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Whistle-Blower Protections Need Proof of Wrongdoing

August 11, 1996

Q As controller for a nonprofit company, I became aware of some suspicious bonuses issued to three top executives, including my boss, about four years ago. I asked the outside auditors if the board had approved these bonuses. I later learned that the auditors had spoken to the chief executive about the unapproved bonuses but never contacted the board of directors and didn't raise the issue in their letter of internal control that went to the board.

About two years later, on the day my boss retired, the CEO made some vague remarks about my performance and told me to start looking for a new job. Six months later, I was fired and received a six-month severance package.

Later, I told one of the board members about the bonuses. He said one of the other board members had approved more than $1 million in executive bonuses, including $500,000 to the CEO, without mentioning these transactions to the other board members. As a result of this disclosure, the board member promised to repay all of the bonuses through his will. In addition, the corporation's bylaws were amended to prevent this situation from recurring.

Can a nonprofit company discharge an employee for informing the board of directors about a significant weakness in internal control? It seems as if I was done a grave injustice.

--R.D., Orange


A Whistle-blowers do indeed have substantial rights, but the whistle-blowing cannot be for just any complaint or grievance. It must be based on a violation of statutory or constitutional law.

It is very possible that these bonuses violate the Internal Revenue Code. Perhaps the nonprofit company raises money based upon its nonprofit status but in reality most of its income is paid to its wealthy executives. This may be not only a violation of statutory regulations but also a crime.

You apparently complained to the board of directors about the problem. According to case law, complaining about illegal activity to current management, even without going to an outside government authority, is sufficient for whistle-blower rights to apply.

As with any case, it is your burden to establish a good link between your initial complaints and the ultimate termination. If the time between those two events is too long, you might have trouble convincing a judge or jury that the events are related. Also, your severance package may have included a release of all claims against the company. Evaluate it to see if it includes such language.

You also may have a statute of limitations problem. In most whistle-blower cases, there is a deadline of one year in which to file a lawsuit.

--Don D. Sessions

employee rights attorney Universal City

Law Requires Employee Indemnity

Q My friend works for an airport shuttle service as a driver. While she was starting to pull away from the curb, she noticed a pedestrian walking in front of her van and she stopped. One of her passengers claims that her nose was broken in the incident and is suing the company and my friend personally for $1 million.

Does the company have an obligation to defend her in the suit? My friend is a single mother of four children and cannot afford legal counsel. How can she defend herself or be discharged from the suit? She is afraid they will take her car, which is the only thing she owns.

--L.D., El Segundo


A California law requires an employer to indemnify employees for anything they lose or spend in performing their responsibilities for the employer. This law has been interpreted by the courts to mean employers must provide employees with legal representation when employees are sued for conduct arising out of performing their duties.

From your description, it appears the employer should provide your friend with legal representation in the suit. In fact, many insurance policies specifically provide that the insurer in the event of a lawsuit against an employer will pick up coverage for any employees sued along with the employer.

--Michael A. Hood

employment law attorney Paul, Hastings, Janofsky & Walker

A Question With No Clear Answer

Q I recently retired from a large corporation that has been downsizing for several years. Before retiring, I wrote a letter to the head of my division asking if rumors of an early retirement offer were correct, so I could put off my retirement to qualify for such an offer. He never responded.

Two weeks after I retired, the company offered an enhanced retirement package, effective immediately, that would have increased my pension by about 50%. I have written two letters to the pension benefits administrator requesting the new benefits. Neither of the letters has been answered.

It is my opinion that the company has not acted responsibly and in good faith. What options do I have short of bringing legal action against the company?

--G.R., Los Angeles


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