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DOJ’s New Pilot Program Could Lead to Clawbacks for Predatory Employees and Unwitting Supervisors

Beware corporate wrongdoers!  The DOJ is coming after you and incentivizing your employer to help.     

Earlier this month, the Department of Justice (the “DOJ”) announced the launch of its new Compensation Incentives and Clawbacks pilot program, which includes compensation incentives for employers and claw backs against employees.  The new program aims to shift the burden of corporate malfeasance from shareholders to individual employees and corporate leaders who are directly responsible for wrongdoing. The compensation incentives are designed to cultivate responsible corporate behavior. 

The program embodies the belief that employees who engage in wrongful acts and their supervisors who enable such behavior, should be held responsible. That being the case, the DOJ will now incentivize businesses to claw back compensation given to not just the wrongdoing employee, but in some instances, the supervisor as well.

Key terms under the pilot program are:

(i) The DOJ will reduce fines against companies which attempt to claw back compensation paid to wrongdoing employees and culpable supervisors (see discussion below). If a company pursues clawing back compensation in good faith and is ultimately unsuccessful, it still may be entitled to receive a reduction in imposed fines up to 25%. As an added incentive, the DOJ will allow the company to keep any of the amounts recovered; and 

(ii)  Companies entering resolutions with the DOJ will be required to incorporate compliance-promoting criteria into their future compensation and bonus structures if they do not already exist.  Criteria a company could include are: (1) executives and employees forfeiting their bonuses for failing to meet certain compliance-based objectives; (2) disciplinary measures for both culpable employees and their supervisors; and (3) incentives for employees who demonstrate commitment to the compliance processes.

To satisfy the terms of the new program, the DOJ expects companies to try to recover compensation not just from the employee who perpetrated the wrongdoing, but also those individuals who had supervisory authority over them; provided that, the supervisory employee had knowledge of the misconduct or was willfully blind to its undertaking.

It is important to note, businesses will not be able to avail themselves of the program if they do not structure their compensation programs to allow for the claw back of compensation from wrongdoer and the supervisors. Accordingly, companies should consider proactively updating their existing compensation programs to allow for clawbacks of such a nature before an issue occurs. However, if a contract exists, employers cannot mandate such a change until the contract expires. Also, even if you can make this change, be sure you are using the right message; this change is not designed to save the company money but rather to show its commitment to doing the right thing. 

As a final word of caution when updating your compensation program to allow for permitted clawbacks, be sure to take all necessary steps to maintain your company’s compliance with federal and state wage and hour laws.

The policy changes covered in the new program are significant and will leave companies with a difficult decision: pursue a costly and potentially unsuccessful litigation in an attempt to clawback funds from wrongdoing employees or be ineligible to receive the benefits of reduced fines being offer by the DOJ through the pilot program.

Traversing these often complicated and highly sensitive issues can be challenging.  Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.