Thursday, August 7, 2008

Considerations for Individuals Who Refuse to Participate in Illegal Business Practices

Difficult Choice for Executives - A recent case our firm (Kotchen & Low LLP) filed on behalf of an individual (Martin McNulty) against competitors and executives in the packaged ice industry highlights an important choice that many individuals must make when working in (or with) organizations engaged in illegal business practices: whether to sacrifice individual principles and participate in the illegal conduct (which could lead to imprisonment and excessive fines) or refuse to participate in the illegal conduct and face retaliatory measures from an employer or other business partner.

Potential Statutory Protections - Just as our client did, some principled individuals choose not to participate in illegal business practices. In making this choice, individuals may feel compelled to report illegal practices to corporate management or the government, or may otherwise find continuing to work for (or with) organizations engaged in illegal business practices untenable. In either scenario, such individuals should be aware of whistleblower protections available to employees that investigate or otherwise report illegal business practices to management or the government as well as financial incentives to report illegal conduct to the government.

  • Whistleblower Protections: Federal and state whistleblower protections are generally available to individuals who face the prospect of employment retaliation for refusing to participate in an illegal business practice or investigating or reporting an illegal business practice. The specific protections available to employees will depend on each individual’s scenario. Examples of protections that may be available to employees include:

  • False Claims Act: In situations in which unlawful business practices may result in the federal government paying more for services or products, an employer cannot discharge, demote, suspend, threaten, harass, or in any manner discriminate against an employee investigating or reporting a potential violation of the False Claims Act. See 31 U.S.C. § 3730(h). Most states have similar statutes.
  • Sarbanes Oxley Act: In situations in which a publicly traded corporation may be engaged in business practices that defraud shareholders, the corporation (or its agents and contractors) cannot “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against [the] employee” for providing information concerning the potential fraud to a supervisor or government regulator (including a member of Congress). See 18 U.S.C. § 1514A. This provision of the Sarbanes Oxley Act is often attributed to the actions of Sherron Watkins from Enron, who provided information to Enron’s CEO (Ken Lay) about the fraudulent practices occurring within the organization.

  • Antitrust Laws: Agreements between an employer and its competitors as to how to treat an employee or employees (or others, including contractors and agents) will almost certainly violate the federal antitrust laws. See Sherman Act, 15 U.S.C. § 1. Most states have similar statutes.

  • Federal Racketeering Laws: Terminating (or otherwise retaliating against) an employee for reporting an illegal practice could, if other conditions are met, violate the federal Racketeer Influenced and Corrupt Organizations Act. See 18 U.S.C. § 1961(e), 1962. Many states have similar statutes.

There are also a number of anti-retaliation or whistleblower statutes that address employees who report other specific types of illegal conduct, such as environmental violations or safety violations. Employees should be cautioned that some of these statutes have very short statutes of limitations, requiring that a complaint be filed within as little as 30 days after the retaliatory conduct.

Financial Incentives Available for Reporting: The False Claims Act allows individuals who report non-public information to the government to recover a certain percentage of any overcharges the federal government paid as a result of illegal business practices. See 31 U.S.C. § 3729(a). Individuals must meet certain criteria to be eligible to recover for the percentage of the federal government overcharges, such as providing non-public information to the government concerning illegal business practices and being the first individual to file a False Claims Act suit to recover for the overcharges. Most states have analogs to the federal False Claims Act statute.

Martin McNulty’s Lawsuit: As a real-life example, our client, Martin McNulty, was allegedly fired and blackballed by the packaged ice industry for refusing to participate in a criminal conspiracy, and for cooperating with a criminal investigation by the Federal Bureau of Investigation and the Department of Justice. He was allegedly offered large sums of money to stop cooperating with the authorities, but was courageous enough to stand up to the conspirators. (More details of his story are available in a Wall Street Journal article and a press release). We filed a Complaint on his behalf seeking past and future lost wages, asserting claims under the antitrust laws, racketeering laws, and state laws.

Consulting Legal Counsel: Individuals who are trying to decide how to cope with illegal business practices on the part of their employer (or other organizations) face complex issues that should inform their course of action. Promptly consulting legal counsel will likely help develop workable strategies tailored to their individual needs. Moreover, legal consults are strictly confidential and – at least in the case of Kotchen & Low LLP – initial consultations are free.

Related posts: Incentives and Disincentives for Insiders to Expose Unlawful Cartels; Kotchen & Low LLP Sues Packaged Ice Manufacturers on Behalf of Former Party Time Ice Executive Martin McNulty.


The Law Firm of Kotchen & Low LLP - Civil Litigation, Counseling, and Representation Before Government Agencies

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