Theranos, Inc., the unicorn blood-testing startup corporation, was finally dropped by former employee whistleblower. The legal framework has improved significantly since 2015 due to the passage of the Trade Secrets Protection Act and its clear protections for whistleblowers.” However, while Therano's story is illuminating, practical barriers and uncertainties remain.
THE FALL OF THERANOS
The company also monitored, suppressed, and punished dissenting voices.23 One such voice was that of Tyler Shultz, a friend of Cheung and the grandson of Theranos executive and former Secretary of State George Shultz. Within days, regulators arrived,40 leading to the closure of Theranos labs,4' charges by the Securities and Exchange Commission,42 and federal bank fraud charges against Theranos founder and Chief Executive Officer Elizabeth Holmes and her deputy Balwani. 43.
WHISTLEBLOWING IN THE AMERICAN WORKPLACE
CTR., IN THE SPIRIT OF A WHISTLEBLOWER: A SUPPLEMENTARY REPORT OF THE NATIONAL BUSINESS ETHICS SURVEY 2011 (2012), https://www.corporatecomplianceinsights.com/wp-content/. External whistleblowers are rare in corporate America.60 According to a 2011 study, only 18% of whistleblowers ever report outside the company, and 84% of those external whistleblowers first tried reporting internally.61 When asked what would motivate them to to report externally, she responded: Employees cited the severity and persistence of the misconduct, the likelihood that silence would lead to harm to people or the environment, and the company's inability to redress their internal grievance.62 A minority mentioned the possibility of monetary reward63 offered by certain public bodies.64 Although a weak ethical culture deters internal reporting, it correlates with higher levels of external reporting.65.
THE WHISTLEBLOWER LEGAL LANDSCAPE
This dynamic is strongly informed by the balance of risks to self versus others, which in turn is shaped by company culture, the employee's position in the company, and the employee's understanding of their legal rights.
ANTIRETALIATION LAWS
State Whistleblower Protections
New York offers relatively weak protections to private sector whistleblowers.88 Where California covers any disclosure that the whistleblower reasonably believed disclosed a violation of law, New York requires an actual violation of "a law, rule, or regulation that . . . creates and constitutes a significant and particular danger to public health or safety, or which constitutes health care fraud.”89 Additionally, disclosures are protected only if the employee previously reported the violation internally and provided the company with a “reasonable opportunity” to correct the offending activity, policy 9 0. Additionally, unlike California, New York does not require any notice to employees of their whistleblower rights.
Federal Whistleblower Protections
A rising complainant can receive an injunction, reinstatement, compensatory relief and payment of all costs and attorney's fees.93 The employer is entitled to costs and attorney's fees if the court determines that the claim was "without factual or legal basis. "94. Enacted in response to the Enron and WorldCom accounting scandals and the role of whistleblowers in detecting them,"4 Sarbanes-Oxley prohibited public companies and their agents from retaliating against employees who report or testify about what they reasonably believe securities violations or other fraud. against shareholders." Protected reports can be directed to any federal regulator or law enforcement agency, member or committee of Congress, or internal supervisor." employees who complained about medical treatment and financial practices but did not notify the hospital that his "conduct was fraudulent or potentially subject to FCA liability").
Rather, her statements to defendants raised concerns about quality control, documentation, and CLIA violations; there is no reference to any statement about Medicare's fraudulent claims or billing practices."). In one case, the SEC fined Anheuser-Busch InBev for executing a separation agreement that imposed confidentiality requirements and liquidated damages of $250,000 for each breach of it'125 The confidentiality provisions did not expressly prohibit communication with the regulator, but neither did they include a provision for whistleblowing.126 In 2014, the head of the SEC's Office of Whistleblowers threatened that, “if we find that kind of language, not only a we will go to the companies, we will go after the lawyers who drafted it."127. Modesitt found that employers followed the trial or administrative hearing level 93% of the time.12 9 On appeal, decisions in favor of the employer were upheld 81% of cases.30 Most often, courts deny relief to whistleblowers for failure to show a causal connection between their protected activity and the adverse employment action.'3' The record of Sarbanes-Oxley retaliation claims is equally dismal. .13 2 Professor Richard Moberly examined the results of administrative decisions from the Occupational Safety and Health Administration, finding that claimants prevailed less than 4% of the time.'33 In their analysis of the decisions, both Modesitt and Moberly found that the decision makers tend to narrowly interpret whistleblower protections. and in favor of employers.'34 Small profit rates are difficult to interpret, as they likely involve meritless claims and do not capture whether the law has effectively deterred corporate retaliation.'35 That said, the severity of deviance against employers speaks dishearteningly to the protective power of anti-retaliation laws.
PROTECTION OF TRADE SECRETS
State Trade Secret Protections
Until the 1980s, trade secret protection was assessed primarily at the state level under the common law of unfair competition. that constitutional and federal law provisions regarding patents do not preempt state laws regarding trade secrets. New York has not passed trade secret legislation, but recognizes a common law cause of action against embezzlement.
York has substantially adopted the approach of the original Restatement of Torts (1939) to the Trade Secrets Act. "); see also Schroeder v. See Trade Secrets Act, UNIF. North Carolina has passed separate trade secret legislation, but uses a very similar legislative definition of "trade secret." The UTSA does not address the tension between whistleblowing protections and the protection of trade secrets.
Federal Trade Secrets Protections
The DTSA has several other features that recognize the importance and reality of workplace whistleblowing. Third, employers must notify employees of whistleblower immunity under the DTSA in any contract governing the use of trade secrets or confidential information.8 2 Alternatively, the employer may simply refer to the company policy that the provision provides.183 Failure to notify the employee at in this manner, it may result in denial of exemplary damages or attorney's fees against the employee. The DTSA has done much to clarify the intersection of whistleblower and employer rights, but some gaps remain.
First, in the few cases decided thus far, the DTSA's immunity provision has not generally resulted in dismissal of trade secret claims at the pleading stage. Lannett Co., the court held that the employee's information fell within the DTSA's immunity provision. These allegations also give rise to the plausible inference that the defendant committed theft to acquire this information, which constitutes "improper means" for purposes of the DTSA"); Henry Schein, Inc.
CONTRACTS FORNONDISCLOSURE
Enforceability of NDAs Against Whistleblowers
Nowhere is this more evident than in the area of public policy, where the courts deal, ex hypothesi, with matters outside their usual experience. As described below, courts are more receptive to public policy arguments when the disclosure is made in a legally prescribed and confidential manner and consists only of information relevant to the misconduct. In a recent case, a federal court interpreted this public policy more broadly than state whistleblower protections.
Passenger Corp., 898 F.2d th Cir. 1990) (opining in dicta that "[i]f we were required to address Zanders' public policy argument, we would nevertheless find it without merit .. [W]e note that the separation agreement at issue here expressly provides that ․ the agreement does not bar her participation in proceedings when ``required by law'').In balancing these public policy concerns against the employer's interest in confidentiality, courts have typically shown respect for the employer's trade secrets.253 It is reasonable in the sense that many types of corporate wrongdoing, such as employment discrimination, can be reported and adjudicated without the disclosure of corporate trade secrets. In such cases, the DTSA's immunity provision, while not expressly protecting whistleblowers from contractual liability, reinforces and provides an important statutory hook to a public policy defense.
THE ROAD TO PROTECTION AT THERANOS
The Theranos story illustrates the plight of whistleblowers lost in an unethical corporate culture and inconsistent legal landscape. It then critically assesses whistleblower legal regimes and identifies failures that contributed to Cheung's legal jeopardy and the perpetuation of Theranos' wrongdoing. If her disclosures were found to contain trade secrets, however, Cheung could still have faced potential liability under California trade secrets law.
Today, the report to CMS would entitle Cheung to the DTSA's protection from liability under federal or state trade secret laws. After years of Theranos putting the public at risk with faulty blood tests, Cheung found a somewhat safe path to hold her old company accountable. Cheung's inability to quickly and securely report Theranos' behavior highlights several flaws in the whistleblower legal framework.
FLAWS IN THE PATCHWORK
Whistleblower Protection in Theory
These factors would weigh strongly against enforcement of her NDA, provided the scope of her disclosures were proportionate to the statutory violations. The following section traces the obstacles it encountered to fundamental weaknesses in America's patchwork of legal protections. Protection is a particularly salient factor for employees whose motivations are "intrinsic and moralistic" rather than driven by self-interest.258 In addition to shaping extrinsic incentives, laws can influence intrinsic motivations by codifying behavior designated as moral or immoral.259 Through this "expressive power," whistleblower protection can reinforce the wrongness of corporate misconduct and the propriety of whistleblowing.260
The Theranos case study illustrates several framework problems that impede this policy goal.
Weaknesses in the Legal Landscape
This, however, presents a chicken-or-egg dilemma, as workers are unlikely to proactively seek the assistance of an attorney unless they are already aware of the existence of whistleblower protection. In this context, uncertainty hinders risk reduction and therefore undermines the purpose of the law. They also provide greater certainty, as whistleblowers have more insight into their own psychological state than knowledge of the law.
In light of the weaknesses examined above, the following subpart offers principles for a legal framework that will more effectively facilitate whistleblowing. They do not constitute an exhaustive plan, but a starting point to address certain weaknesses that emerge from Therano's case study and examination of the legal landscape. Knowledge of the law and access to legal advice are significant barriers to protected whistleblowing.
