Jon Green
02/01/2005
As a lawyer who has represented dozens of corporate whistle-blowers in severance negotiations and litigation, I have seen the profile of the average whistle-blower change since the Enron and Worldcom scandals and the enactment of the Sarbanes-Oxley Act. Today, the whistle-blower is likely to be a senior executive who has observed his peers straying, rather than a member of middle management reporting a discrepancy in the balance sheet.
In almost every case, a company will fire a whistle-blower. We tell all our whistle-blower clients, at any rung on the corporate ladder, to expect to see their careers take a nosedive if they file a lawsuit against their former employer seeking compensation for having been dismissed. We prefer to try to work out a settlement without publicity; the deal usually includes a disparagement clause forbidding either party from discussing the details of the case or denouncing the other.
Sarbanes-Oxley prohibits an employer from discharging, demoting, suspending or in any other manner discriminating against a whistle-blower. It allows a remedy for out-of-pocket losses, attorney’s fees and litigation costs. This is a pale incentive to report wrongdoings compared to the deterrent of knowing that your former colleagues—often your neighbors and friends—will vilify you in court and in public as disgruntled, fanatical, possibly even criminal. We counsel our clients to ponder the situation, and all that they might risk. The fallout can bring unbearable pressure on a client’s family as income disappears and the helplessness that accompanies prolonged unemployment and the destruction of a career takes hold.
Yet there are those who step forward anyway. My firm represented Joseph Bourgart, CFO at Nasdaq-listed medical equipment maker Vital Signs. We settled his case for a confidential sum and an agreement not to discuss the facts of the case, which is typical. I can report that Bourgart landed a job with an out-of-state competitor that required he uproot his family and relocate. After a hellish transition period, he is now doing well. That beastly period is a given, and one is never sure how, or if, it will end. Many high-level whistle-blowers are saddled with binding noncompete agreements that may keep them out of their industry for two years or longer, even if another company would have them. More often the entire industry brands them with a scarlet W. Most become consultants, start their own business or pursue noncorporate interests.
Employers, meanwhile, do not escape unscathed. High-level whistle-blower suits usually attract unwanted publicity that can overwhelm their day-to-day operations. Companies sacrifice productivity to defend themselves legally and publicly. Morale suffers and shareholder performance may be affected.
Why a whistle-blower decides to step forward is the determining question that a lawyer must ask before agreeing to take that person on as a client. Certainly there are people who report perceived wrongdoings out of either a grudge or an overly zealous moral stance. But the whistle-blowers we represent are in a third category: people who were just doing their job when they saw the company violating the law, and reported it because it was the right thing to do. These clients tend to be overachievers within the organization. More often than not, they are actively involved in their respective industry trade associations or in their local communities. We are seeing more cases of this kind in the past few years, partly because of public awareness of these issues, coupled with the publicity surrounding the Sarbanes-Oxley law.
A whistle-blower may ultimately make a company look good to consumers and shareholders. Granted, a CEO or other senior managers who are under investigation might not see it that way. But what typically happens is that a year or so after the whistle-blowing episode has been settled or resolved, the executive or team behind the misdeeds quietly leaves in a discreet round of reductions.
In a more rational world, the new management and competing companies would be outbidding each other for the services of the person who forced the company to get its act together. Such forced rethinking of practices or personnel would show the investing public that the company is transparent in its reporting practices. In the long run, such a change in today’s corporate climate would make everyone a winner.
Jon Green is a partner in the Morristown, N.J., law firm of
Green & Savits, which specializes in representing nonunion employees in
labor matters.