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IRS Awards $104 Million Reward to Whistleblower
Earlier this week, the IRS announced that it would pay Bradley Birkenfeld a $104 million dollar reward for his “whistleblowing” activity. Birkenfeld helped expose a widespread tax evasion plan at a well-known Swiss bank. As a participant in the scheme, Birkenfeld also spent 31 months in federal prison. The information provided by Birkenfeld aided in securing an agreement with the bank that resulted, among other things, in a $780 million dollar fine.
Notably, according to a former official with the Securities and Exchange Commission, under SEC whistleblower rules, Birkenfeld would not have been entitled to any reward because of his conviction of a related federal offense. This distinction highlights the myriad of rules, regulations and statutes that cover so-called whistleblowers.
Federal executive branch employees are generally covered under the Whistleblower Protection Act (WPA). The WPA prohibits “personnel action” taken against certain “covered employee[s]” “because of” a “protected disclosure[,]” which usually consists of reporting illegal or improper governmental activities. Private employers, however, are potentially subject to federal whistleblower laws as well.
For example, the Occupational Safety and Health Administration (OSHA) administers whistleblower claims under seventeen different federal laws. Among those laws, OSHA administers claims of retaliation under the Sarbanes-Oxley Act for reporting violations federal securities laws as well as claims of whistleblowing for violations of environmental laws relating to asbestos in elementary and secondary school systems under the Asbestos Hazard Emergency Response Act. Other federal laws provide protection beyond direct employees and cover contractors and subcontractors too, such as the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, which applies to allegations of discrimination or retaliation for reporting alleged violations of federal air carrier safety laws or regulations. Indeed, federal laws cover a wide variety of so-called whistleblower activity, including, reporting allegations of an unsafe cargo containers (International Safe Container Act) or reporting alleged violations of certain environmental laws or regulations (Clean Air Act, Safe Drinking Water Act, Federal Water Pollution Control Act, Toxic Substances Control Act, Solid Waste Disposal Act, and the Comprehensive Environmental Response, Compensation, and Liability Act).
Many states also have whistleblower laws, such as the Minnesota Whistleblower Act. This is certainly not an exhaustive list of whistleblower laws.
Takeaway: Whether certain employee activity is protected under a whistleblower law is a fact-intensive question. But employers should be aware that many federal laws are industry specific and could potentially provide additional considerations when dealing with such conduct. Accordingly, seeking legal counsel when addressing a “whistleblower” situation can be of great assistance in determining what rules and regulations may apply.
Employment Verification: A Double Edged Sword
As all employers know, the Immigration Reform and Control Act of 1986 requires employers to verify an employee’s work authorization status through the use of an “I-9” form. Generally, the biggest pitfall employers faced with the I-9 process was ensuring the paperwork was completed correctly, in a timely fashion, and maintained properly in case of an audit. Unfortunately, the Department of Justice is now focusing on the I-9 process for a completely different reason: National Origin Discrimination.
Along with race, gender, disability, age, and other “protected classes,” employers cannot discriminate on the basis of an employee’s national origin. Although this prohibition may evoke images of signs from a bygone era that stated: “No Irish Need Apply,” it is now becoming an issue for employers that take seriously immigration laws. On the one hand, an employer may be liable for hiring undocumented workers – who are, by definition, not United States citizens. On the other hand, an employer cannot treat a non-U.S. citizen applicant or new hire differently than a United States citizen.
Recently, the Department of Justice brought suit against a major producer and processor of eggs and egg-related products, with forty locations in six states, and approximately 1,850 workers. The employer was enrolled in the Government’s “E-Verify” program. According to the Complaint, the employer also utilized commercially-available third-party software “that integrated both the process of generating an electronic Form I-9 and access to the E-Verify program.” This program, according to the Department of Justice, “guided authorized users through the electronic Form I-9 process and the E-Verify program by soliciting information about a new hire and, based on the information provided, presented a series of additional informational screens.”
The software, the Government alleges, then sent the user on one of two paths, depending on whether the new hire was a U.S. citizen or a non-U.S. citizen. If the new hire was a U.S. citizen, the software instructed the user to accept verifying documents listed in Columns A, B, or C on the I-9 form. In contrast, if the new hire was not a U.S. citizen, the software instructed the user to only accept Column A documents. Based upon those allegations, the Department of Justice claims that the employer, “knowingly treated individuals differently in the employment eligibility verification process on account of their citizenship status.”
As relief, the Department requested, among other items:
- That the affected individuals receive “full remedial relief” ”including back pay, front pay and/or reinstatement;”
- An order for “injunctive measures to overcome the effects and prevent the recurrence of the discriminatory practices”; and
- Finally, that the employer “pay an appropriate civil penalty as determined by the Administrative Law Judge for each work-authorized non-U.S. citizen who is found to have been subjected to the pattern or practice of discriminatory employment eligibility verification practices alleged in this Complaint.”
If the Department of Justice is successful, the price paid by the employer for utilizing a new piece of software will be steep. The employer is potentially liable for front pay, reinstatement, and a per-person civil penalty, for possibly hundreds of individuals.
Takeaways: The intersection of employment laws and immigration laws can be complicated and mistakes can be costly. Even when an employer takes action, in good faith, to comply with one set of rules and regulations, the employer can, in the process, become liable for violations of other rules and regulations. Most importantly, it is worth remembering that software developers that create useful, time-saving tools may not always consider the legal implications of the applications created. When implementing new software, or enrolling in new online tools, having counsel review the system upfront may save significant expenses later if the software creates more problems than solutions.
Termination of Independent Contractor Sales Representatives
If you are considering ending a sales representative’s agreement in Minnesota, one of the first issues to examine should be the statutory protections of Minn. Stat. § 325E.37. Appearing in the “Trade Practices” portion of Minnesota Statutes, the statute sets forth certain prerequisites for terminating an independent contractor sales representative.
First, the statute defines a sales representative as: “a person who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.” But, the statute clarifies that the definition excludes anyone who: “(1) is an employee of the principal; (2) places orders or purchases for the person’s own account for resale; (3) holds the goods on a consignment basis for the principal’s account for resale; or (4) distributes, sells, or offers the goods, other than samples, to end users, not for resale.” The statute further defines the types of contracts governed as: “either express or implied, whether oral or written, for a definite or indefinite period, between a sales representative and another person or persons, whereby a sales representative is granted the right to represent, sell, or offer for sale a manufacturer’s, wholesaler’s, assembler’s, or importer’s goods by use of the latter’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics, and in which there exists a community of interest between the parties in the marketing of the goods at wholesale, by lease, agreement, or otherwise.”
Second, the statute describes the process for terminating a sales representative’s agreement during the course of the contract, and the process for declining to renew a sales representative’s agreement. Both circumstances require the terminating party to provide the sales representative 90 days advance notice and the right to “cure” the reasons for termination, unless the termination is for “good cause.” Good cause is defined as: “a material breach of one or more provisions of a written sales representative agreement governing the relationship with the manufacturer, wholesaler, assembler, or importer, or in absence of a written agreement, failure by the sales representative to substantially comply with the material and reasonable requirements imposed by the manufacturer, wholesaler, assembler, or importer.” Good cause also includes:
- the bankruptcy or insolvency of the sales representative;
- assignment for the benefit of creditors or similar disposition of the assets of the sales representative’s business;
- the voluntary abandonment of the business by the sales representative as determined by a totality of the circumstances;
- conviction or a plea of guilty or no contest to a charge of violating any law relating to the sales representative’s business;
- any act of the sales representative which materially impairs the good will associated with the manufacturer’s, wholesaler’s, assembler’s, or importer’s trademark, trade name, service mark, logotype, or other commercial symbol; or
- failure to forward customer payments to the manufacturer, wholesaler, assembler, or importer.
Third, the statute provides for arbitration as the sole remedy for the manufacturer, but allows a sales representative the option of arbitration or court. Subdivision 5 of the statute states that: “The sole remedy for a manufacturer, wholesaler, assembler, or importer who alleges a violation of any provision of this section is to submit the matter to arbitration. A sales representative may also submit a matter to arbitration, or in the alternative, at the sales representative’s option prior to the arbitration hearing, the sales representative may bring the sales representative’s claims in a court of law, and in that event the claims of all parties must be resolved in that forum.” The statute also provides for attorneys’ fee shifting for prevailing sales representatives, but provides only limited fee-shifting for prevailing manufacturers.
For further information, please contact the Employment, Benefits, and Labor team at Briggs and Morgan.
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