Retaliating Against Whistleblowers: Employer To Pay $4.5 Million To Fired Controller Who Reported Tax Violations

Unhappy employees who complain about how you do business can try a manager’s patience fast. It can be tempting to simply reject a disgruntled worker’s accusations-and even to discipline or terminate an employee who seems bent on charging your company with wrongdoing. But when an employee objects to one of your business practices, it’s a red flag to proceed with caution. More and more employers are being hit with lawsuits for allegedly retaliating against workers who blow the whistle on workplace violations. And as one California employer recently discovered, the damages can be far more expensive than you’d imagine.

Controller Notices Tax Violations

Mars Songco worked as a controller/accountant for Century Quality Management, Inc., a Los Angeles property management company. Soon after he was hired, Songco began to suspect Century was violating the tax laws. Among other things, he thought the company didn’t withhold taxes on vacation leave, sick pay, overtime and bonuses, and also didn’t report that income on employee W-2’s or on its own payroll tax returns.

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Conflicting Stories

Songco said he reported his concerns to the company’s owner, Sam Menlo, and to its CPA. His attorney, Laurie Susan Gorsline, told CEA Songco was initially ‘brushed off’ and told not to worry about the alleged problems. Gorsline said that after Songco threatened to investigate further, he was fired.

Songco sued for wrongful termination. Century’s attorney, Marshall Mintz, told CEA the company never received any complaints from Songco. Although Century conceded at trial it had problems with some of its tax practices, it claimed Songco was fired for poor performance. Songco countered that there was no documentation showing any performance problems. He claimed the only criticism he had received was for complaining about the company’s failure to pay taxes.

The jury sided with Songco, awarding him $35,000 in compensatory damages, plus a whopping $4.5 million in punitive damages. Century has appealed.

Avoiding Whistleblower Claims

Many employers know it’s illegal to fire or discriminate against an employee who reports alleged dishonest or illegal activity to a government agency. But you’re also at risk if you take adverse action against an employee who complains directly to you.

And employers are facing a dangerous new employee strategy. Some workers who know they are about to be terminated report that their employer is engaging in unlawful conduct-regardless of whether they have a basis for believing it to be true. Then when they are fired, they claim they were terminated in retaliation for complaining. The merits of the employee’s complaint become irrelevant; only the alleged retaliation matters. An employee who uses this tactic can create grounds to sue when none might otherwise exist.

Here are some ways to protect yourself:

1. Investigate complaints. Make sure you have clear procedures in place for investigating employee complaints. Take all reports of illegal or questionable activities seriously and investigate them promptly. If you uncover a problem, act immediately to remedy it. Even if the complaint proves unjustified, never retaliate against the complaining employee.

    

2. Document performance issues. If you do have a legitimate reason to discipline an employee who has complained of wrongdoing, be sure you’ve thoroughly documented the problem. It’s crucial that you have up-to-date performance records and that you follow your evaluation procedures to the letter. If you’re challenged, this will make it easier to show your actions were legitimate and not in retaliation for the person’s report.

    

3. Let plenty of time pass. Even if you have independent grounds for disciplining or firing an employee who has made a complaint, don’t act immediately. Firing someone right after they’ve accused you of wrongdoing will likely lead a jury to believe your motivation was retaliation. After more time passes, it will be harder to show a connection between the disciplinary action and the employee’s complaint.