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Attorneys

More Whistles May Be Blowing

April 17 2014

By Shauna Correia

Employers may begin to see an increase in whistleblower litigation.

Effective January 1, 2014, the Legislature, through Senate Bill 496, amended Section 1102.5, California’s “whistleblower protection” statute. We covered this in our “year in review” seminar, but given the scope of the changes in the law, we wanted to make sure to get the word out to those of you who may have missed it.

First, the revised statute now expands the statute’s protections to employees who report suspected violations of the law internally to “a person with authority over the employee” or to another employee with the authority to “investigate discover, or correct” the reported violation. This means, to trigger whistleblower protection, the employee does not have to report the alleged violation to any entity, agency, or person outside the company.

Second, whistleblower protection now extends to external reports to any “public body conducting an investigation, hearing, or inquiry.”

Third, it is now unlawful for any employer to have any rule, regulation, or policy that prevents the disclosure of reasonably-believed violations of local (in addition to state and federal) laws, rules, or regulations. Previously, the statute had been interpreted to exclude violations of local laws (see Edgerly v. City of Oakland (2012) 211 Cal.App.4th 1191).

Fourth, the revised statute also newly imposes liability where any person acting on the employer’s behalf (i.e., a manager) retaliates against an employee who either does engage in protected whistleblowing activity or who the employer believes has disclosed or may disclose the information externally or internally. This so-called “anticipatory retaliation” is particularly troubling, because the employee alleging retaliation may not have disclosed or even planned to disclose anything.

Fifth, the protection of whistleblowers applies even if disclosing illegal activity is part of the employee’s job duties. For example, a publicly traded company’s compliance officer is now protected for disclosing alleged illegal activity even though her job requires her to report such activity, externally or internally. This change was in reaction to previous California court decisions, which had previously interpreted this section not to provide protection to an employee whose duties include disclosure of legal compliance information.

Although the change in law creates new sources of liability for California employers – with penalties of up to $10,000 per violation – the law at least clarifies a prior split of authority. California and federal law are now harmonized regarding whether an employee must first report an alleged violation of securities laws to the SEC to receive protection against retaliation under the Dodd-Frank Act. A California employee is protected under state and federal law, regardless of whether he or she first reports violations of securities laws to a government or law enforcement agency, to a specified public body, or via an employer’s internal reporting procedure.

In light of the expanded protection for whistleblowers who report unlawful conduct to or about their employers, employers should update their anti-retaliation policies to reflect these new provisions and request that employees acknowledge receipt of this update. Employers should train managers and supervisors regarding their compliance obligations and anti-retaliation laws. Employers must be even more diligent in investigating employee reports promptly, impartially (i.e., a supervisor who is accused should not be the one to investigate), and take appropriate corrective action. Employers should always carefully document the legitimate business reasons for adverse employment decisions such as discipline and terminations, but the expansion of whistleblower protections to difficult-to-disprove “internal complaints” and perceived planned complaints makes this even more important. And, if at all possible, persons accused of alleged violations should not be permitted to make unilateral decisions adverse to the complaining employee.