So I talked to my boss today about The Issue.
I should pause here to say I really like my boss and he's a very good guy to work with.
During the conversation he was very low key. He kept asking why the issue came up, why it's never come up before, and why did the issue come up. I don't think he was really thrilled that the only reason the issue came up is because his persistent HR person made the issue come up... oh well.
Funny thing is, in my initial interview, he asked me what I would do if I found unethical behavior at the company. I responded that I would bring the issue and possible resolutions to his attention.
During our conversation today, I reminded my boss of this question. His response was that The Issue was not an ethical one - it's a legal one. My verbal response was that if I didn't bring the issue up, then it would be an ethical issue for me personally. And inwardly I'm thinking if the company keeps being told its doing something wrong, and chooses not to change then it is an ethical issue!
Anyway, my boss does not yet see the seriousness of the issue or the legal/financial ramifications. Then again, I've had months to think this through and I just told him today.
He is hoping the lawyers will yet tell us we're working with a loophole. That would be nice.
So here's hoping we get good news from the lawyers some time next week. Thank you all for your comments and support.