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Thousands of Employees at Federal Contractors do not have Whistleblower Protections Despite 2013 Law

by Charlotte Keith of Spotlight PA

Photo courtesy of Nate Smallwood / For Spotlight PA

A whistleblower reported issues at an affordable housing complex to HUD. But a gap in the law meant she wasn’t protected from retaliation.

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As she read the memo explaining why she was being fired, Kierra Varcos felt her cheeks burn and blood pound in her ears. She tried not to look up at the other people sitting around the conference room table.

Varcos had been dreading this moment for months, ever since she raised concerns about what she saw as conflicts of interest and questionable spending by the executive director of the nonprofit where she worked.

Now, the piece of paper on the table in front of her said her employment was over, effective immediately. The executive director read it aloud. It specifically mentioned the complaints Varcos had brought to the board — complaints that were supposed to be confidential.

Varcos fidgeted in her chair. Time seemed to slow. The memo said that after her complaints had been investigated, she had created an “uncomfortable work environment,” but to her, the real reason was obvious: She was being fired for blowing the whistle. There was so much she wanted to say, but she couldn’t get anything out. She had never been good with conflict.

Employees of federal contractors like the nonprofit where Varcos worked are supposed to be protected against retaliation for reporting wrongdoing. But the complaint Varcos filed against Lutheran Manor of the Lehigh Valley would ultimately help reveal how the law intended to protect these workers still leaves thousands without crucial safeguards against reprisal, a federal oversight agency warned last year.

The gap in protections creates a “serious risk” that will likely discourage whistleblowers from coming forward and embolden employers to retaliate against those who do, according to the inspector general for the U.S. Department of Housing and Urban Development.

Almost a year after Varcos’s case helped flag the loophole, however, HUD has not followed any of the inspector general’s recommendations to close it. The two agencies haven’t even reached an agreement on exactly how many contracts are affected.

In a statement, a HUD spokesperson said the problem affects only a narrow slice of the agency’s contracts and that the whistleblower protections will be added when those contracts are updated or renewed. Since many of the affected contracts have 20-year terms, however, the inspector general’s office has warned this will leave some workers without protections for years.

“It’s a big deal to make that decision to come forward and speak out,” said Joe Spielberger, policy counsel at the Project on Government Oversight, a nonpartisan watchdog group based in Washington, D.C. “When whistleblowers don’t get the relief they deserve, it has this huge chilling effect on everyone else.”

The firing set Varcos back at a critical time. She was seven months pregnant and had saved up weeks of sick time to use as maternity leave. Now, she had lost it all.

After the meeting, Varcos called her husband and told him in a shaky voice what had happened. Then she went to her desk, packed binders of research and family photos into cardboard boxes, and was escorted to her car.

“I tried to do the right thing coming forward and they walk me out like I’m a criminal,” she told Spotlight PA.

‘In complete confidence’

In April 2021, three members of Lutheran Manor of the Lehigh Valley’s board of directors received an anonymous email making a series of allegations about the organization’s executive director, Courtney Doheny.

The message claimed to be written on behalf of several Lutheran Manor employees. In truth, Varcos was acting alone. After agonizing for days, she typed the email and hit send quickly before she could change her mind again.

Varcos was one of 12 full-time employees at Lutheran Manor, an apartment complex in Bethlehem that provides affordable housing for older adults and boasts a fitness center, hair salon, dog park, and flower gardens. The nonprofit has scored highly on HUD inspections and, as of 2022, had a three-year waiting list. Roughly half its revenues come from federal rent subsidies, financial records show.

Varcos, then 31, made for an unlikely whistleblower. Shy, soft-spoken, and prone to backing down in arguments, she had worked at Lutheran Manor as a fitness instructor since 2018, teaching classes for the residents with names like “Joyful Joints” and “Basic Balance.” She baked sweet treats for her colleagues and, for Halloween, came to work in costume as Rosie the Riveter or Lucille Ball.

For months, Varcos had been growing increasingly uneasy about what she saw as questionable spending on the nonprofit’s credit cards, and the fact that a company owned by Doheny’s husband was often hired for repair and maintenance work.

“It feels wrong to turn a blind eye to this unethical and potentially illegal behavior,” Varcos wrote in the email. “I strongly urge you to investigate these situations.”

Varcos knew she was walking a fine line. She wasn’t an accountant or an attorney; she didn’t know exactly what was or wasn’t allowed. Some of her claims were vague or things she had heard from other employees. “I just wanted it to have credibility so they’d take it seriously, look into it, and make sure there wasn’t anything suspicious going on,” she said.

At first, fearing for her job, Varcos tried to remain anonymous. But eventually she agreed to discuss her concerns with members of the board of directors. “Please be assured that any discussion(s) are in complete confidence,” one board member told her via email.

When asked about the allegations by the board of directors, Doheny denied any wrongdoing. The board suspended her while they hired an accountant and private investigator to dig into Varcos’s complaints. As a result of those investigations, the board concluded that Varcos’s claims were unfounded.

Still, her allegations prompted some changes. As a best practice, the board created new written policies for procurement, conflicts of interest, and the use of corporate credit cards. Lutheran Manor also stopped working with the company owned by Doheny’s husband, which had been paid more than $450,000 by the nonprofit over the previous decade.

Christopher Curci, an attorney for Lutheran Manor, said in a statement that the nonprofit made this decision “to avoid any further allegations of wrongdoing.” The board approved all of the company’s contracts and invoices, he said. Lutheran Manor had previously disclosed the conflict of interest in its audited financial statements.

Doheny returned to work in July. She seemed to know that Varcos had been the source of the complaints. “I was told information I gave would be in confidence,” Varcos wrote in another email to one board member. In another message, she wrote: “The work environment lately has been very stressful, and I worry about my job every day.”

Curci said that board members did not tell Doheny who had made the complaints. But in September, she said she knew. In a meeting that month with Varcos to address workplace tensions in the wake of the investigations, Doheny read aloud from a scripted statement. “I want to assure you that while I am aware that you are source of the complaints,” the script read, “you will not be subjected to any retaliation.”

The board treasurer, who also attended the meeting, thanked Varcos for coming forward and complimented her on the “good things” he had heard about her work, according to his notes.

Less than two months later, she was fired.

Expanded legal protections

By 2010, the number of people working under federal contracts and grants was roughly three times larger than the number of federal employees, according to an estimate by the nonprofit Volcker Alliance, which studies government spending. But unlike federal employees, most of those workers were not legally protected against retaliation if they came forward to report wrongdoing, experts told lawmakers during a 2011 U.S. Senate hearing.

“If we are not including contractors in the protection of the whistleblower legislation, then we have a huge problem here,” former U.S. Sen. Claire McCaskill (D., Mo.) said during the hearing. “If the whistleblowers that work for contractors do not have the same protections as federal employees, we are saying to contractors, ‘We do not think wrongdoing by you is that important.’”

In 2013, former President Barack Obama signed into law a major expansion of federal whistleblower law that prohibited contractors and grant recipients from retaliating against workers who reported wrongdoing and charged inspectors general of federal agencies with investigating complaints of reprisal.

Under the law, if a worker who discloses information “reasonably believes” it is evidence of serious wrongdoing, the allegations don’t necessarily have to be correct for them to qualify for protection. If a worker’s complaint of retaliation is upheld, an agency can order the contractor to reinstate them, award back pay, or cover their legal bills.

Despite the expanded protections, blowing the whistle remains a risky and often punishing process. Workers who pursue retaliation complaints are unlikely to succeed, advocates and attorneys say. Legal costs can pile up, and delays can drag the process out for years, taking a heavy toll on whistleblowers’ relationships, mental health, and job prospects.

The holidays were unusually somber in the Varcos household that year.

Lutheran Manor offered Varcos almost $10,000 if she agreed not to pursue legal action against the nonprofit. Despite the financial blow of losing her job only a few months before she was due to give birth to her second child, she decided not to take it.

Another Lutheran Manor employee, Zenia Browne, was fired the same day as Varcos, with an almost identical memo. Browne wasn’t involved in the complaints, but board members believed she had been, and the guilt weighed on Varcos.

Varcos’s husband, Brian, also felt culpable: He had encouraged his wife to go to the board and reassured her about the legal protections in place.

“She was keeping it together pretty well, but I was really mad,” he said.

He tried not to let it ruin the holidays, but even on Christmas Day, he was fuming over how unfairly he felt Kierra had been treated. “I couldn’t let go of the anger.”

They tried not to talk about what had happened in front of their son, then a toddler. “It got to the point where even if we were talking calmly, he was picking up on it,” Brian Varcos said.

When he thought about all the evenings they had spent talking about Lutheran Manor — all the hours they were still spending discussing what to do next — the situation felt endless.

Their hopes were pinned on a retaliation complaint Kierra Varcos had filed with HUD’s inspector general less than two weeks after she was fired.

She didn’t know it, but the overwhelming majority of whistleblower retaliation complaints filed with the agency are unsuccessful. Over a two-year period between 2021 and 2023, HUD’s inspector general received 278 complaints alleging retaliation, records show. Only about 20% met the threshold to open an investigation; of those, only 8% made it to the next stage of the process, a referral to the secretary of HUD for a final determination.

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Some complaints did not succeed because they were filed by people who weren’t employees of HUD contractors or grantees and thus weren’t covered by the law; in other cases, the allegations didn’t meet the legal threshold to qualify for whistleblower protections or the evidence didn’t hold up.

“Due to resource limitations, inspectors general just don’t side with whistleblowers that frequently,” said Tom Devine, legal director at the Government Accountability Project, an advocacy group that pushed for the law to protect employees of contractors. “It’s only the lopsided cases that will get their support.”

Lutheran Manor of the Lehigh Valley fired Kierra Varcos after she raised concerns about what she saw as questionable spending and conflicts of interest. The nonprofit says Varcos lost her job because of the way she acted afterward. Photo courtesy of Nate Smallwood / For Spotlight PA

‘The breaking point’

Responding to the inspector general’s investigation, Lutheran Manor attacked Varcos’s credibility, character, and motivations.

Her allegations were “often petty” and “at times absurd,” and therefore failed to meet the legal threshold for protection, Curci, the nonprofit’s attorney, argued in a 27-page statement submitted to the inspector general. Her complaints about Doheny’s husband’s company working for Lutheran Manor demonstrated “glaring” hypocrisy because Varcos’s husband had also, on one occasion, done work paid for by the nonprofit, Curci wrote. Varcos did not go to the board because she was genuinely concerned about Lutheran Manor, he argued: Her “true motivation” was “a character assassination against Doheny in every conceivable way.”

In Lutheran Manor’s telling, Varcos was not fired because she had brought her concerns to the board but because of the way she acted afterward, showing “open disdain” for Doheny that caused rifts with the other employees. The “breaking point,” Curci wrote, was when Varcos arrived late for a breakfast “Boss’s Day” event and “sulked in the corner” with Browne.

Two days later, Doheny emailed the board’s personnel committee with an ominous warning. “We are not moving towards anything positive…” she wrote, recounting the events of Boss’s Day.“If our LM team continues to divide, I may not be able to reel them back in…” The board, according to Curci, concluded they had no choice but to fire Varcos and Browne.

The inspector general’s investigation, however, cast doubt on Lutheran Manor’s version of events. Attendance at the Boss’s Day breakfast was not mandatory, and Varcos arrived late because “her work responsibilities required her to be elsewhere” — she was teaching a meditation class for residents.

Moreover, the investigation found board members had already discussed firing Varcos and Browne, who also filed a retaliation complaint, months earlier. In July, three months before Varcos and Browne were fired, one board member wrote in an email: “It may be time to talk to both employees, tell them to knock it off, and/or suggest they look for jobs elsewhere. We may have to sweeten [the] pot to get them to leave, but we have all put way too much time into this, and we know their perspective is not correct.”

Reluctant to get sucked into the day-to-day running of the organization, Lutheran Manor’s volunteer board members “did not appreciate the work” Varcos’s complaints and follow-up emails created, the investigation found.

Doheny suspected Varcos and Browne were the source of the complaints against her from the start, the inspector general’s office found, which may have given her “reputational and financial reasons” for retaliating against them. Browne declined to comment when contacted by Spotlight PA, but in a lawsuit she filed against Lutheran Manor, said she was not involved in Varcos’s complaints.

In late 2022, the inspector general’s office concluded there was evidence that Varcos and Browne had been retaliated against and took the rare step of referring both complaints to HUD for a final determination. Of the dozens of complaints investigated since 2021, the inspector general’s office has referred only three other cases.

Curci said Lutheran Manor disagrees with the inspector general’s findings. The investigation deprived Lutheran Manor of its constitutional right to due process, he said, because the nonprofit was not able to review all the evidence in the case, present its own evidence, or call or cross-examine witnesses.

To Varcos, the referral felt like vindication. “The OIG found in favor of both of you,” Varcos and Browne’s attorney wrote, forwarding them the findings.

Varcos didn’t give too much thought to a footnote on the first page of the inspector general’s report on her complaint. There was some question, the report acknowledged, about whether the whistleblower law actually applied to Lutheran Manor. The inspector general’s office argued that it did, but acknowledged that HUD would have the final say.

It seemed like a technicality. It was actually a bombshell.

‘Not actionable’

In December 2022, Varcos and Browne’s retaliation complaints came to an abrupt end.

A HUD attorney determined that the complaints were “not actionable” and the agency was “not authorized” to order any relief.

The decision wasn’t about the merits of the cases. It came down to a quirk of timing.

The law expanding whistleblower protections to employees of federal contractors went into effect on July 1, 2013. It applied to any contracts issued after that date and to older ones that were updated to include the new provisions. But Lutheran Manor’s contract with HUD predated the law and was never updated. As a result, the whistleblower law did not apply, HUD determined, and the agency could not order relief for Varcos or Browne.

The inspector general recommended as a first step that HUD undertake a “comprehensive review” of its pre-2013 contracts to identify how many do not include whistleblower protections. HUD agreed but balked at the next recommendation — that the agency ask all the organizations with affected contracts to add the whistleblower provisions going forward. The agency agreed only to “consider the impact” of doing this, arguing that following the recommendation would effectively require renegotiating each contract.

A HUD spokesperson told Spotlight PA the agency will add the whistleblower safeguards to contracts when they are updated or renewed. But it will be years before many of the affected contracts are renewed, the inspector general’s office said, leaving thousands of workers without protections in the meantime. Lutheran Manor’s contract was signed in 2010 and won’t be renewed until 2030.

Taken together, HUD’s proposed fixes “do not go far enough,” according to the inspector general’s office. All five of the inspector general’s recommendations to fix the problem, including three that the agency designated a top priority, remain unaddressed. Inspectors general of federal agencies have no legal authority to enforce their recommendations.

HUD is already stretched thin: in testimony to Congress last year, HUD Inspector General Rae Oliver Davis described the agency as underfunded, understaffed, and struggling to keep up with its increasing responsibilities.

Online, the inspector general’s office now warns would-be whistleblowers that people working under older contracts that have not been updated may not be protected against retaliation.

The law gives whistleblowers the right to sue their employer if an agency rules against them, and Varcos could have challenged HUD’s decision in court. But two attorneys told her the agency’s conclusion that the law did not apply to Lutheran Manor meant she was unlikely to win.

Varcos has tried to move on. She has a new job and two young children. She no longer obsesses over what happened. But years later, remembering the day she was fired still makes her heart race.

“It seems kind of naive, looking back, to think you won’t be punished for doing what’s right.”

BEFORE YOU GO… If you learned something from this article, pay it forward and contribute to Spotlight PA at spotlightpa.org/donate. Spotlight PA is funded by foundations and readers like you who are committed to accountability journalism that gets results.

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