Dubious Document Prompts Whistleblower Win 15:34, March 6, 2017

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Dubious Document Prompts Whistleblower Win

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Bio-Rad Laboratories must pay over $14 million, counting attorney fees, after a jury entered a verdict for retaliating against a whistleblower employee in violation of the Dodd-Frank and the Sarbanes-Oxley Acts. If Bio-Rad’s version of events is to be believed, the employee, General Counsel Stanford Wadler, was fired for lax oversight leading to federal fines and for mistreating employees. The problem was that Bio-Rad reportedly had no evidence of misconduct except a single negative performance review. According to reports of the trial, it turned out that the performance review had been created after Wadler’s termination, not during Wadler’s tenure with Bio-Rad as the company had claimed.

I’ve based the following “summary of facts” on an order pertaining to Bio-Rad’s motion to dismiss the case, press releases by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), a trial report by The Recorder, and articles by Jackson Lewis and by Kerr & Wagstaffe (the law firm that represented Wadler at trial).

Summary of Facts

In 2009, Bio-Rad learned that agents and employees of the company may have violated the Foreign Corrupt Practices Act (FCPA), a federal anti-bribery law that also requires accurate accounting and adequate internal controls. In 2014, Bio-Rad agreed to pay $55 million in fines to settle enforcement actions by the DOJ and the SEC for alleged FCPA violations in Vietnam, Thailand, and Russia. Bio-Rad hired outside counsel to investigate. At trial, Bio-Rad claimed that the outside counsel had advised Bio-Rad to terminate Wadler for lack of oversight leading to the violations. Bio-Rad also stated during trial that Wadler had become “unglued” during his final months; he had allegedly engaged in repeated outbursts involving yelling and slamming his fists on a table, and had been late filing public securities for the company.

Wadler, for his part, claimed that after the incident in Vietnam, Thailand, and Russia, Wadler had told Bio-Rad that accounting irregularities led him to believe that Bio-Rad may have violated the FCPA in China, where Bio-Rad had substantial business. Bio-Rad hired additional outside counsel to investigate, resulting in a finding that no FCPA violations had occurred in Bio-Rad’s China operations. The DOJ also concluded that Bio-Rad’s China activities had not violated the FCPA.

Wadler was terminated several months after his internal report regarding China. Wadler brought in evidence of positive performance reviews to counter Bio-Rad’s defense that he had been terminated for poor performance and for mistreating employees. To try to prove that Wadler had been terminated for a legitimate reason, rather than in retaliation for legally protected whistleblowing, Bio-Rad introduced into evidence a negative performance review that the company said had been done while Wadler was employed for Bio-Rad. But an analysis of the underlying electronic information on the document (the metadata) showed that the performance review was created a month after Wadler was terminated.

Document Misconduct Promptly & Accurately

Of course, misrepresenting the creation date of Wadler’s negative performance review did not help Bio-Rad’s case. If the misrepresentation was intentional, it not only was unethical, but led to a multi-million dollar jury verdict, which may in turn harm Bio-Rad’s reputation. Fabricated evidence was also at issue in another recent retaliation case, this one in a Title VII context. In that case, an employer relied on doctored documents, which had been provided by a supervisor accused of sexual harassment, to justify its decision to terminate the subordinate employee who had reported the harassment. When the documentation was proven false, the court ruled that the employer could be liable for retaliation against the reporting employee.

As we noted in our “Terminating Employees” course:

Lawyers have two sayings about written records

1.) If an event is worth remembering, it’s worth writing down.

2.) Anything not written down probably didn’t happen.

Before deciding to terminate employees, it’s important to review all written records documenting the discipline or other basis for the termination.

Instead of using documentation that would help its case, Bio-Rad used dubious documentation, which resulted in the defeat of its defense in the jury trial.

If Wadler’s repeated outbursts really occurred, Bio-Rad may have fared better at trial if Wadler’s supervisors had clearly and contemporaneously documented the misconduct — and disciplined him for it. Again, lessons from research into preventing sexual harassment are equally applicable in other contexts involving rogue employees. As I wrote in an article examining the implications of the Equal Employment Opportunity Commission’s (EEOC) report by the Select Task Force on the Study of Harassment in the Workplace:

The Report . . . [noted] that a recent study by Harvard Business School concluded that negative profit consequences result from failing to remedy problems caused by so-called “toxic workers,” especially those who are considered “top performers.”  “Avoiding these toxic workers,” summarized the Report, “can save a company more than twice as much as the increased output generated by a top performer.”

“Reputational costs alone can have serious consequences,” the Report continued, “particularly where it is revealed that managers for years ‘looked the other way’ at a so-called ‘superstar’ harasser.”

If Wadler’s behavior and performance were as poor as Bio-Rad claimed, it is not clear why the company did not have any evidence documenting the misbehavior or any discipline the company may have enforced.  If you have a misbehaving or poorly performing employee, remember to take prompt corrective action and to leave a thorough — and credible — paper trail.

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Steve Treagus
Stephen Treagus, JD's, previous practice as an attorney specializing in employment litigation exposed him to the rough-and-tumble world of employment relationships gone awry. Today, this experience informs his articles and courses, helping employers avoid costly litigation and get employment law right. Stephen earned his JD from John F. Kennedy University School of Law and his BA from Sonoma State University.

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