Whistleblower Protections in the Nonprofit Sector

by Jason M. Zuckerman

Since the enactment of the Sarbanes-Oxley Act of 2002 (SOX), publicly traded companies have begun to focus on protecting whistleblowers and providing mechanisms for employees to raise concerns. This results from numerous provisions in SOX that mandate whistleblower protection, a high number of SOX whistleblower retaliation complaints filed with the
U.S. Department of Labor, and the realization that it is better for an
organization to learn about unethical or unlawful conduct internally than to find out about the conduct from a news article, a subpoena from law
enforcement, or an investigation from a regulatory agency.

Unfortunately, the scandals that prompted Congress to enact SOX have
not been limited to the private sector. Nonprofits have also been subject to increasing scrutiny due to allegations of excessive compensation, self-dealing, and ineffective governance. Many of these problems came to light from whistleblower disclosures.

At the encouragement of the U.S. Senate Finance Committee, the Panel
on the Nonprofit Sector was formed to prepare recommendations for Congress to improve the oversight and governance of charitable organizations.

The Panel's final report, which was released in June 2005 and is available at www.nonprofitpanel.org/final/, provides a comprehensive series of
recommendations intended to strengthen nonprofit governance and improve transparency and accountability. Many of these reforms
are modeled on SOX. The final report addresses whistleblower protections and recommends that nonprofits voluntarily comply with the whistleblower
provisions of SOX.

Protecting whistleblowers is an essential component of an ethical and
open work environment. Whistleblower protection should not be viewed only as a prophylactic mechanism designed to avoid employee lawsuits. Instead, protecting whistleblowers from retaliation and encouraging
constructive whistleblowing benefits nonprofits by increasing transparency and by giving management the opportunity to learn early on of unethical or unlawful practices directly from their employees rather than from the media, law enforcement, or a regulatory agency. In addition, effective whistleblower protection helps foster a work environment in which all employees are held accountable, thereby improving performance and empowering employees.  This article provides general guidance for the establishment of a comprehensive whistleblower protection program at a nonprofit.

Provide Employees Multiple Avenues to Report Concerns

While employees will hopefully feel comfortable raising concerns directly
with their supervisors, many employees are reluctant to raise concerns with line management for fear of retaliation, especially where their concerns pertain to unethical or illegal conduct by their line managers. Therefore, nonprofits should provide several options for employees to raise concerns, including the option of raising a concern anonymously.

Establish an Ombudsperson Program

Establishing a forum in which employees can raise concerns internally
and have assurance that their concerns will be investigated and appropriately addressed is an effective means of mitigating the risk of whistleblowerretaliation lawsuits and resolving employee concerns internally before the concerns are exposed in the media or in regulatory enforcement proceedings. In addition, an ombudsperson program can help alert the board of directors or management to alleged violations early on, thereby providing an opportunity to intervene and prevent further damage.

To be successful, such a program must be perceived by employees as
credible. Accordingly, the ombudsperson should be independent of line
management and conduct objective investigations that are not geared
toward reaching a conclusion favored by management. Sham investigations always backfire. Employees who suspect that their concerns are not being taken seriously will go outside the organization and report them to someone who they believe will take them seriously, such as the media, a regulatory agency, or law enforcement.

Accordingly, the ombudsperson investigating an employee's concern should frequently update the employee on the status of the investigation and on corrective actions taken to remedy the problems identified by the
concerned employee.

Preferably, the ombudsperson should report directly to the board. This ensures adequate independence and strengthens the credibility of the
program, thereby increasing the likelihood that employees will raise their concerns internally.

Adopt a Policy ProhibitingRetaliation

Employees should be put on notice that all forms of retaliation against
whistleblowers, including harassment, termination, and blacklisting, will not be tolerated and will result in disciplinary action. In addition, the
policy should provide that individuals who blow the whistle will be protected from retaliation. While the policy needs to incorporate relevant legal requirements, including federal and state whistleblower protection statutes and common law claims, the policy should be concise and easy to understand. The policy should unambiguously state that employees have the right to raise concerns without being subjected to reprisal.

Train Managers and Supervisors

Merely adopting a policy is not enough to prevent retaliation against whistleblowers. Instead, managers and supervisors should be educated about whistleblower protections and provided the tools to address employee concerns.

To be effective in sensitizing managers and supervisors to the rights and
responsibilities of employees to raise concerns, training should be practical and interactive. A PowerPoint presentation filled with legalese will not have a lasting impact. Instead, the training should be in plain English and should provide case studies that offer participants the opportunity to apply what they learn in the training.

Moreover, training should address Section 1107 of SOX, which makes it a
criminal offense to "knowingly" retaliate against a whistleblower who has provided to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense.

Take Disciplinary Action Against Those Who Engage in Retaliation

When a manager or supervisor retaliates against an employee who
voiced a concern, other employees are dissuaded from raising concerns for fear that they will also suffer retaliation. Failing to hold an employee
accountable for violating an antiretaliation policy signals to other employees that the organization is not truly committed to maintaining an
open and ethical work environment. Accordingly, nonprofits should enforce
their anti-retaliation policies and monitor compliance with those policies.

Conclusion

By viewing whistleblowers as allies rather than as adversaries and by
making a relatively minimal investment in processes and procedures designed to protect whistleblowers, nonprofits can increase transparency, empower employees, learn early on about unethical or unlawful practices, and enhance legal and procedural compliance.

Jason Zuckerman is an attorney in private practice in Washington, D.C. His practice focuses on litigating whistleblower retaliation claims, conducting internal investigations, and advising companies on whistleblower protections and other employment law issues. He can be reached at jzuckerman@zuckermanlaw.com.