According to its preamble, the American Recovery and Reinvestment Act of 2009 (“the Recovery Act”) is intended to promote job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed and fiscal stabilization. But employers should be aware that the Recovery Act also creates powerful “whistleblower” protection for employees. The Act’s whistleblower provisions apply to employers that receive a contract, subcontract, grant or other payment funded in whole or in part by the federal stimulus package.

The Recovery Act’s whistleblower protection is sweeping and comprehensive. Employers cannot discharge, demote or otherwise discriminate against employees in retaliation for protected whistleblower activity. The Act not only protects traditional whistleblowers who report fraud or illegal activity—it also protects employees who complain about mismanagement or waste, danger to public health or safety, or an abuse of authority. Each of these terms could potentially describe a wide range of alleged conduct. As a result, the Recovery Act protects a much broader scope of employee disclosures than other whistleblower statutes such as Sarbanes-Oxley.

In addition, the Recovery Act not only protects employees who file an official complaint or disclosure with a federal or state agency or regulatory board or with a human resources official—it also protects employees who informally complain to their direct supervisor or to any other employer representative with the authority to investigate, discover or remedy misconduct. The Act specifically protects complaints made by employees in the ordinary course of their job duties. In other words, employees may be entitled to whistleblower protection simply for doing their jobs.

The Recovery Act also makes it relatively easy for employees to establish that they were discriminated against for protected whistleblower activity. To prevail, employees merely need to demonstrate that their protected complaint was a “contributing factor” in the adverse action taken against them. Employees are not required to prove that their complaint was the sole factor or even the most important factor leading to the adverse action.

Employees can meet this burden through the use of “circumstantial evidence.” This means employees do not have to produce evidence directly establishing that they were discriminated against for protected whistleblower activity. Employees can raise an inference of discrimination merely by establishing that the decision maker knew about their protected complaint, or by establishing that an adverse action took place within a reasonable time after the employee made the complaint.

To affirmatively defeat a whistleblower claim, on the other hand, employers must prove by “clear and convincing evidence” that they acted for a legitimate purpose unrelated to any protected whistleblower activity. This much more difficult standard effectively “stacks the deck” in favor of employees.

Employer liability under these provisions can be significant. Employees who prevail in a whistleblower claim may be entitled to reinstatement, compensatory damages, back pay, benefits, attorney fees, expert witness fees and other costs.

The Recovery Act’s whistleblower provisions also include several other pitfalls for employers. Employees cannot waive their rights and remedies under these provisions by any agreement, policy, form, or condition of employment. In fact, a pre-dispute arbitration agreement (other than a collective bargaining agreement) is unenforceable if it would require employees to arbitrate disputes arising under the Act’s whistleblower provisions.

A wide range of projects funded by the Federal Government could potentially be implicated. Employers who believe they may be subject to these provisions should contact their Baker Hostetler attorney to discuss developing a strategy to anticipate and minimize liability.