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Well if they are braking the law in any way, they should be reported immediately, regardless of anything else. Also, if the employees themselves are braking the law as well, then they are no better. Plus, knowing (for a fact) about illegal activities going on, and not taking action (if you have the means), is not right either.
p.s. I didn’t hear about this (forgive me for being out of the loop and clueless), can you elaborate more about this company, and how (and when) this whole lay off incident came about?
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