Stimulus Bill Increases Private Whistleblower Protections

Contractors, particularly those who receive contracts funded by ARRA, should develop and implement an ethics program.

By Joe Dirik

Texas will receive about $17 billion in stimulus funds and more than $10 billion should find its way into construction projects. According to the Texas Department of Transportation, about $2.6 billion is dedicated to Texas transportation projects. Water, power, buildings and other sectors will share in the funds.

Funds will find their way into state and local government projects, as well as federal projects. But the funds all come with at least one string attached – projects that are funded in whole or in part with stimulus money create additional whistleblower protections for employees of private contractors. Every contractor should understand the whistleblower provisions contained in the American Recovery and Reinvestment Act.

Dirik is a member of the litigation and construction groups at the Dallas office of Fulbright & Jaworski LLP. He may be contacted at jdirik@fulbright.com.

Generally, whistleblowers are persons who report misconduct within their company and face retaliation. The law protects employees of “non-federal employers” that receive “covered funds” under the stimulus bill. Contractors with covered contracts may not retaliate against an employee who reveals information on the mismanagement, waste or violations of law related to the covered funds. Prevailing contractor employees may be entitled to reinstatement, back pay, compensatory damages, legal fees and litigation costs.

Covered ContractorsEmployees for covered contractors are entitled to the whistleblower protections. Contractors who work on federal, state and local projects funded with stimulus funds qualify as a “covered contractor” because they receive funds that were appropriated or made available under the ARRA. The whistleblower protections apply broadly to prime contractors, subcontractors, grantees and any other recipient of “covered funds.” Covered employers include state or local governments and their contractors and subcontractors, and “any person acting directly or indirectly in the interest of an employer receiving covered funds.”

This broad definition is supported by the act’s overriding intent that stimulus funds should not be wasted. This begs the question: How can a contractor who receives a firm fixed-price contract that was competitively bid waste the funds it receives?

Protected ConductThe employee’s protected conduct generally involves a disclosure of information that the employee reasonably believes evidences, among other things, a gross waste of covered funds, a substantial and specific danger to public health or safety related to the implementation or use of covered funds, an abuse of authority related to the implementation or use of covered funds, or a violation of law, rule, or regulation that governs an agency contract or grant related to covered funds.

The act greatly expands the existing definition of protected complaints. Existing laws protect private sector whistleblowers for concerns about public health and safety or legal violations. Under the ARRA, such protections include concern over gross mismanagement and waste of funds. Unfortunately, the act fails to define these terms. While Congress’ desire to guard against waste may be commendable, the whistleblower provisions as currently drafted are too vague.

Prohibited Acts of RetaliationCovered contractors may not discharge, demote or otherwise discriminate against, an employee who has made a protected disclosure. This is prohibited even if a protected disclosure is made during normal duty.

A covered employer can avoid liability by demonstrating, with clear and convincing evidence, that it would have taken the same action in the absence of the employee engaging in protected conduct. This high evidentiary burden favors employees.

Rights and RemediesCovered contractors must post notice of the rights and remedies provided under the whistleblower provisions. Employees can seek reinstatement, back pay, compensatory damages and legal fees and litigation costs in a whistleblower action. The rights and remedies provided for whistleblowers under the act may not be waived by any agreement, policy or condition of employment.

All contractors, particularly those that receive ARRA-funded contracts, should develop and implement an ethics program that includes an anonymous reporting process.