “In the predominant native language of the
workforce”
 Employee rights and remedies “may not be
waived by any agreement, policy, form, or
condition of employment”
 All contracts must say the same
Educating Employees
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24.  Employee makes complaint to Inspector
General of agency
 Inspector General investigates and reports
to agency head within 180 days (may be
extended by agreement of employee)
 Agency must act within 30 days
 Agency may order reinstatement, back pay
and benefits, damages and attorney fees
NDAA – Complaining About Reprisal
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25.  If agency finds no merit to complaint or
does not act within 30 days,
– Employee may file lawsuit in federal district
court,
– With jury trial, and
– Seek full remedies (reinstatement, back pay
and benefits, damages) and attorney fees
Employee Going to Court
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26.  Three years from suspected reprisal for
employee to complain to Inspector
General
 210 days for Inspector General and
agency to act (may be extended 180 days)
 Two more years for employee to file a
lawsuit in federal court
NDAA Deadlines
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27.  Reinforce Code of Conduct – tone at the top
 Ethics training for all employees
 Training for managers
– Avoiding retaliation
 Effective complaint procedures
– Review existing policies and procedures
– Hotline and anonymous tip number
– Better internal system can reduce external
reports
Best Practices
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28.  Take reports/complaints seriously
 Investigate promptly
 Be prepared for complex investigations
– Appropriate for particular allegations and facts
– Good record keeping
 Maintain confidentiality of investigation
– Disclose only on a need-to-know basis
– Do not tell supervisor unless necessary
• Helps avoid retaliation
Best Practices (cont.)
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29.  Complete investigation with report
– Inform management
 Take appropriate action
– Document
 Balance tension between investigating
claim, reaching conclusions, responding to
employee, taking appropriate action, and
avoiding retaliation
Best Practices (cont.)
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30.  W. Mark Gavre
direct: (801) 536.6834
email: mgavre@parsonsbehle.com
Thank You
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