Wrongful Termination and the Internal Investigation in Maryland

Suppose a licensed medical provider inquired into a possible claim for wrongful termination. Further suppose that this former at-will employee questioned certain medical practices and initiated an internal investigation with the employer. After management’s investigation concluded that no misconduct occurred, management decided to terminate the employee.

This blog addresses implications of an internal investigation under Maryland law. Subsequent blogs will address implications under Virginia and District of Columbia law.

“At-will employment” is very common in the United States and means that the employee serves at the pleasure of the employer and may be discharged for any reason or no reason at all – except for an illegal reason. The typical exceptions to “at-will” are government civil service employment, which has certain Constitutional protections; statutes, such as the anti-discrimination laws, which prohibit termination for certain reasons; and contracts, either union contracts or individual contracts, which require a showing of “cause.”

In Maryland, wrongful discharge is another exception. To establish a claim for wrongful discharge, an employee must show that (a) the employee was discharged, (b) the discharge violated a clear mandate of public policy, and (c) there was a nexus between the employee’s conduct and the decision to fire the employee.

The public policy exception is narrow. Maryland courts have found wrongful discharge based on public policy in only two circumstances – when the employee refused to violate the law or the legal rights of a third party, and when the employee exercised a specific legal right or duty. Significantly, and contrary to common assumptions, the public policy exception to the discharge of an at-will employee in Maryland does not provide general protection for “whistleblowing.

Maryland’s Court of Appeals made clear that “internal” whistleblowing would not be protected in Wholey v. Sears Roebuck. Wholey was a former security officer for 24 years with Sears and was promoted to store security manager. In this position, his responsibilities included investigating suspicious behavior and reporting theft by both customers and employees. After observing the store manager engage in theft, he submitted a report to Sears’ district manager for security. The district manager authorized installation of a camera, but the surveillance was later removed by senior Sears officials and the investigation ended. Soon thereafter, Mr. Wholey was terminated.

Mr. Wholey won at trial, but his verdict was reversed on appeal. In a plurality opinion, the Court of Appeals recognized a new public policy exception to the employment at-will doctrine, stating that an employee who was fired for reporting illegal activities to the proper authorities could bring a viable claim under the wrongful discharge doctrine, but denied that protection to employees who made their reports to their chain of command. Thus, Mr. Wholey’s claim ultimately failed because he “merely investigate[d] suspected wrong-doing and discuss[ed] that investigation with co-employees or supervisors.” Consequently, the court created a distinction between external investigations (which sustained a claim for wrongful discharge) and internal reporting (which did not).

The “external/internal reporting dichotomy” remains in effect. However, the Wholey opinion offers additional guidance concerning the viability of a potential wrongful discharge claim. In particular, the Wholey Court stated that “one may have a viable claim of wrongful discharge if terminated for acting pursuant to a legal duty when the employee’s failure to perform that duty could result in potential liability.”

With respect to the medical provider at the beginning of this blog who was terminated after reporting and investigating certain medical practices, the circumstances are different. Our licensed medical provider is protected by the Maryland Health Care Worker Whistleblower Protection Act She was also required to comply with reporting and disclosures requirements under the Code of Maryland regulations (“COMAR”). One requirement was an affirmative duty to disclose certain alleged misconduct. Compare Bleich v. Florence Crittenton Serv., which recognized a wrongful discharge claim for an educator terminated for filing child abuse and neglect report as required under COMAR, with Thompson v. Memorial Hosp., which determined that a legal duty to report misadministration of radiation belonged to the hospital, not the employee-physicist (although internal reports of unsafe handling of radiation are protected by the federal Energy Reorganization Act). Conversely, the Court of Special Appeals has declined to find an exception based on general fiduciary duties.

An “esoteric theory” about acting in the “public good” by investigating criminal activity is insufficient. However, a viable claim for wrongful discharge may exist if an individual can “point to any statute or regulation pertaining to duties” that would hold the individual accountable for failing to investigate or report alleged misconduct.

Maryland’s General Assembly has not shown much interest in expanding whistleblower protections. If it chose, it could adopt the principles of federal statutes such as the Whistleblower Protection Enhancement Act, which protects employees from retaliation for disclosing violations of law, imminent threats to public health or safety, and gross financial mismanagement.

Federal courts have long recognized that whistleblower protections need to protect those who make reports to their supervisors, since that is how most employees normally raise an issue. See here and here. Yet even today, federal courts have split on the issue of whether SEC compliance issues are protected under the Dodd-Frank Act when they are raised only within the affected company. For example, in Asadi v. G.E. Energy (USA), L.L.C., the Fifth Circuit found no protection; in Wallace v. Tesoro Corp., the Fifth Circuit found SOX protection for internal disclosures; in Berman v. Neo@Ogilvy LLC, the Second Circuit adopted SEC guidance in finding internal reports are protected.

Even the United States Chamber of Commerce recognizes internal reporting as its preferred method of whistleblowing and fraud detection. It made these comments to the SEC on implementation of Section 21F of the Securities Exchange Act in December of 2010 (pp. 3-4):

Effective compliance programs rely heavily on internal reporting of potential violations of law and corporate policy to identify instances of non-compliance. These internal reporting mechanisms are cornerstones of effective compliance processes because they permit companies to discover instances of potential wrongdoing, to investigate the underlying facts, and to take remedial actions, including voluntary disclosures to relevant authorities, as the circumstances may warrant…

Protection for internal disclosures has found uneven protection from the courts. Employees who want to raise issues at work, but are afraid of retaliation, can benefit from early advice of legal counsel. Finding the right way to make a disclosure can make the difference between having job protections or not.


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