Promise to Improve Ethics and Compliance Program Only Gets Company So Far

Embedded in the facts of a December 14, 2017 Supreme Court of Virginia opinion is an unfortunate example of how a promise to improve a company’s compliance and ethics program only got it so far in its fight to avoid a suspension.

The company was competing for an Air Force contract when it became embroiled in an ethics scandal related to the mishandling of a competitor’s bid that was inadvertently emailed to the company by an Air Force contracting officer.  The contracting officer quickly realized her mistake, but the email had already been forwarded internally within the company to six employees.

The next morning, the company employee who received the email informed the contracting officer that he had distributed the email internally, but had deleted all copies.  The contracting officer asked for affidavits from all employees who received the email describing their actions upon receipt of the email that inadvertently attached the competitor’s bid.

After the affidavits were submitted, the Air Force asked each employee to answer questions that focused on whether information related to the inadvertently shared competitor’s bid affected the final bid that the company submitted after receiving the email.

The Air Force suspended the company and four employees from participating in government contracting.  The suspension barred the company from submitting bids on new government contracts and renewing existing contracts.  The Air Force found that the four suspended employees unethically held meetings to discuss information in the email after they were notified that such information was inadvertently disclosed.  The Air Force also found that the employees helped prepare the final bid despite possessing information about a competitor’s bid.

Promising to improve its ethics and compliance program briefly resulted in the lift of the suspension. 

The Air Force and the company entered an Interim Administrative Agreement that lifted the company’s suspension.  In lifting the suspension, it was noted that the company acknowledged its: (1) improper conduct; (2) the improper conduct of its employees; and (3) its deficient procedures.  Moreover, the company promised to improve its ethics and compliance programs.

Unfortunately, the lift of the suspension was short lived.  After the Air Force learned that one employee made false statements in his affidavit, the Air Force terminated the Interim Administrative Agreement and reinstated the suspension.

The takeaway is that even if a company makes promises to improve its ethics and compliance program, the fruits of those promises can be undermined by an employee’s dishonesty.

MCR Fed., LLC v. JB&A, Inc., 2017 Va. LEXIS 176

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For Whom does the Whistle Blow? Common Law versus Statutory Law

This week, the United States District Court for the Middle District of Tennessee dismissed a case against Wal-Mart that involved several calls to Wal-Mart Global Ethics. See Hall v. Wal-Mart Stores, 2017 U.S. Dist. Lexis 75208. The only cause of action that the ex-Wal-Mart employee brought against Wal-Mart, however, was a statutory claim under the Tennessee Public Protection Act (“TPPA”).

The TPPA gives a party a cause of action under its anti-retaliation provisions if the party engages in whistleblowing activities meant to protect the public good.

Wal-Mart alleged that the ex-employee failed to state a claim under the TPPA because her whistleblowing activities were merely private and proprietary and did not advance the public good. In what is an interesting opinion for ethics junkies, the court agreed with Wal-Mart and dismissed the ex-employee’s complaint.

While still employed by Wal-Mart, the ex-employee reported to Wal-Mart Global Ethics what she perceived to be her supervisor’s unethical conduct. It is unclear whether the supervisor’s conduct was actually unethical. After the ex-employee made the report, she received her first poor evaluation, which she claimed was in retaliation for her report to Wal-Mart Global Ethics.

There appears to have been some tension between the ex-employee and the supervisor. Whether the supervisor was unfairly targeting the ex-employee or simply frustrated with her performance is unknown. However, on one occasion, the supervisor got so frustrated with the ex-employee that he punched a box. Other employees saw this and reported it to Wal-Mart Global Ethics. The Hall v. Wal-Mart opinion certainly indicates that Wal-Mart employees at this particular store knew how to contact the ethics department—a sign of a good ethics and compliance program.

In reaching its conclusion, the Hall v. Wal-Mart court stated that the TPPA will protect a whistleblower from retaliation if it can be shown that the whistleblowing activity was to further protect the public good. Other courts have found that, under the TPPA, whistleblowing activity may serve a public purpose where, for example, the whistleblowing relates to unsafe working conditions, but not where it relates to racial discrimination in a single person’s pay. The Hall v. Wal-Mart court concluded that under the TPPA, blowing the whistle on discrimination against oneself is a private and proprietary interest that must be vindicated through means other than the TPPA.

While the TPPA is a statutory law that protects whistleblowers from retaliation in situations where the whistleblowing was meant to protect the public good, there are common-law retaliatory-discharge claims that do not require showing that the whistleblowing activity protected the public good at-large, however, the ex-employee did not assert a common law claim for retaliatory discharge.