LAW & ETHICS IN THE BUSINESS ENVIRONMENT 8e
CHAPTER TWO
Instructor’s Manual
THE DUTY OF LOYALTY: WHISTLEBLOWING
MAIN CONCEPTS
Employment-at-will
Exceptions to employment-at-will
Sarbanes-Oxley Act (SOX)
Food safety and the Food Safety Modernization Act of 2010
Anti-Whistleblower laws
Government Accountability Project (GAP)
Public employees and freedom of speech
False Claims Act and Qui tam whistleblowers
Qui tam and fraud in healthcare
INTRODUCTORY TIPS
The stark negative side of employment-at-will for employees can be contrasted to comfortable
employment contracts signed between many corporate executives and their companies. Although
ordinary workers can be fired for any reason that is not outright discriminatory—if their bosses
do not like their taste in ties, for example—executives can make major mistakes and even
destroy shareholder value while maintaining not only their jobs but also handsome salaries and
bonuses.
In 2002, as he was about to be indicted for tax fraud over the purchase of several works of art,
and after presiding over the precipitous slide in the value of Tyco stock (it lost 81% of its value
in the 6 months preceding), chief executive L. Dennis Kozlowski quit. But if he hadn’t he might
have kept his job, since his contract of employment—not unusual in the field—would allow Tyco
to fire him only if he was convicted of a felony that involved enriching himself at the company’s
expense. See: David Leonhardt, “Watch It! If You Cheat They’ll Throw Money At You,” New
York Times, June 9, 2002.
Warm-up exercise:
Suppose you have graduated from this college/university and have begun a full-time position
with a major accounting firm.
Further, suppose you engage in the following behaviors. For each, should the firm be legally
allowed to fire you? Why or why not?
You decide to attend law school part-time, at night (after working hours).
You decide to donate 5% of your salary every month to a Right to Life organization.
You seem unable to learn the computer applications that are basic to your job
responsibilities.
There is no labor union for accountants, but you begin talking to your co-workers during
lunch breaks, encouraging them to organize and form one.
You wear a bright plaid jacket to the office that most people—including your supervisor
—consider extremely ugly.
You tend to burst into a rage when criticized.
You refuse to go out on a date with your supervisor.
You and your supervisor begin dating.
You take a day off work for a Muslim religious observance.
You miss work frequently because of late night partying.
You point out to your supervisor’s superior that certain procedures you have been asked
to follow for a particular client do not seem to be in line with the standards of the
accounting profession and may violate federal law.
As students respond, list on the board a spectrum of reasons for firing someone from what
students believe (or know) are illegal reasons (race, sex, religion, union affiliation) to what they
feel are legitimate reasons (excessive tardiness, inappropriate attire), with the “gray area”
reasons in the middle.
Then ask if any student that has a job also has an employment contract for a stated period of
time. The likelihood is that none will have such an agreement. This good way to introduce the
concept of employment-at-will— a legal rule developed in the nineteenth century. Go back to the
spread of reasons for firing a person, and discuss the exceptions to employment-at-will, such as
Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans
With Disabilities Act, and the National Labor Relations Act, which may already be somewhat
familiar to students. From there, introduce the emerging tort of wrongful discharge in violation
of public policy.
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The following material is rich with specific examples of whistleblowing. It appears as footnotes
to Judge Doggett’s concurrence in Winters v. Houston Chronicle Publishing Co., 795 S.W.2d 723
(Texas 1990).
The revelations of “Deep Throat,” perhaps the most celebrated and successful
whistleblower yet, provided crucial information to Bob Woodward and Carl
Bernstein of the Washington Post concerning the Watergate burglary. The
information provided by Deep Throat enabled the congressional investigating
committee to learn of the plot to break into the Democratic headquarters by the
Committee to Re-elect the President, and the White House’s approval of the
subsequent cover-up. As a result, President Nixon was forced to resign.
Engineers at Hooker Chemical Company apprised their superiors in 1975 and 1976
regarding the serious danger resulting from dumping toxic wastes. Disregarding these
warnings, Hooker produced the Love Canal tragedy in Niagara, New York. After
obtaining the internal memoranda sent by these Hooker engineers to management, the
federal government filed a $124.5 million suit against Hooker for dumping chemical
wastes in the Love Canal area of upstate New York. Of the numerous private lawsuits
filed, one brought by 1,300 former residents was settled for $20 million.
Employees throughout the nuclear industry repeatedly brought forth information
demonstrating poor quality control in the construction and maintenance of several nuclear
power plants. Workers complained about improper welding, clerks complained of
inadequate adherence to quality control regulations, and engineers complained of poorly
designed safety systems. These nuclear whistleblowers were largely ignored until a
partial meltdown occurred at Three Mile Island in 1979. Since that event, whistleblowers
have continued to bring forth allegations of faulty construction and quality control, with
safety infractions requiring the halt to construction on several plants deemed by the
Nuclear Regulatory Commission to be unsafe for operation.
The space shuttle Challenger exploded because of faulty seals in the booster
rockets. For years, several engineers from the Morton Thiokol Company, the
major contractor responsible for construction of the rockets, had warned highly
placed administrators of major problems with the booster rocket seals. On the
night before the disaster, several of these engineers warned of the seal
malfunction risk in cold weather. Thiokol’s executives and NASA administrators
overruled the engineers, and approved the launch. “Not one engineer or
technician, however, supported a decision to launch.” After the disaster, “when the
engineers Allan McDonald, Arnold Thompson, and Roger Boisjoly testified
before the [Presidential Commission on the Space Shuttle Challenger Accident]
about their strong objections to the launch, they were unceremoniously `stripped
of their authority, deprived of their staffs, and prevented from seeing the critical
data about the Challenger disaster.’ ” These engineers, together with two others,
were collectively referred to as “the five lepers” by their fellow employees.
Through the intervention of William Rogers, chair of the Presidential
Commission, Roger Boisjoly and Allan McDonald were later selected to head
Thiokol’s booster redesign team. Boisjoly was ultimately given long-term
disability leave for stress-related illness.
Thomas A. Robertson, the director of development for Firestone Tire Company,
warned his executives “[w]e are making an inferior quality radial tire which will
subject us to belt-edge separation at high mileage.” Despite warnings by him and
several of its other engineers, Firestone chose to market the tire. After selling
twenty-four million tires, receiving repeated complaints of its tire quality and after
Time magazine reported that blowouts had caused “at least 41 deaths” and
hundreds of injuries, Firestone replaced three million of the tires. This tire has
also been the subject of more than 250 personal injury and wrongful death suits.
The last example—dating from the late 1970’s—is particularly interesting in light of
recent Firestone tires-Ford Explorer fatalities.
Donn Milton v. IIT Research Institute, Questions, p. 51
1. In legal terms, why did Milton lose?
Maryland’s law only permits exceptions to employment-at-will in two circumstances – when an
employee is terminated for doing something required by law or when an employee is terminated
2. Is this a Pandora’s Box? What is at stake here for employers?
Milton alleged that “broad fiduciary obligations of care and loyalty” should be considered a
specific legal duty. This definition is far too broad and potentially would allow lawsuits related to
many terminations, particularly whenever a manager disagreed with internal corporate
3. Ethical analysis of decision to fire Milton.
A list of stakeholders might include:
Dr. Milton
Microeconomic theory or free market ethics, as followed by Milton Friedman, would favor
any strategy enhancing the profitability of a company short of actually committing a crime.
While a free market economist would likely conclude that it would be ethical to fire Dr. Milton,
IITRI’s Board should look into his allegations carefully, particularly to the extent that hiding
income from “unrelated business activities” within the non-profit entity of IITRI was actually
illegal. If not illegal, the free market theory would allow such filings to continue. In Maryland, it
is legal to fire Dr. Milton, but in the U.S., it may not be legal to claim tax-exempt status while
sheltering unrelated income. Additionally, it should be noted that not all states require that an
employee have a legal obligation to report illegal activities in order to receive protection as a
whistleblower.
It simplifies the utilitarian analysis to assume that, now that Dr. Milton has been fired, IITRI’s
tax filing system will remain unchanged and that if he had not been fired, changes would have
been made. With Dr. Milton gone then, IITRI’s non-profit status—its existence in non-profit form
—is at risk, bringing on serious negative consequences for the beneficiaries of IITRI research.
These might include health consequences to many individuals, although it is difficult to know for
certain, due to the paucity of the facts in the case. On the other hand, making the changes that Dr.
Milton wanted to make would probably have ended certain for-profit activities. Again, with so
few facts, it is difficult to expand the analysis; we cannot know exactly what those negative
consequences might be. Yet we might assume that the non-profit activities of IITRI would have
had greater value to the public (public health) than the “unrelated business activities” would have
had, and so we might assume that the overall utilitarian analysis leans against firing Dr. Milton.
Deontology would suggest the firing was wrong. The right to life and health appears to be at
stake, as well as the duty to tell the truth—in this case to the IRS. Dr. Milton describes himself as
bound by the obligations of “care and loyalty” to the non-profit and presumably to its scientific
mission.
This sounds like Kantian thinking, but it also bears shades of virtue ethics—allegiance to moral
excellence as opposed to moral minima. Milton’s clarity about what needed to be done, and his
determination to follow through even after he must have realized his message was not welcome,
seem like the actions of a person whose ethical response is a matter of ingrained habit. Further,
Dr. Milton’s ethical impulses have been developed within a community—in this case a
community of medical professionals.
As for the ethic of care, Dr. Milton is caring for the non-profit and its mission. He is prioritizing
the group of relationships that matters most in his view: between IITRI and the beneficiaries of
its scientific research. Believing that IITRI’s slipshod tax filings jeopardize these relationships,
he responds out of a sense of responsibility for their continuation.
EMPLOYMENT-AT-WILL
It is interesting for students to see how many statutory exceptions have been made to the
employment-at-will doctrine with regard to whistleblowing. Students should be encouraged to
identify the public policy reasons behind the different whistleblower provisions in the statutes. A
discussion of SOX is also appropriate since every future corporate executive needs to be aware
of these provisions.
Another interesting discussion could be based on the ethical issue of “doing the right thing” by
becoming a whistleblower versus the personal and professional risk, especially in the face of
state inconsistences in case law regarding whistleblowers.
Pierce v. Ortho Pharmaceutical Corp., Questions, p. 61
1. Dissent’s response to Dr. Pierce’s lack of specificity.
Students should look back at the Hippocratic Oath to try to identify the portion(s) of it that Dr.
Pierce must have referred to in her complaint. According to the majority, this was “general
language,” with no specific mention of a prohibition on the kind of testing Dr. Pierce was
expected to implement. Students might discuss why the majority insisted on such specificity.
The dissent makes the point that Dr. Pierce should have been given the chance to revise her
complaint to conform to the majority’s exacting standard. In a section not reproduced in the text,
the dissent names some of the professional medical codes she could have cited:
The 1975 revision [of the Declaration of Helsinki] also prohibits doctors from
conducting experiments where they are not satisfied that the possible hazards are
predictable, or where they outweigh the potential benefits… Where the research
program has a therapeutic purpose, the doctor may conduct experiments only
where he weighs the proposal against other courses of treatment and concludes it
is “the best proven…therapeutic method.” The American Medical Association’s
own guidelines also make participation in clinical experimentation contingent
upon the doctor’s professional judgment regarding “the welfare, safety, and
comfort of the (test subject,) and the “best interest of the patient.”
The ancient Hippocratic Oath would (understandably) lack these kinds of specifics. In fact, in the
Oath itself the best phrase for Pierce to use may be the promise to “use medical knowledge for
the benefit of those that suffer…and to avoid from doing any harm or injustice.” (Once again, we
meet the distinction between commission and omission: There is no affirmative demand to do the
right thing, only the negative—to avoid doing wrong.) Ask if this phrase would possibly support
a public policy mandate in this case.
Note that, in Pierce, New Jersey followed the national trend to recognize a cause of action for
wrongful discharge where a firing violates public policy. As it joined the trend, it did so with
panache, stating that public policy could be found, not just in legislation, administrative
regulations or case law, but also in a professional code of ethics. At that time, no other state
court had mentioned professional ethics as a potential source of public policy. Arguably, the
Supreme Court of New Jersey is both strikingly activist and strikingly reactionary in Pierce.
Discussion Points on the links to ethical theories:
The Hippocratic Oath calls for doing no harm, and the alternative ethical codes that are
mentioned by the dissent “proscribe participation in clinical experimentation when a doctor
perceives an unreasonable threat to human health.” These codes align with deontological
concepts: The categorical imperative of universality and reversibility; and the imperative to treat
others with respect as equals, with rights to make fully informed choices about their own lives,
and the right to life and health.
Dr. Pierce’s ethics are presumably the result of her professional medical experience and training
—she internalized these values as a doctor and a medical researcher, so we can see a virtue
ethics connection here.
Her response also contains elements of the ethic of care. As the dissent puts it: “Would the
majority have Dr. Pierce wait until the first infant was placed before her, ready to receive the first
dose of a drug containing 44 times the concentration of saccharin permitted in 12 ounces of
soda?” Dr. Pierce views this dilemma in a very particular, contextualized fashion. She sees
herself as the last bulwark protecting real human babies from unnecessary cancer risks.
2. FDA procedures for new drug approval.
As the majority explains, after the company completes animal testing, it files an Investigative
New Drug (IND) application. If the FDA approves that application, testing on human subjects
3. Are there any important stakeholder interests not mentioned here?
There are several interests the majority omits: The employees’ interest in working for a company
4. Research: FDA Failures.
An article about Dr. Graham can be found on the Government Accountability Project website at:
5. Research: Toyota’s sudden acceleration problems.
6. What connection might professional autonomy have with the U.S. safety regulatory
scheme?
Consider relevant excerpts from Judge Doggett’s concurrence in Winters v Houston Publishing
Co 795 S.W.2d 723 (Tex. 1990):
Whistleblowing is a formal or informal role that arises in and may even be
essential to rule systems, for the whistleblower functions to generate information
Often the very act of whistleblowing indicates that governmental regulation has
been inadequate to protect the public; it “represents a breakdown of systems
—Testimony of Dr. A. Dale Console, former Research Director to Squibb
7. What would have been the likely outcome had Dr. Pierce sued under New Jersey’s
Conscientious Employee Protection Act?
34:19-3. Employer retaliatory action; protected employee actions
An employer shall not take any retaliatory action against an employee because the
employee does any of the following:
a. Discloses, or threatens to disclose, to a supervisor or to a public body an
activity, policy or practice of the employer or another employer with whom there
b. Provides information to, or testifies before, any public body conducting an
investigation, hearing or inquiry into any violation of law, or a rule or regulation
c. Objects to, or refuses to participate in, any activity, policy or practice which the
employee reasonably believes:
(1) is in violation of a law, or a rule or regulation promulgated pursuant to law or,
Under the New Jersey statute, the issue in Pierce would have been the reasonableness of Dr.
Pierce’s belief that continued testing would be incompatible with a clear mandate of public
Other cases under the New Jersey law: Potter v. Village Bank of New Jersey, 543 A.2d 80 (1988)
(former bank president and CEO sues bank for retaliatory firing for reporting director’s suspected