Employer Investigations Can Help Avoid The “Varsity Blues”
Key tips to take action to minimize or reverse damages
Posted on 06-01-2019, Read Time: Min
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The “Varsity Blues” college admission scandal should alert all employers to be prepared and plan ahead for unexpected illicit behavior of their employees.
Even though many of the sophisticated institutions at the heart of the Varsity Blues scandal set up protocols to guard against improper influence from commercial college preparation companies by precluding contact between such organizations and their admissions’ departments, the orchestrator of the Varsity Blues scheme was able to identify a self-described “side door” to get around such restrictions. According to the United States Attorney’s Office, current and former coaches from Georgetown, Stanford, UCLA, the University of San Diego, USC, University of Texas, Wake Forest and Yale were identified as weak links for bribery to gain admission as athletic recruits.
Employers faced with suspect behavior may be assured that employees have a common law duty of loyalty to their employers. That duty, essentially means, that employees must turn over any benefit that they gain due to their employment to their employer. In California, that common law duty is codified as Labor Code section 2860, which reads:
More examples that employers should be aware of include employees making purchases at a discount price and pocketing the difference between a discount price and the retail price charged to their employer, or vendors giving “kickbacks” to decision-makers to select their products or services over those of competitors, typically at greater expense to the employer. Other situations may include trading on “insider information,” or using information learned from an employer for personal gain at the expense of the company. For example, an employee that learns of her employer’s plan to purchase specific real estate or other commodities and who makes the purchase at a low price and forces the employer to pay an inflated price has breached her duty of loyalty. Also, putting “ghost” employees onto payroll.
In the wake of this scandal, all employers should take the opportunity to examine their operations and make plans to (1) take preventative measures, (2) investigate alleged fraud, kickback schemes and other suspect conduct of employees, (3) work with law enforcement, (4) balance legitimate privacy interests of employees and/or victims, (5) respond to substantiated allegations of fraudulent conduct by employees; and (6) manage public relations after a scandal makes the headlines.
While not all fraud can be deterred, employers should implement measures that monitor employees who have responsibility for acquisitions, handle funds or who are exposed to confidential and/or trade secret information. Employees should be encouraged to “see something, say something” without retaliation. The sooner an employer is aware of a potential problem, the sooner the employer can investigate and take action to minimize or reverse damages.
An employer that suspects that an employee has engaged in any type of financial misconduct should promptly commence an investigation. While this type of investigation is not required by law, alleged financial misconduct by employees should be investigated in a manner similar to legally mandated investigations, such as investigations of sexual harassment or discrimination claims. A thorough investigation is critical to determining how the financial misconduct was carried out, the extent of the misconduct, other participants, and protocols to prevent, deter, and detect such fraudulent activities in the future.
Engaging appropriate, neutral experts – including employment attorneys who are trained and experienced in conducting workplace investigations – is an essential step to handle alleged financial misconduct by an employee. Experienced employment attorneys can also offer guidance about contacting law enforcement and discipline for employees who were found to have engaged in financial misconduct while minimizing the employer’s risk and navigating publicity issues – with the added protection of attorney-client privilege. Employers should resist the urge to use “self-help” by docking the wages or withholding paychecks from employees who have participated in these schemes.
Many of the prestigious institutions implicated in the Varsity Blues scandal had already detected concerns relating to the accused coaches and their recruitment practices, started their own investigations, and taken action before the scandal hit the front pages. Georgetown and Yale have publicly disclosed that they terminated the employment of the accused coaches before being alerted to the FBI’s investigation. Stanford terminated its sailing coach the day that the Department of Justice announced the indictments.
Other institutions, including UCLA, UT and Wake Forest announced the immediate suspension of their coaches while they conducted internal investigations. In light of the charges, the publicity involved, and information about the complicity of their employees, many of the schools took swift action in a very public manner.
Now, these universities are also struggling with investigations into applicants, current students and graduates, and their image as this plays out in a very public arena. Thus, the public relations aspect is also very important, and employers should be aware that communications with public relations departments or outside providers about potential fraud should also be coordinated with counsel to ensure that privilege is retained.
The universities in the Varsity Blues scandal took swift action against fraud to create an overall positive impact against any future litigation that might arise from potential employment and other claims down the road as well as to put their best foot forward to minimize any adverse impact on their reputations. Planning ahead for the unexpected requires maintaining a high level of alert to the potential for internal fraud and cheating as well as having a team of professionals identified in advance of the crisis.
When the potential fraud or other misbehavior is raised to the attention of employers, prompt consultation with counsel to weigh the delicate balance of privacy laws, internal investigations, law enforcement, potential employment related liability, publicity and other consequences.
Even though many of the sophisticated institutions at the heart of the Varsity Blues scandal set up protocols to guard against improper influence from commercial college preparation companies by precluding contact between such organizations and their admissions’ departments, the orchestrator of the Varsity Blues scheme was able to identify a self-described “side door” to get around such restrictions. According to the United States Attorney’s Office, current and former coaches from Georgetown, Stanford, UCLA, the University of San Diego, USC, University of Texas, Wake Forest and Yale were identified as weak links for bribery to gain admission as athletic recruits.
Employers faced with suspect behavior may be assured that employees have a common law duty of loyalty to their employers. That duty, essentially means, that employees must turn over any benefit that they gain due to their employment to their employer. In California, that common law duty is codified as Labor Code section 2860, which reads:
Everything which an employee acquires by virtue of his employment, except the compensation, which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully or during or after the expiration of the term of his employment.
More examples that employers should be aware of include employees making purchases at a discount price and pocketing the difference between a discount price and the retail price charged to their employer, or vendors giving “kickbacks” to decision-makers to select their products or services over those of competitors, typically at greater expense to the employer. Other situations may include trading on “insider information,” or using information learned from an employer for personal gain at the expense of the company. For example, an employee that learns of her employer’s plan to purchase specific real estate or other commodities and who makes the purchase at a low price and forces the employer to pay an inflated price has breached her duty of loyalty. Also, putting “ghost” employees onto payroll.
In the wake of this scandal, all employers should take the opportunity to examine their operations and make plans to (1) take preventative measures, (2) investigate alleged fraud, kickback schemes and other suspect conduct of employees, (3) work with law enforcement, (4) balance legitimate privacy interests of employees and/or victims, (5) respond to substantiated allegations of fraudulent conduct by employees; and (6) manage public relations after a scandal makes the headlines.
While not all fraud can be deterred, employers should implement measures that monitor employees who have responsibility for acquisitions, handle funds or who are exposed to confidential and/or trade secret information. Employees should be encouraged to “see something, say something” without retaliation. The sooner an employer is aware of a potential problem, the sooner the employer can investigate and take action to minimize or reverse damages.
An employer that suspects that an employee has engaged in any type of financial misconduct should promptly commence an investigation. While this type of investigation is not required by law, alleged financial misconduct by employees should be investigated in a manner similar to legally mandated investigations, such as investigations of sexual harassment or discrimination claims. A thorough investigation is critical to determining how the financial misconduct was carried out, the extent of the misconduct, other participants, and protocols to prevent, deter, and detect such fraudulent activities in the future.
Engaging appropriate, neutral experts – including employment attorneys who are trained and experienced in conducting workplace investigations – is an essential step to handle alleged financial misconduct by an employee. Experienced employment attorneys can also offer guidance about contacting law enforcement and discipline for employees who were found to have engaged in financial misconduct while minimizing the employer’s risk and navigating publicity issues – with the added protection of attorney-client privilege. Employers should resist the urge to use “self-help” by docking the wages or withholding paychecks from employees who have participated in these schemes.
Many of the prestigious institutions implicated in the Varsity Blues scandal had already detected concerns relating to the accused coaches and their recruitment practices, started their own investigations, and taken action before the scandal hit the front pages. Georgetown and Yale have publicly disclosed that they terminated the employment of the accused coaches before being alerted to the FBI’s investigation. Stanford terminated its sailing coach the day that the Department of Justice announced the indictments.
Other institutions, including UCLA, UT and Wake Forest announced the immediate suspension of their coaches while they conducted internal investigations. In light of the charges, the publicity involved, and information about the complicity of their employees, many of the schools took swift action in a very public manner.
Now, these universities are also struggling with investigations into applicants, current students and graduates, and their image as this plays out in a very public arena. Thus, the public relations aspect is also very important, and employers should be aware that communications with public relations departments or outside providers about potential fraud should also be coordinated with counsel to ensure that privilege is retained.
The universities in the Varsity Blues scandal took swift action against fraud to create an overall positive impact against any future litigation that might arise from potential employment and other claims down the road as well as to put their best foot forward to minimize any adverse impact on their reputations. Planning ahead for the unexpected requires maintaining a high level of alert to the potential for internal fraud and cheating as well as having a team of professionals identified in advance of the crisis.
When the potential fraud or other misbehavior is raised to the attention of employers, prompt consultation with counsel to weigh the delicate balance of privacy laws, internal investigations, law enforcement, potential employment related liability, publicity and other consequences.
Author Bio
| Dan M. Forman, Esq., is the Managing Partner of Carothers DiSante & Freudenberger LLP’s Los Angeles office and the Chair of its Trade Secret Practice Group. Visit www.cdflaborlaw.com Connect Dan M. Forman Follow @CDFLaborLaw |
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