When an employee chooses to report evidence of an employer’s illegal activity, the individual is referred to as a whistleblower. Whether the activity in question involves fraud, discrimination, or retaliation, there are federal laws to protect the whistleblower and provide financial incentives as a reward for taking the risk to “blow the whistle.” The reward for whistleblowers varies from case to case, hinging in large part on the type of illegal activity being reported and the extent of the whistleblower’s involvement in the case.
Under Section 406 of the Internal Revenue Code, the IRS is able to pay a monetary reward to whistleblowers who provide specific and credible information that results in the collection of taxes, interest, and penalties from a noncompliant taxpayer. The IRS whistleblower program allows claims against individuals and organizations, and it offers two types of rewards depending the value of the collected taxes, interest, and penalties:
- If the disputed taxes, interest, and penalties exceed $2 million, the whistleblower is entitled to 15% to 30% of the amount collected
- If the disputed taxes, interest, and penalties are less than $2 million, the whistleblower can receive a maximum award of 15%
Note that when the subject is an individual rather than an organization, the IRS applies an additional stipulation regarding the subject’s annual income. In order to receive the maximum reward of 15% to 30%, the individual’s gross annual income must be greater than $200,000. If the individual’s gross annual income is less than $200,000, the whistleblower’s reward is capped at 15% and cannot exceed $10 million.
There are two federal laws that form the basis for the SEC’s whistleblower program. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) allows rewards for whistleblowers who report securities fraud, and the Foreign Corrupt Practices Act (FCPA) provides rewards for whistleblowers who uncover evidence of companies bribing foreign officials.
The SEC’s Whistleblower Commission is authorized by Congress provide monetary rewards to whistleblowers of 10% to 30% when a high-quality tip leads to sanctions in excess of $1 million. Generally speaking, whistleblowers who play a more active role in the investigation and provide crucial evidence to the Commission receive a greater reward than employees who just submit an anonymous tip.
The Dodd-Frank law also created a whistleblower program for fraud related to commodities futures, options, and swaps. This whistleblower program is run by the Commodity Futures Trading Commission (CFTC). As with the SEC whistleblower program, the CFTC program allows for whistleblower rewards of 10% to 30% when a high-quality tip leads to over $1 million in sanctions.
Defrauding the government
When an individual or organization commits fraud against the United States Government, the False Claims Act (FCA) allows a whistleblower to file a qui tam lawsuit against the fraudster on behalf of the government. Most qui tam cases involve Medicare, Medicaid, and defense contracts, but the wide mandate of the FCA is intended to cover any type of government fraud outside of tax fraud and securities fraud (which are covered separately by the IRS and SEC).
The FCA allows the court to impose damages of up to three-times the defrauded amount (known as treble damages). When the Department of Justice intervenes in a qui tam lawsuit (which happens in about one-third of cases), the whistleblower is entitled to a reward of 15% to 25% of the awarded damages. If the DOJ declines to intervene, the whistleblower can continue the qui tam lawsuit individually and is entitled to a higher reward of 25% to 30% of the awarded damages. Most successful qui tam lawsuits reach a settlement agreement outside of court.
Discrimination and harassment
There are four federal laws that form the basis for discrimination- and harassment-based whistleblower claims in the United States:
- Title VII of the Civil Rights Act (Title VII) – prohibits employers from discriminating against employees and job applicants on the basis of race, color, religion, national origin, or gender; requires employers to provide reasonable accommodations for an employee’s deeply-held religious beliefs and practices; prohibits sexual harassment that leads to a hostile work environment.
- Pregnancy Discrimination Act (PDA) – prohibits employers from discriminating against employees and job applicants based on pregnancy or maternal healthcare.
- Age Discrimination in Employment Act (ADEA) – prohibits employers from discriminating against employees and job applicants based on their age if the individual is 40 or older.
- Americans with Disabilities Act (ADA) – prohibits employers from discriminating against employees and job applicants based on an individual’s actual, perceived, or past disability; requires employers to provide reasonable accommodations for an employee’s disability.
The US Equal Employment Opportunity Commission (EEOC) is the federal agency tasked with administering and enforcing anti-discrimination laws. Employees and job applicants can file a complaint with the EEOC, and if the EEOC believes there’s enough evidence then the agency will launch an investigation into the employer. If the investigation finds evidence of discrimination, harassment, or retaliation, the agency will seek a remedy that may include compensatory and punitive damages based on the employee’s lost income or lost opportunities. There are some limitations to monetary damages, though:
- $50,000 limit for employers with 15 – 100 employees
- $100,000 limit for employers with 101 – 200 employees
- $200,000 limit for employers with 201 – 500 employees
- $300,000 limit for employers with 501+ employees
Under Title VII, the PDA, the ADEA, and the ADA, employees and job applicants also have the right to file a civil lawsuit against an employer for discrimination, harassment, or retaliation. In a civil case, the court may award compensatory and punitive damages of up to three-times the whistleblower’s lost income.
Another common topic for whistleblower cases involves employers who retaliate against an employee for reporting unsafe workplace conditions, requesting a safety inspection, or participating in a workplace inspection, all of which are protected activities under the Occupational Safety and Health Act (OSH Act). The Occupational Safety and Health Administration (OSHA) administers and enforces the OSH Act. As with the EEOC, the OSHA has the authority to investigate claims and seek a remedy for the whistleblower through a legal settlement or litigation, which may result in compensatory and punitive damages based on the whistleblower’s lost income or lost opportunities.
A whistleblower who is retaliated against for exercising their rights under the OSH Act can also file a civil lawsuit against the employer. The court may award compensatory and punitive damages of up to three-times the whistleblower’s lost income.