Broad Whistleblower Protection Under The Federal Stimulus Law
By Jyotin Hamid and Mary Beth Hogan

May 26, 2009

 

In response to concerns about waste of stimulus funds, the act includes a broad employee whistleblower provision, §1553, which provides for a private right of action for employees who claim that they have been retaliated against for making certain complaints about their employers' handling of stimulus funds. This article provides an overview of the features of §1553, highlights several aspects of the provision that are broader than other whistleblower statutes with which employers may be more familiar and examines a number of important, unanswered questions about how the law will be interpreted and applied.

Overview of §1553

Section 1553 of the act provides that an employer receiving funds under the act may not discharge, demote or otherwise discriminate against an employee as a reprisal for the employee's disclosure of information that the employee reasonably believes is evidence of: (1) gross mismanagement of an agency contract or grant related to covered funds; (2) gross waste of covered funds; (3) a substantial and specific danger to public health or safety related to the implementation or use of covered funds; (4) an abuse of authority related to the implementation or use of covered funds; or (5) a violation of law, rule or regulation related to an agency contract or grant, awarded or issued relating to covered funds.

Employee disclosures triggering protection under §1553 include those made in the ordinary course of an employee's duties, to a supervisor or other person working for the employer with authority to investigate misconduct, to a state or federal regulatory or law enforcement agency, to a court or grand jury, or to various representatives of the federal government, such as a member of Congress, the head of the federal agency distributing the funds, the inspector general of the agency, the Comptroller General or the Recovery and Accountability Transparency Board created under the act (the "Transparency Board").

A violation of §1553 has five elements. First, the employer must have received funds under the act or act directly or indirectly in the interest of a recipient. Second, to be protected, the employee must disclose information that the employee reasonably believes is evidence of one or more of the five enumerated categories of wrongful conduct listed above. Third, the disclosure must be to one of the individuals or entities identified in §1553. Fourth, the employer must have discharged, demoted "or otherwise discriminated against" the employee. Finally, the action taken against the employee must have been taken "as a reprisal for" the employee's disclosure of information.

Section 1553 specifies that the disclosure need not be the sole cause of the challenged employment action, but rather need only be a contributing factor. A disclosure can be shown to be a contributing factor by circumstantial evidence, including evidence that the person undertaking the reprisal knew of the disclosure or that the reprisal occurred within a period of time after the disclosure, such that a reasonable person could conclude that the disclosure was a contributing factor in the reprisal. The disclosure will not be found to be a contributing factor if the employer can show by clear and convincing evidence that the challenged employment action would have been taken absent the disclosure.

Administrative Procedures

An employee who claims that he or she has been subjected to reprisals prohibited under the act must, in the first instance, file a complaint with the inspector general for the federal agency that made the stimulus funds available. The inspector general must then either (1) determine that the complaint is frivolous, does not involve funds made available under the act or is already the subject of another investigation, or (2) investigate the complaint and submit a report of the findings of the investigation to the employee, the employer, the head of the relevant federal agency and the Transparency Board. The inspector general also has discretion to decline to conduct or continue an investigation.

After receiving the inspector general's report, the head of the relevant federal agency must determine whether there is a sufficient basis to conclude that the employer has subjected the employee to a prohibited reprisal. The agency may issue an order requiring that the employer cease any reprisal, reinstate the employee to his or her prior position, together with back pay, compensatory damages and any other benefits necessary to make the employee whole, and reimburse the employee's expenses (including attorney's fees and costs) reasonably incurred in connection with bringing the complaint. If the employer fails to comply with the agency's order, the agency may file a lawsuit in federal court to enforce the order, and the court may grant appropriate relief, including injunctive relief, compensatory and punitive damages, and attorney's fees and costs.

Private Right of Action

After exhausting the administrative procedures, an employee has a right to bring a private lawsuit. Specifically, if the inspector general has either declined to conduct or continue an investigation or has failed to complete a report within the specified timeframes, or if the relevant agency, after receiving the inspector general's report, has denied relief in whole or in part, the employee is authorized to file a lawsuit in federal court.

Section 1553 provides that no predispute arbitration agreement (other than an agreement contained in a collective bargaining agreement) shall be valid to the extent it purports to require arbitration of an employee's claim under §1553 and further provides that the rights and remedies provided under §1553 may not be waived by any agreement, policy, form, or condition of employment.

Comparison to Other Laws

Section 1553's whistleblower protections are quite broad by comparison with those contained in other laws, such as the Sarbanes-Oxley Act of 2002, the New York Labor Law or the anti-retaliation provisions of Title VII of the Civil Rights Act of 1964.

While many statutes protect from retaliation employees who disclose information they reasonably believe is evidence of illegal conduct, §1553 covers disclosure of information about a broader array of potential wrongdoing, including, for example, gross waste, gross mismanagement, and abuse of authority. The act is not limited to disclosures of information regarding securities fraud, like Sarbanes-Oxley, or to disclosures about a substantial and specific danger to the public health or safety, like New York Labor Law §740. Also unlike Labor Law §740, an employee's reasonable belief about potential wrongdoing is sufficient, and it is not necessary to prove an actual violation of law.

Section 1553 is also relatively broad in the way it defines the persons or entities to whom protected disclosures may be made. Section 1553 covers not only disclosure of information to law enforcement agencies (as is required under one of the Sabanes-Oxley whistleblower provisions), but also to a host of others, including disclosures made to a supervisor in the ordinary course of an employee's duties. Hypothetically, if an employee expresses the view at a meeting attended by his or her supervisor that the employer is grossly mismanaging a project funded in part by stimulus funds, the employee has engaged in protected whistleblowing activity and may claim that any later adverse employment action taken against him or her constitutes an unlawful reprisal for such activity.

The evidentiary burdens for making a claim under §1553 are also more permissive than other anti-retaliation laws. The statute provides that an employee can prove a prohibited reprisal by demonstrating that a protected disclosure was merely a contributing factor in the adverse employment action. By contrast, under the anti-retaliation provisions of Title VII, an employee must show that the protected activity was a motivating factor in the adverse employment action.

Under §1553, the employee can meet his or her burden of showing that the disclosure was a contributing factor through circumstantial evidence, by demonstrating either that the person undertaking the reprisal knew of the disclosure or that the reprisal occurred within a period of time after the disclosure such that a reasonable person could conclude that the disclosure was a contributing factor in the reprisal.

While circumstantial evidence is generally an acceptable form of proof in retaliation cases under Title VII, only one of these factors (knowledge of the disclosure or timing of the reprisal) alone would be insufficient to establish a prima facie case under Title VII. Also, employers must meet a higher burden to rebut a prima facie case under §1553. Under §1553, to rebut a prima facie case an employer must show by clear and convincing evidence that the action constituting the reprisal would have occurred absent the disclosure; under Title VII an employer need only articulate a legitimate, non-retaliatory reason for the employment action in order to shift the burden back to the employee to prove that the employer's proferred reason is pretextual.

Open Questions

The text of §1553 leaves several important questions unanswered. The uncertainty about these issues, moreover, may be compounded by the fact that §1553 will be interpreted and enforced simultaneously by the numerous different federal agencies disbursing stimulus funds.

One critical question is how expansively the definition of "covered employer" under the act will be interpreted. Section 1553, by its express terms, covers not only any entities receiving stimulus funds, but also "any person acting directly or indirectly in the interest of an employer receiving covered funds." This language could be interpreted to support individual liability for supervisors and managers. It might also be interpreted to cover any employer that, though not itself a recipient of stimulus funds, provides goods or services to a recipient of stimulus funds. For example, an accounting or law firm providing services or a supplier providing parts to a recipient in connection with the recipient's use of covered funds might arguably be covered by §1553.

Another question is what the statute of limitations will be for filing a complaint with the relevant inspector general and, after exhausting administrative remedies, for filing a lawsuit. The text of §1553 does not include express limitations periods. Generally, when Congress has failed to provide a statute of limitations in a federal law, courts borrow the statute of limitations under an analogous state law, or in some cases, federal law. At this point, however, it is not clear whether courts will determine that a federal or state law is more analogous to §1553 or what limitations periods ultimately will apply.

Section 1553 is also unclear on whether punitive damages will be available in private lawsuits brought by employees (which would make potential exposure under §1553 more substantial than under Title VII or Sarbanes-Oxley). The text provides expressly that punitive damages are available if a federal agency files an action in federal court because of an employer's non-compliance with an agency order. With respect to private actions, though, §1553 provides that an employee may seek compensatory damages and "other relief available under this section." It is unclear whether this reference to "other relief" is meant to include the punitive damages expressly made available in agency enforcement actions.

The interpretation of several concepts included in §1553 will have to be developed through case law. For example, how expansively will courts and agencies interpret what it means to be "otherwise discriminated against"?

Guidance may lie in the anti-retaliation provisions of other whistleblower laws, which contain similar prohibitions on employers' treatment of employees engaging in protected activity. For example, Title VII's anti-retaliation provision forbids employers from "discriminat[ing] against" their employees for protected activity. In Burlington Northern & Santa Fe (BNSF) Railway Co. v. White, 548 U.S. 53, 68 (2006), the Supreme Court held that under Title VII "a plaintiff must show that a reasonable employee would have found the challenged action materially adverse," meaning that it may have "dissuaded a reasonable worker from making or supporting a charge of discrimination." Under this standard, an employee is protected from a very wide range of potentially retaliatory acts. While the Burlington Northern standard is a possible alternative, courts interpreting §1553 may take a different approach.

Similarly, it is unclear how "gross mismanagement" or "gross waste" of covered funds will be interpreted. The subject matter of protected disclosures under §1553 are almost identical to those provided under the Whistleblower Protection Act of 1989 (WPA), which protects federal employees against reprisal for disclosing information that an employee reasonably believes evidences a violation of any law, rule, or regulation; or gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety.

Given the similarities between the WPA and §1553, it is reasonable to expect that courts might look to the WPA for guidance in defining these terms. The Merit Systems Protection Board, which adjudicates employee complaints under the WPA, defines "gross waste" as a "more than debatable expenditure that is significantly out of proportion to the benefit reasonably expected to accrue to the government." Nafus v. Dep't of the Army, 57 M.S.P.R. 386, 393 (M.S.P.B. 1993), overruled on other grounds, Frederick v. DOJ, 65 M.S.P.R. 517, 531 (M.S.P.B. 1994). "Gross mismanagement" has been defined in cases interpreting the WPA as "such serious errors by the agency that a conclusion the agency erred is not debatable among reasonable people." White v. Dep't of the Air Force, 391 F.3d 1377, 1382 (Fed. Cir. 2004).

Finally, it is unclear what the practical effect will be of §1553's provision that its rights and remedies cannot be waived by any agreement, policy, form, or condition of employment. In some cases, such as with Title VII, statutory language providing that rights and remedies are not waivable is interpreted to bar only prospective releases. In other cases, though, such as with the Fair Labor Standards Act, statutory language providing that rights and remedies are not waivable is interpreted to bar even retrospective claims, making it difficult for an employer to achieve full and complete finality even in the context of a negotiated settlement agreement with the employee.

Conclusion

Because of the broad scope of §1553, employers receiving stimulus funds, as well as those providing goods and services to recipients, should be mindful of their obligations under the statute. Employers who may be covered should consider revising employee policies, manuals and handbooks to ensure that provisions dealing with whistleblowing activity and anti-retaliation measures reflect, or at least are consistent with, the requirements of §1553.

Any analysis of litigation exposure arising from a planned termination or other adverse employment action should include consideration of any potential claims under §1553. With more than 20 different agencies that will be enforcing the act, and several important questions of interpretation left open, employers and their counsel should monitor the law in this area as it develops.

On Feb. 17, 2009, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (the act), providing for $787 billion of federal stimulus spending and tax cuts. The stimulus funds will be distributed by over 20 federal agencies across a number of different industries in a wide-reaching plan to stimulate the economy.

Jyotin Hamid and Mary Beth Hogan are partners at Debevoise & Plimpton. Alison J. Page, a litigation associate with the firm, contributed to this article.