What Every Employer Should Learn from the “Varsity Blues” College Fraud Admissions Scandal
The arrests and indictment of the alleged conspirators in the “Varsity Blues” scandal hits close to home as we are graduates of some of the venerated institutions and have teenage children who dream of attending prestigious universities whose reputations have been tarnished by association. A key lesson for all employers: plan ahead for the unexpected.
Even though many of these institutions had set up protocols to guard against improper influence from commercial college preparation companies by precluding contact between such organizations and the admissions department, the orchestrator of this 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 recommend students for admission as athletic recruits.
In the wake of this scandal, all employers should take the opportunity to examine their operations and plan for several potential issues, including, (1) investigating alleged fraud, kickback schemes and other suspect conduct of employees, (2) working with law enforcement, (3) balancing legitimate privacy interests of employees and/or victims, (4) responding to substantiated allegations of fraudulent conduct by employees; and (5) managing public relations after a scandal makes the headlines.
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."
In other words, the accused coaches should have, when offered money in exchange for admissions preferences, alerted their respective employers, and turned over the bribe moneys received to the institution. While this scandal involves allegedly illegal behavior under Federal criminal laws, employers need to be aware that employees may not usurp corporate opportunities to their employers’ detriment. Other examples include employees making purchases at a discount price and pocketing the difference between 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. 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.
An employer that credibly 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 similarly to legally-mandated investigations, such as investigations of sexual harassment claims by employees. 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 in handling alleged financial misconduct by employee. Experienced employment attorneys can also offer guidance when it comes to disciplining 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.
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.