Whistle[blow] while you work

Examining the state and federal whistleblower laws that protect employees from retaliation

2016 June

Employees have access to a trove of information far beyond what the public and the government can access. Tapping into that knowledge provides a key tool to help protect shareholders, the general public, and others from fraud, safety hazards and illegal conduct. Legislation protecting those employees who disclose information about their employer’s illegal and fraudulent practices, commonly known as “whistleblowers,” recognizes the importance of allowing employees to disclose such information without fear of reprisal.

A whole host of laws designed to protect whistleblowers exists, governing various industries and types of employees. This article examines just some of the many whistleblower laws that plaintiff’s counsel should be aware of when counseling employees on their rights to be free from retaliation.

California Labor Code section 1102.5

Labor Code section 1102.5 makes it unlawful for an employer to retaliate against an employee for disclosing information about illegal activity to certain enumerated persons or entities, or because the employer believes that the employee disclosed or may disclose information. (Lab. Code, § 1102.5, subd. (b).) Thus, a retaliation claim may be actionable even if the employee did not actually disclose any information but the employer thought he or she did or was going to do so. Moreover, the retaliation may be actionable even if the employee was wrong about the activity being illegal, so long as the employee had reasonable cause to believe he or she was disclosing illegal activity. (Ibid.)

The types of reports protected by Section 1102.5 include: (1) reports to a government or law enforcement agency; (2) reports to a person with authority over the employee; (3) reports to another employee who has the authority to investigate, discover, or correct the violation or noncompliance; and (4) testimony before any public body conducting an investigation, hearing or inquiry. (Ibid.) Such reports are protected if the employee has reasonable cause to believe that he or she is reporting a violation of a state or federal statute, or violation of or noncompliance with a local, state or federal rule or regulation. The report is protected even if disclosing that information is part of the employee’s normal job duties. (Ibid.)

In order to establish a prima facie case of retaliation under Section 1102.5(b), the plaintiff must demonstrate that he or she engaged in a protected activity as set forth in Section 1102.5, that the employer subjected him or her to an adverse employment action, and a causal link between the two. (McVeigh v. Recology San Francisco (2013) 213 Cal.App.4th 443, 468.)

Once the employee establishes a prima facie case of retaliation, the burden shifts to the employer to demonstrate by clear and convincing evidence that it had a legitimate, non-retaliatory explanation for its conduct (Lab. Code, § 1102.6). If the employer is successful in meeting this burden, the employee must show that the employer’s explanation is a pretext for retaliation. (Hager v. County of Los Angeles (2014) 228 Cal.App.4th 1538, 1540.)

In order for whistleblowing activity to be protected, it must involve a violation of a statute, rule or regulation. Thus, if the employee’s complaint is merely about internal policy decisions or personnel decisions, such reports may not be actionable. (See, e.g., Mueller v. County of Los Angeles (2009) 176 Cal.App.4th 809, 822 (no violation of Section 1102.5 where a plaintiff employee expressed disapproval that two firefighters had been transferred and then suffered retaliation at the hands of their replacements, based on court’s determination that the plaintiff’s complaints about an internal personnel matter was not a reported violation of a statute, rule or regulation); Patten v. Grant Joint Union High School District (2005) 134 Cal.App.4th 1378, 1385 (disclosures encompassing only the context of internal personnel matters do not amount to whistleblowing).)

Once it has been determined that the plaintiff has engaged in protected activity, the question becomes whether the employer has subjected the plaintiff to an adverse employment action. The standard used to determine whether an employer’s conduct amounted to an adverse employment action is the same as that used when an employee alleges retaliation in violation of California’s Fair Employment and Housing Act, as set forth in Yanowitz v. L’Oreal USA, Inc. (2005) 36 Cal.4th 1028. The test – known as the materiality test – is whether the adverse action materially affected the terms and conditions of the plaintiff’s employment. (Patten v. Grant Joint Union High School Dist., supra, 134 Cal.App.4th at 1381; Yanowitz v. L’Oreal USA, Inc., supra, 36 Cal.4th at 1052.) The materiality test encompasses all employment actions that “are reasonably likely to adversely and materially affect an employee’s job performance or opportunity for advancement in his or her career.” (Patten v. Grant Joint Union High School Dist., supra, 134 Cal.App.4th at 1389 (quoting Yanowitz v. L’Oreal USA, Inc., supra, 36 Cal.4th at 1054).) The test is to be interpreted liberally, “with a reasonable appreciation of the realities of the workplace.” (Ibid.) Moreover, the plaintiff’s allegations are to be considered collectively. While one action alone may not be deemed to materially affect the terms and conditions of a plaintiff’s employment, that same action combined with others may rise to the level of materiality. (Id. at 1390.)

There is minimal case law specifically dealing with what constitutes an adverse employment action for purposes of a retaliation claim under Labor Code section 1102.5, and thus practitioners dealing with this issue should rely on cases brought pursuant to California’s Fair Employment and Housing Act interpreting what constitutes an adverse employment action.

In addition to establishing that there was a protected activity and that he or she suffered an adverse employment action, the plaintiff must also establish causation between the two. For instance, the timing of an adverse employment action provides strong evidence of retaliation. (Patten v. Grant Joint Union High School Dist., supra, 134 Cal.App.4th at 1390.) Due to the dearth of case law specifically dealing with Labor Code section 1102.5, practitioners should look to case law brought under state and federal anti-discrimination and anti-retaliation statutes to support their positions regarding causation and temporal proximity. (See, e.g., Ray v. Henderson (9th Cir. 2000) 217 F.3d 1234, 1244 (“That an employer’s actions were caused by an employee’s engagement in protected activities may be inferred from the ‘proximity in time between the protected action and the allegedly retaliatory employment decision.’”); Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, 615 (one may infer retaliation by the “proximity in time between protected action and the alleged retaliatory employment decision.”).)

There is no requirement that a plaintiff exhaust administrative remedies by filing a claim with the California Labor Commissioner prior to bringing a civil action for violation of Labor Code section 1102.5. (Satyadi v. West Contra Costa Healthcare Dist. (2014) 232 Cal.App.4th 1022, 1032-1033, review denied, Satyadi v. West Coast Contra Costa Healthcare Dist., 2015 Cal. LEXIS 1523 (Cal. Mar. 18, 2015).) However, although there is no exhaustion requirement under the Labor Code, this does not mean that a plaintiff does not have to follow an agency’s internal administrative grievance procedure. Thus, for example, an employee of the U.C. system may still be required to exhaust the U.C.’s internal remedies. (Campbell v. Regents of University of California (2005) 35 Cal.4th 311, cert. denied, Campbell v. Regents of the Univ. of Calif., 2005 U.S. LEXIS 7360 (U.S. Oct. 11, 2005).) Similarly, an employee of a public entity may be required to exhaust internal administrative remedies if the applicable civil service rules include whistleblower claims. (See, e.g., Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1092 (recognizing a “respect for internal grievance procedures and the exhaustion requirement where the Legislature had not specifically mandated its own administrative review process, as in the FEHA.”).) Therefore, counsel seeking to bring a claim pursuant to Labor Code section 1102.5 should explore whether any internal administrative remedies need to be exhausted prior to filing a civil suit.

A plaintiff who successfully prosecutes his or her claim for retaliation in violation of Section 1102.5 may recover compensatory damages, including economic and emotional distress damages. (Gardenhire v. Housing Authority of the City of Los Angeles (2000) 85 Cal.App.4th 236, 237, 240-241.) Additionally, defendants that are corporations or limited liability companies are liable for a civil penalty not exceeding ten thousand dollars ($10,000) for each violation of Labor Code section 1102.5. (Lab. Code, § 1102.5, subd. (f).) A successful plaintiff may also be entitled to reasonable attorneys’ fees and costs pursuant to California Code of Civil Procedure section 1021.5, where the lawsuit has resulted in a significant benefit to the general public or a large class of persons. The applicability of Code of Civil Procedure section 1021.5 is beyond the scope of this article, but should be examined by practitioners representing whistleblowers in matters of societal importance.

California Whistleblower Protection Act

The California Whistleblower Protection Act (“CWPA”), codified at Government Code sections 8547, et seq., protects from retaliation state employees who report improper governmental activity. Improper governmental activity is broadly defined to encompass activity by either (1) a state agency or (2) an employee undertaken in the course of performing that employee’s duties, undertaken inside a state office or, if not undertaken inside of a state office, directly relates to state government, even if the activity is not within the course and scope of the employee’s employment. (Gov. Code, § 8547.2, subd. (c).) The activity must be (1) in violation of a state or federal law or regulation, (2) in violation of an Executive Order of the Governor, a California Rule of Court, or any policy or procedure mandated by the State Administrative Manual or State Contracting Manual, or (3) economically wasteful, or involve gross misconduct, incompetency or inefficiency. (Ibid.)

The types of disclosures that are protected are those disclosing an improper governmental activity or a condition that may significantly threaten the health or safety of employees or the public, so long as the disclosure or intention to disclose was made for the purpose of remedying that condition. (Gov. Code, § 8547.2, subd. (e).)

The elements of a prima facie case of whistleblower retaliation under the CWPA are the same as those under Section 1102.5. The employee must establish by a preponderance of the evidence that he or she made a protected disclosure or refused to obey an illegal order, that the employer subjected him or her to an adverse employment action, and a causal link between the two. (Morgan v. Regents of University of California (2000) 88 Cal.App.4th 52, 69; Patten v. Grant Joint Union High School Dist., supra, 134 Cal.App.4th at 1384.) Once the employee establishes a prima facie case, the burden shifts to the employer to “demonstrate by clear and convincing evidence that the alleged action would have occurred for legitimate, independent reasons.” (Gov. Code, § 8547.8, subd. (e).)

An employee wishing to pursue a retaliation action under the CWPA is required to first exhaust administrative remedies with the State Personnel Board (“SPB”), by filing a written complaint within 12 months of the most recent act of reprisal. (Gov. Code, § 8547.8, subd. (a).) If and when the SPB issues or fails to issue findings, the employee may then file an action in state court. (Bjorndal v. Superior Court (2012) 211 Cal.App.4th 1100, 1108.) The findings of the SPB are not binding in a later judicial proceeding. (Ibid.)

As is the case with actions brought pursuant to Labor Code section 1102.5, any person who retaliates against an employee for having made a protected disclosure is liable for damages. (Gov. Code, § 8547.8, subd. (c).) However, there are some additional benefits to a CWPA action. First, if a jury finds a state agency or employee liable under the CWPA, the employee may be entitled to recover punitive damages. (Ibid.) The CWPA also provides for the recovery of reasonable attorney’s fees by a successful employee. (Ibid.)

Thus, when representing a state employee, counsel should determine whether a cause of action is viable under the CWPA. A state employee is permitted to bring claims under both the CWPA and Labor Code section 1102.5. (Lab. Code § 1106.)

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act (“SOX”) was enacted in 2002 in the wake of the Enron, WorldCom and other scandals in order to protect investors from fraudulent activities by corporations. SOX, as amended by the Dodd-Frank Act, discussed later in this article, provides whistleblower protections to employees of publicly traded companies, to employees of subsidiaries or affiliates included in the consolidated financial statements of publicly traded companies, and to employees of nationally recognized statistical rating organizations, such as Standard and Poor’s. (18 U.S.C. § 1514A(a).) Moreover, SOX allows for individual liability against any officer, employee, contractor, subcontractor or agent of a company subject to the Act. (Ibid.)

SOX prohibits retaliation, including termination, demotion, suspension, threats, harassment, or any other manner of discrimination against an employee in the terms and conditions of his or her employment because that employee has engaged in protected activity. (18 U.S.C. § 1514A(a)(1).) Protected activity includes providing information or assisting in an investigation regarding conduct which the employee reasonably believes to violate a federal law prohibiting mail fraud, wire fraud, bank fraud or securities or commodities fraud, any rule or regulation of the Securities and Exchange Commission (“SEC”), or shareholder fraud. (Ibid.) This is not limited to situations where the employee provides information to a federal regulatory or law enforcement agency, or a member or committee of Congress. Rather, reports by an employee to a person with supervisory authority over him or her, or to “such other person working for the employer who has the authority to investigate, discover, or terminate misconduct” constitute protected activity. (Ibid.) Thus, an employee is protected for internal reports made within the company, so long as the employee reasonably believes that the conduct complained of is illegal under federal securities or fraud laws.

An employee alleging retaliation for whistleblowing activities under SOX must first exhaust administrative remedies by filing a complaint with the Occupational Safety and Health Administration (“OSHA”). The statute of limitations is short. A complaint must be filed within 180 days of the date on which the violation occurs, or the employee becomes aware of the violation. (18 U.S.C. § 1514A(b)(2)(D).)

OSHA will conduct an investigation and determine if there is reasonable cause to believe the complaint has merit, and will notify both the employee and employer in writing of its determination. If the employee prevails during the OSHA investigation, he or she is entitled to preliminary reinstatement. (18 U.S.C. § 1514A(b)(2)(A); 49 U.S.C. § 42121(b)(2)(A).) Either party may appeal the investigator’s determination by requesting a hearing before an administrative law judge within 30 days, and by thereafter seeking review by the United States Court of Appeal. (18 U.S.C. § 1514A(b)(2)(A); 49 U.S.C. § 42121(b)(2)(A) & 49 U.S.C. § 42121(b)(4)(A).)

If the Department of Labor fails to issue a final decision within 180 days from the date the employee first filed his or her complaint with OSHA, the employee has the right to withdraw his or her complaint and file a civil action in federal district court, for de novo review. (18 U.S.C. § 1514A(b)(1)(B).) The employee is entitled to a jury trial in federal district court. (18 U.S.C. § 1514A(b)(2)(E).) Moreover, SOX bars pre-dispute mandatory arbitration agreements, so the employer cannot compel arbitration, even if the employee has signed a pre-dispute arbitration agreement. (18 U.S.C. §1514A(e).) This can thus be very valuable where an employee has signed a mandatory arbitration agreement, allowing the employee to remain in the civil court system.

The employee has the burden of proving by a preponderance of the evidence that his or her whistleblowing activity was a contributing factor to the adverse employment action. Once the employee establishes a prima facie case, the employer has the burden of proving by clear and convincing evidence that it would have taken the same action notwithstanding the employee’s protected activity. (18 U.S.C. § 1514A(b)(2)(c); 49 U.S.C. § 42121(b)(2)(B).)

An employee who successfully prosecutes an action under SOX is entitled to reinstatement, back pay with interest, compensatory damages for emotional distress, and litigation costs, including expert witness fees and reasonable attorneys’ fees. (18 U.S.C § 1514A(c).)

Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank Act”) was signed into law by President Obama in 2010. The Act strengthened existing whistleblower protections, including expanding protections under SOX, and also created new whistleblower protections.

The Dodd-Frank Act allows whistleblowers who provide the Securities and Exchange Commission (“SEC”) with original information about violations of the securities laws which result in a monetary sanction against the offending company to receive an award of between 10 percent and 30 percent of the monetary sanctions received by the commission in excess of $1 million. (15 U.S.C. § 78u-6.)

The Act also contains anti-retaliation provisions to protect employees, granting a private right of action to employees who suffer retaliation as a result of providing information to the SEC, assisting in any investigation or legal action by the SEC related to such information, or engaging in any other protected activity under SOX, the Securities and Exchange Act of 1934 or any other laws, rules or regulations subject to the SEC’s jurisdiction. (15 U.S.C. § 78u-6(h).) The SEC’s rules provide that the anti-retaliation provisions apply even if the employee is not eligible for a bounty award. (17 C.F.R. § 240.21F-2(b)(iii).)

Unlike SOX, there is no exhaustion requirement and the aggrieved employee may pursue his or her claim directly in federal court. (15 U.S.C. § 78-u-6(h)(1)(B)(i).) It is not yet settled whether the protections under the Dodd-Frank Act are limited to cases in which there was a complaint to the SEC, so that internal complaints within the offending company would not be protected, or whether internal reports are protected. For example, a district court in New York found that, to be actionable, the anti-retaliation provisions of the Dodd-Frank Act require a plaintiff to establish either that he or she provided information to the SEC or that the disclosures fell under one of the four categories listed in 15 United States Code section 78u-6(h)(1)(A)(iii), namely “disclosures that are required or protected under SOX, the Securities and Exchange Act of 1934, § 1513(e) of title 18 of the United States Code, and any other law, rule or regulation, subject to the jurisdiction of the commission.” (Egan v. Trading Screen, Inc. (S.D.N.Y. May 4, 2011) No. 10 Civ. 8202, 2011 WL 1672066.) Similarly, the Second Circuit Court of Appeal found protection under the anti-retaliation provision of the Dodd-Frank Act for an employee who suffered retaliation for reporting wrongdoing internally, but not to the SEC. (Berman v. Neo@Ogilvy LLC (2nd Cir. 2015) 801 F.3d 145, 155.) Other circuits, however, have disagreed. (See, e.g., Asadi v. GE Energy (USA) L.L.C. (5th Cir. 2013) 720 F. 3d 620 (only employees who report suspected violations to the SEC are protected).) The split of authority makes it likely that this issue will eventually make its way to the U.S. Supreme Court.

Available remedies for violation of the anti-retaliation provisions of the Dodd-Frank Act include reinstatement, double back pay with interest, attorney’s fees and costs. (15 U.S.C. § 78u-6(h)(1)(C).) This allows more protection than SOX, which does not authorize a double back pay award. The statute of limitations under the Dodd-Frank Act is also much broader: six years, with a potential for tolling under the discovery rule for up to ten years from the date of the retaliation. (15 U.S.C. § 78u-6(h)(1)(B)(iii).)

The Dodd-Frank Act provides similar whistleblower protections for employees who oppose commodities laws violations. (7 U.S.C. § 26(h).) The Act also created a new private cause of action for employees in the financial services industry who experience retaliation for disclosing information regarding any employer’s fraudulent or unlawful conduct related to the provision of a consumer financial product or service. (12 U.S.C. § 5567(a) & (b).)

False Claims Act

The False Claims Act is designed to combat fraud against the government. The False Claims Act makes it unlawful, among other things, for a person or entity to knowingly present a false or fraudulent claim for payment to the government, cause another to submit a false claim to the government, or knowingly make a false record to get a false claim paid by the government. (31 U.S.C. § 3729(a).) The Act deputizes individuals to file actions, known as qui tam actions, on behalf of the government and allows the individuals to recover a portion of any damages recovered against the defendant as a reward for reporting the fraud, if that individual was the original source of the information. (31 U.S.C. § 3730(b) & (e)(4).) The federal False Claims Act protects employees from retaliation for reporting the fraud, by allowing the employee to recover not only his or her reward for reporting the fraud, but also reinstatement, double damages for back pay, special damages, and attorney’s fees. (31 U.S.C. § 3730(h).)

California has its own version of a False Claims Act which is modeled after the federal act. The California False Claims Act (“CFCA”) applies to persons and entities that provide goods and services, directly or indirectly, to state and local governments. (Gov. Code, § 12650, et seq.) Like the federal Act, individuals are deputized to file qui tam actions on behalf of the government and are entitled to recover a portion of any damages recovered against the defendant as a reward for reporting the fraud. (Gov. Code, § 12652, subd. (c) & (g).) Notably, a whistleblower may be eligible for a reward, even if he or she planned and initiated the violation upon which the CFCA violation was based. (Gov. Code, § 12652, subd. (g)(5).)

Individuals are protected from retaliation for acts taken in furtherance of a CFCA action or acts done to stop a violation of the CFCA. (Gov. Code, § 12653, subd. (a).) In order to be protected from retaliation, the employee need not show an actual false claim was made, only that he or she had a reasonable belief that a false claim was made. (LeVine v. Weis (2001) 90 Cal.App.4th 201, 210, overruled on other grounds in Wells v. One2One Learning Foundation (2006) 39 Cal.4th 1164, 1196.) The CFCA has a three-year statute of limitations. (Gov. Code, § 12653, subd. (c).)

The remedies for violation of the anti-retaliation provisions of the CFCA parallel those remedies available under the federal Act. An aggrieved employee is entitled to recover double the amount of back pay, interest on back pay, special damages and where appropriate, punitive damages. Additionally, the successful litigant may recover reasonable attorney’s fees. (Gov. Code, § 12653, subd. (b).) The CFCA does not permit liability to be imposed on individual supervisors, only on the employer itself. (LeVine v. Weis, supra, 90 Cal.App.4th at 214.)

Industry-specific laws

Many industries have whistleblower protections available for employees working in those industries. For example, California Health and Safety Code section 1278.5 protects health care workers who report suspected unsafe patient care and conditions. Similarly, employees working in the food industry may find additional whistleblower protections in the Food Safety Modernization Act of 2010, which added an anti-retaliation provision to the Federal Food, Drug and Cosmetic Act. (21 U.S.C. § 399d.) The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) provides protections to whistleblowers who work for an insured depository institution or a federal banking agency. (12 U.S.C. § 1831j.) Employees in the transportation industry may be protected by the Surface Transportation Assistance Act, codified at 49 U.S.C. section 31105, or the Federal Railroad Safety Act, codified at 49 U.S.C. section 20109. These are just a sampling of the types of additional industry-specific laws designed to protect whistleblowers. Counsel advising an employee with possible whistleblower retaliation claims should research statutes governing that employee’s industry to determine whether any additional protections and remedies may be available to that employee.

Conclusion

Because of the volume of whistleblower protection laws that exist, and the complexity of many of them, it is not possible in an article of this length to fully explore all or even most of them. However, this brief introduction should help arm counsel with knowledge of the general types of protections available to employees who take action to protect shareholders, the general public and others from fraud, safety hazards, and illegal conduct, and assist counsel representing employees in determining areas to probe with their clients and areas of research on which to focus in order to fully explore the legal protections and remedies available to victims of retaliation.