Dealing with disgruntled employees is a major challenge of management, but dealing with disgruntled employees who have decided to take their complaints outside the organization can be exponentially worse. Simply untangling just what rights the employee has, what rights adhere to the employer, and what laws apply, can be a mind-boggling experience, even for lawyers who specialize in the field. Dealing with whistleblowers is serious business.

The Wikipedia article on whistleblowing summarizes the problem nicely: “Whistleblowing in the U.S. is affected by a complex patchwork of contradictory laws”. Legal specialist William Robinson of the Dinsmore law firm wrote recently, “Employers now face a large number of state and federal whistleblower statutes, as well as common law employment theories designed to protect those who internally or publicly expose wrongdoing in the workplace.”

At the federal level, a score or more of laws, dating back to 1863 (the False Claims Act, revised in 1986), govern how to deal with people who have taken it upon themselves to act as a referee of business and government conduct and blow the whistle. As a practical matter, many of those folks, regardless of their motives and character, can quickly become identified as “snitches” or “tattle-tales” and can be subject to retaliation and discrimination at the hands of management or fellow workers. That’s a very dangerous situation for an employer.

And that’s just at the federal level. Most states have their own statutes dealing with the acts and the consequences of blowing the whistle on the boss and the employer.

Nor is government thinning out the whistleblower legal thicket. The U.S. tax code has long offered rewards for turning in tax evaders. Last fall, the Internal Revenue Service awarded whistleblower Bradley Birkenfeld $104 million for alerting the agency to how Swiss banking giant UBS was helping U.S. taxpayers duck their taxes, leading to recovery of $780 million. Ironically, Birkenfeld’s award came after he had served 30 months of a 40-month sentence in federal prison for his role as a UBS employee in engineering the tax fraud scheme.

And there is another irony, which lawyer Richard Albert described in an article in Forbes magazine. Had Birkenfeld brought his whistleblower claim under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, rather than the older IRS rules, he would have been barred from a financial reward because of his criminal conviction.

The Securities and Exchange Commission, given new whistleblower authority under Dodd-Frank, made its first award last August. In announcing a $50,000 award, the SEC offered little detail. The agency neither identified the claimant nor the firm involved, noting only that the $50,000 represented 30% of the total amount the regulators have collected so far from “the perpetrators of the scheme."

Dodd-Frank is not the first federal law to offer protection for employees bringing complaints about their publicly traded employer before the SEC. The 2002 Sarbanes-Oxley Act (SOX) also empowers such actions. These complaints are brought at the Department of Labor’s Occupational Safety and Health Administration. That is not an error: as incongruous as it appears, OSHA adjudicates SOX complaints. According to one analysis, during the decade SOX has been in effect, whistleblowers have prevailed in only 21 of 1,455 complaints. OSHA has a confusing array of 22 whistleblower statutes it must implement, including whistleblower complaints under the Affordable Care Act (Obamacare), and its caseload is growing faster than the agency’s ability to resolve complaints. From fiscal 2008 through fiscal 2011, cases received at the agency increased by 19%, while cases completed held at a mere 0.5%, according to a study by the Seyfarth Shaw law firm.

Illustrating the complex tangles of whistleblower law, a federal district court last fall ruled that whistleblowers seeking protection under SOX or the 1934 Securities Exchange Act may also be entitled to protection under the newer protections of the Dodd-Frank law. One firm specializing in employment law commented that the decision means “we can anticipate an increase in the number of such claims brought under Dodd-Frank, as the act’s lengthy statute of limitations, double-pay awards and lack of an exhaustion requirement provide an appealing option for plaintiffs who can qualify as whistleblowers under a liberal construction of the term.”

Facing its burdensome caseload, OSHA in October announced that it will launch an experiment in alternative dispute resolution in two of its regions, offering voluntary approaches to resolve the workplace disputes, using either early resolution or mediation. “Alternative dispute resolution can provide immediate relief and finality to both parties,” said David Michaels, assistant labor secretary for occupational safety and health.

In addition to laws governing rights of private-sector whistleblowers, federal employees and employers also face often contradictory provisions and unclear remedies in cases in dispute. 

Most federal employees are covered by the Whistleblower Protection Act of 1989, with the Merit Systems Protection Board and its Office of Special Counsel reviewing complaints. By many estimates, it is a broken system. Last April, in reporting reform legislation—the Whistleblower Protection Enhancement Act—the Senate Committee on Homeland Security and Government Affairs said that the board and the federal courts had so narrowed the interpretation of the law in favor of the federal agencies and against the whistleblowers, that it has mostly become a dead letter. 

The Senate passed the committee’s legislation (S. 743) last summer; the House of Representatives followed in September. At passage, House Oversight and Government Reform Committee chairman Darrell Issa (R-Calif.) said, “For too many of those federal employees who spoke up to expose wasteful spending and criminal behavior in the past, it was true that no good deed goes unpunished.” A lame duck congressional session early next year could take up the two measures, both of which have bipartisan support.

As Congress grapples with federal whistleblower policy, there is a similar effort to revamp the laws governing private-sector employees. In September, Reps. Jackie Speier (D-Calif.) and Todd Platts (R-Pa.) introduced the “Non-Federal Employees Whistleblower Protection Act (H.R. 6406),” aimed at government contractors and subcontractors who disclose misuse of federal funds. Rep. Lynn Woolsey (D-Calif.) introduced the “Private Sector Whistleblower Protection Streamlining Act of 2012 (H.R. 6409)” to streamline private-sector protections. Neither bill has made any progress; prospects are unclear when Congress reconvenes.

In the meantime, what is a manager to do? Dinsmore’s William Robinson has some good advice for dealing with complaints filed in the workplace.

  • Fair treatment for all, with impartiality and professionalism. “Above all,” he writes, “employers must ensure that the whistleblower, the alleged wrongdoer, supervisory employees who may be involved, and all other witnesses are treated in the same manner—with respect and due deference to the information they share.”
  • Concentrate on the alleged conduct, not the complainant. Complainants can get obstreperous and unreasonable, but that’s no reason to follow suit, as those behaviors “have no real bearing on the veracity of the complaint.” Management can’t lose its cool.
  • Control the investigation. The employer, says Robinson, “the must assert and exercise control of the process at the outset. It should be made clear to a whistleblower that the question of whether the complaint will be investigated or declined, who will be assigned to conduct the investigation, the resources and methodology that will be assigned to it, and its outcome will be determined by the management or human resource professional involved.”
  • Demand respect and cooperation from the complainant. While management must respect the whistleblower, it’s a two-way street if the issues are going to be resolved fully.
  • Keep in contact with the whistleblower throughout. All sides in a case need to be in touch and coordinating and communicating schedules.
  • Ensure there is no retaliation by management or other employees. “Case law,” says Robinson, “is replete with instances in which complaining employees have been subjected to ostracism, harassment, threats, punitive job actions, psychiatric referrals, and termination of employment.” Those are sure paths to multi-million dollar judgments against the employer.

—Kennedy Maize (@kennedymaize) is MANAGING POWER’s executive editor.