August 30, 2022

Protections for Whistleblowers Under California Law

Deciding to become a whistleblower in the context of disclosing information relating to wrongdoing within an organization that also employs you is not an easy one. It is natural and prudent to be concerned about what will happen to your employment and future prospects both within and outside of that business should you make the decision to provide information of illegal actions to government agencies, or even just reporting the wrongdoing within the organization itself. 

A common situation where such fears of retaliation against whistleblower employees might arise in the context of pursuing a whistleblower claim for a False Claims Act (“FCA”) violation or securities law violation. While the federal laws governing those areas provide protection against retaliation towards whistleblowers, California state law also provides such protections, and those protections were strengthened in 2022. 

California Labor Code Sections 1102.5 and 1102.6

California Labor Code section 1102.5 – which was originally passed into law in the 1980’s – makes it illegal for an employer or any person acting on behalf of that employer to, among other things:

“[M]ake, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct the violation or noncompliance, or from providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employer’s job duties.”

The California statute goes on to state that any employer or person acting on behalf of the employer “shall not retaliate against an employee for disclosing” such types of information to government agencies or to supervisors.

In short, the statute means that a California employee cannot be retaliated against by an employer for proper whistleblowing of corporate wrongdoing – such as violation of the FCA or state or federal securities law – to the government or internally within the company. Retaliation generally means actions that adversely affect the employment of the whistleblower such as termination, suspension, demotion, or failure to properly promote an employee. 

Lawson v. PPG Architectural Finishes, Inc.

Prior to January 2022, there was confusion in the California state courts about how to apply the burdens of proof with respect to an employee who pursues a retaliation claim against an employer pursuant to Labor Code section 1102.5. In many cases, California courts (and federal courts applying California law) were applying what is called the McDonnell Douglas test to such claims, which requires the following:

  • A plaintiff seeking to prove retaliation needed to first show a prima facie case of such retaliation, meaning that the plaintiff would first need to show at least some factual evidence suggesting that he or she was improperly retaliated against;
  • If the plaintiff could provide such prima facie evidence, the employer would then have the burden of providing evidence that there was a legitimate reason for taking the adverse employment action, such as poor employee performance; and
  • Then the plaintiff would bear the burden of proving that the “legitimate reason” offered by the employer was in fact a pretext for taking the adverse employment action, such that it could be proven that illegal retaliation was the reason for the action.

This McDonnell Douglas test thus could make it difficult for an employee to prove retaliation pursuant to Labor Code section 1102.5, especially where documentary evidence showing the retaliatory action was not available, and/or where there were indeed legitimate reasons for taking an adverse employment action in addition to non-legitimate reasons. 

The California Supreme Court, however, made clear that the McDonnell Douglas test does not apply to such retaliation claims in the case of Lawson v. PPG Architectural Finishes, Inc., decided by the Court in January 2022. In that case, a territory manager for a paint manufacturer whose job responsibilities included stocking and merchandising PPG paint products in Lowe’s home improvement stores in Southern California called the company’s ethics hotline to report that his manager was ordering him to “mistint” the company’s paint products such that the company would not have to buy back excess product from Lowe’s, and he also refused to participate in the practice. While the practice was discontinued, his manager continued to oversee him, and he was fired some months later on the grounds that he failed to meet goals outlined in his performance review plan. 

Thus, the employer was arguing that, while the employee may have properly acted as a whistleblower, there was a legitimate reason to fire him, and, under the McDonnell Douglas test, it was thus proper to fire him. The employee, however, argued that applying that test was improper, and that instead the Court should apply Labor Code section 1102.6 as the proper burden of proof. Under that statute, a Court should apply the following test:

  • The employee must prove by a preponderance of the evidence (meaning that it is more likely true than not) that improper retaliation was a “contributing factor” in the adverse employment action against the employee; and
  • Then the employer must prove by clear and convincing evidence (which is a higher standard of proof than preponderance of the evidence) that it would have still taken the same action against the employee even if the employee had not engaged in the protected whistleblower activity.

The Court sided with the plaintiff, and now the test pursuant to Labor Code section 1102.6 – and not the McDonnell Douglas test – is the proper test to apply to retaliation claims brought pursuant to Labor Code section 1102.5.

Takeaways From The Case

The California Supreme Court’s decision strengthens protections for whistleblowers because it does away with the concept that an employer need only provide a legitimate reason for taking an adverse employment action against an employee which is not pretextual, or in other words just a cover for retaliation. It recognizes the reality that there may be legitimate reasons to take adverse employment action, but at the same time improper retaliation can be a contributing factor, and the “legitimate reason” does not necessarily absolve the employer of liability for retaliation. 

If you are considering pursuing a whistleblower claim relating to a violation of the FCA or of federal securities laws, contact our office today to schedule a consultation regarding your options.