California boasts strong protection for whistleblowers and robust retaliation laws

Learn how to use the arsenal of tools to litigate claims such as the one filed against Wells Fargo

Jennifer Schwartz
Menaka Fernando
2016 November

California boasts some of the most protective whistleblower and retaliation laws in the nation. In the last few years, the state legislature has acted to bolster these protections in line with California’s “broad public policy interest in encouraging workplace whistleblowers to report unlawful acts without fearing retaliation.” (Diego v. Pilgrim United Church of Christ (2014) 231 Cal.App.4th 913, 922.)

A class-action lawsuit filed against Wells Fargo last month by employees of the embattled banking giant, (Polonsky v. Wells Fargo Bank & Company, et. al. (L.A.S.C. Case No. BC634475 Sep 22, 2016), illustrates the importance of these protections.1  As has been widely reported, Wells Fargo has admitted to creating as many as two million unauthorized accounts for bank customers in a practice called “cross-selling.”  There are allegations that this was done to increase the price of Wells Fargo stock.  The directive to do so was allegedly handed down from former Wells Fargo CEO John Stumpf (he denies this).2  The lawsuit alleges that the bank imposed aggressive quotas, forcing its employees to engage in unlawful practices – including the creation of fraudulent accounts – to meet unrealistic sales goals. To “motivate” other employees to engage in this illegal conduct, the lawsuit alleges that the bank either demoted or fired a class of employees that refused to open fraudulent accounts to meet impossible sales quotas. A putative class of these employees alleges violations of several California whistleblower and retaliation protections. 

Labor Code section 1102.5 provides broad protection

The most noteworthy of California’s whistleblower statutes is Labor Code section 1102.5, which protects employees who report or refuse to participate in unlawful conduct. Specifically, the statute forbids retaliation if the employee disclosed, “or because the employer believes that the employee disclosed or may disclose information, to a government or law enforcement agency, to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance, or for providing information to, or testifying before, any public body . . . 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 . . . .”  (Lab. Code, § 1102.5, subd. (b).) In addition, the statute forbids an employer from retaliating against an employee “for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation.” (Lab. Code, § 1102.5, subd. (c).) 

Like the Wells Fargo employees, plaintiffs can allege violations of section 1102.5 where an employer subjects them to retaliation for opposing or refusing to engage in unlawful conduct, e.g., in that case, the creation of unauthorized bank accounts. The Wells Fargo lawsuit makes apparent that the company, allegedly sanctioned at the highest levels, not only stole from its customers but also imposed widespread harm to its employees by forcing them to engage in illegal activity to avoid losing their jobs. In an economy where full-time jobs with benefits are especially hard to come by, Wells Fargo’s conduct is even more egregious.

It is important to note that recent amendments to Labor Code section 1102.5 expand its reach to protect a broader group of employees. The statute now expressly prohibits anticipatory retaliation where the employer believes that the employee may report unlawful activity regardless of whether the employee has actually done so. (Lab. Code, § 1102.5, subd. (b).) The legislature also added safeguards for employees who only internally report illegal conduct to either a supervisory or other employee who has authority to investigate. (Ibid.) In addition, employees who complain of violations of the law as part of their job duties (e.g., human resources employees) are now explicitly protected. (Ibid.)

Significantly, the statute now explicitly protects reporting violations of local laws as well. (Ibid.) Thus practitioners should take care to consider all the local laws and regulations that may apply to a client’s circumstances. Cities like San Francisco3 and Oakland,4 for example, have wage protections and robust paid sick and family leave laws on the books that may bolster employees’ whistleblower claims and should not be overlooked.

Notably, section 1102.5 applies even where the employer is mistaken in believing that the employee reported or may report unlawful conduct. (Diego, supra, 231 Cal.App.4th at p. 923.) And protection extends to an employee’s family members. (Lab. Code, § 1102.5, subd. (h).) On the other hand, post-termination retaliation is not actionable under section 1102.5, so that defamatory statements made to a prospective employer after the employer-employee relationship ends would not provide a basis for legal action under the statute. (See Hansen v. California Dept. of Corrections and Rehabilitation (2008) 171 Cal.App.4th 1537, 1546.)

Tameny claims

Tameny claims provide wide-ranging protection when tethered to public policy. Employees who are retaliated against for reporting unlawful conduct may also bring a common law tort cause of action for Wrongful Termination in Violation of Public Policy, also known as a Tameny claim, under Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 176-177. Unlawful conduct underlying a Tameny cause of action must be tethered to fundamental public policies that are embodied in constitutional or statutory provisions. (Gantt v. Sentry Insurance (1992) 1 Cal.4th 1083, 1095.) The California Supreme Court has articulated four requirements that a policy must satisfy to support a Tameny claim: (1) the policy must be supported by constitutional or statutory provisions; (2) the policy must inure to the benefit of the public; (3) the policy must have been existed at the time of discharge; and (4) the policy must be fundamental and substantial. (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 889-890.)

A Tameny claim may be maintained even where an employee is not ultimately terminated.  Thus, an employee who has been subjected to adverse employment action such as a demotion or suspension without pay in retaliation for his or her whistleblowing activities may have a claim. (Garcia v. Rockwell Int’l Corp. (1986) 187 Cal.App.3d 1556, 1562.) As with most other California retaliation provisions, the employee need not show the employer conduct actually violated the law; rather, “reasonably based suspicions of illegal activity” is sufficient. (Green v. Ralee Eng. Co. (1998) 19 Cal.4th 66, 87.) 

What is considered “fundamental public policy” encompasses a broad variety of policies. Examples include prohibiting employment discrimination (the Fair Employment and Housing Act, Gov. Code, § 12900 et seq. and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.); violation of family and medical leave laws (e.g., the California Family Rights Act, Gov. Code, § 12945.2); retaliation for reporting unsafe working conditions (Lab. Code, § 6310); refusing to sign non-compete agreement (Bus. & Prof. Code, § 16600); and refusing to make prompt payment of wages (Lab. Code, § 216, subd. (a).) This is by no means an exhaustive list.

Wrongful discharge claims may also arise from breach of California’s constitutional provisions such as the prohibition against disqualifying a person “from entering or pursuing a business, profession, vocation, or employment because of sex, race, creed, color, or national or ethnic origin.” (Cal. Const., art. I, § 8; see also Rojo v. Kliger (1990) 52 Cal.3d 65, 89.) This provision may be useful, in particular, in employment situations where the protections of FEHA do not apply. Even administrative regulations that implement a statute that implicate fundamental public policies can support a Tameny claim. (See Green, supra, 19 Cal.4th at p. 82.)

The Wells Fargo employees allege that the bank’s conduct violates numerous fundamental public policies: prohibiting the use of another’s personal data for unlawful purposes (Pen. Code, § 530.5, subd. (a)); the unauthorized use of data to commit fraud (Pen. Code, § 502, subd. (c)(1)); the failure to disclose a security breach of computerized data (Civ. Code, § 1798.82 subd. (a)); and the obligations of financial institutions to protect the personal information of its customers from unauthorized access or misuse under the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq., and the regulations promulgated thereunder.

While generally it is important to specify each constitutional, statutory or regulatory basis that articulates the state’s public policy when pleading a Tameny claim, a recent court has found that even where the basis is not specified, a wrongful discharge claim may lie, so long as the plaintiff alleges allegations sufficient to invoke a fundamental public policy. (See Prue v. Brady Company/San Diego, Inc. (2015) 242 Cal.App.4th 1367, 1379-1380.)  Note, however, that Tameny claims generally do not lie against public entities. (Ross v. San Francisco Bay Area Rapid Transit Dist. (2007) 146 Cal.App.4th 1507, 1514.)

California provides expansive protections

Several other California statutes provide expansive whistleblower and retaliation protection in other contexts. FEHA, California’s anti-discrimination statute, prohibits retaliation against “any person” for engaging in protected activity under the statute, including job applicants, current or former employees and business partners. (Gov. Code, § 12940 subd. (h) (emphasis added); Fitzsimons v. California Emergency Physicians Med. Group (2012) 205 Cal.App.4th 1423, 1431.)

Protected activity includes participating in any manner in proceedings under the statute (including participating in an investigation or testifying as a witness) or opposing unlawful conduct by making formal or informal complaints to the employer regarding discrimination, harassment or retaliation (regardless of whether the complaints were well-founded). (Gov. Code, § 12940 subd. (h); Passantino v. Johnson & Johnson Consumer Products, Inc. (9th Cir. 2000) 212 F.3d 493, 506-507). This protection extends to an employee even when he or she only threatens to file a charge of employment discrimination. (Iwekaogwu v. City of Los Angeles (1999) 75 Cal.App.4th 803, 815.) 

FEHA was amended last year to explicitly provide that a request for reasonable accommodation on the basis of disability or religion is a protected activity under FEHA’s retaliation provision, regardless of whether the request was granted and whether the employee affirmatively “opposes” discriminatory conduct. (Gov. Code, § 12940, subds. (l)(4) & (m)(2).)

Earlier this year, the Equal Employment Opportunity Commission (“EEOC”) issued revised interpretive guidance regarding retaliation under federal anti-discrimination laws. Even where practitioners are only bringing state law claims, federal law and EEOC guidelines are critical tools that should not be overlooked. Indeed, it has long been held that federal anti-discrimination statutes provide the floor of protection that California’s law has always exceeded in the protections afforded to employees. (See, e.g., Gov. Code, § 12926.1, subd. (a).)

Of critical importance is the fact that the EEOC guidance expands the definition of protected activity to include complaints not only to a manager, but also, depending on the circumstances, statements to coworkers, an attorney, the police or customers. (See EEOC Enforcement Guidance on Retaliation and Related Issues (Aug. 2016), § II(A) (available at https://www.eeoc.gov/laws/guidance/retaliation-guidance.cfm#_ftnref165).) The EEOC also expands the definition of “adverse action” to include any action that might deter a reasonable person from engaging in protected activity. (Id. at II(B).) This action may include action that is work-related (e.g., failure to promote, demotion or discharge), or one that has no tangible effect on employment, or even action that takes place outside of work, as long as it may dissuade a reasonable person from opposing discriminatory conduct or engaging in other protected activity. (Ibid.)

These actions include, but are not limited to, work-related threats or reprimands; negative or lowered evaluations; transfer to less desirable work locations; false reports to government authorities or in the media; filing a civil action; heightened job scrutiny, engaging in abusive verbal or physical behavior likely to deter protected activity, even if it is not “severe or pervasive” enough to create a hostile work environment; threatening deportation; terminating a union grievance process or taking (or threatening to take) materially adverse action against a close family member. (Ibid.) A family member might also have a retaliation claim even if he or she is not an employee. (Ibid.)

Other notable whistleblower statutes

Unsafe working conditions: Labor Code section 6310 provides a basis for legal action where an employee is retaliated against for reporting unsafe working conditions in the workplace, whether reported internally or to a law enforcement agency like the Occupational Safety and Health Administration. (Lab. Code, § 6310, subd. (b).) The statute has been interpreted broadly to protect employees who make complaints about workplace violence and threatening behavior. (Franklin v. Monadnock Co. (2007) 151 Cal.App.4th 252, 255 [employers are required to take reasonable steps to address threats of violence in the workplace]; C at pp. *1-*3 [teacher who complained about potentially violent students engaged in protected activity].)

Wage Violations: Another expansive statute is Labor Code section 98.6, which prohibits an employer from retaliating against an employee for instituting a bona fide claim relating to his or her rights under the jurisdiction of the Labor Commissioner, for making a written or oral complaint that he or she is owed unpaid wages, or for initiating a claim under the Private Attorney General’s Act under Labor Code section 2699. (Lab. Code, § 98.6, subd. (a).)

Unsafe patient care and conditions: Health & Safety Code section 1278.5 prohibits retaliation against any patient, employee, member of the medical staff, or any health-care worker or a health-care facility who reports suspected unsafe patient care and conditions to the facility or government entities. (Health & Saf. Code, § 1278.5, subds. (b)(1)(A) & (B).)

Conclusion

Whether on a class action or individual basis, California’s various retaliation statutes provide practitioners with an arsenal of effective tools with which to litigate their whistleblower claims. Recent developments have expanded these protections and enhanced the ability for employees to recover.  

Jennifer Schwartz Jennifer Schwartz

Jennifer Schwartz is a partner at Outten & Golden LLP and leads the practice in its San Francisco office representing individual employees. Jennifer represents employees, including senior executives, in a wide variety of employment matters, ranging from wrongful termination, whistleblower, discrimination, sexual harassment, and retaliation claims to the negotiation of employment, severance, restrictive covenant, and trade secret agreements.

Menaka Fernando Menaka Fernando

Menaka Fernando is an associate at Outten & Golden LLP in San Francisco, where she represents individual employees in litigation and negotiation in all areas of employment law including wrongful
termination, whistleblower, sexual harassment, discrimination and retaliation claims.

Endnote

1 The lawsuit filed in Los Angeles Superior Court can be found at https://www.documentcloud.org/documents/3113835-Wells-Fargo-Class-Action.html.

2 See, e.g., http://www.bloomberg.com/news/articles/2016-10-12/wells-fargo-ceo-stumpf-steps-down-in-fallout-from-fake-accounts.

3 San Francisco’s minimum wage ordinance can be found at http://www.nbcbayarea.com/news/local/Minimum-Wage-Jumps-to-13-Per-Hour-in-San-Francisco-385257511.html. San Francisco’s paid sick leave ordinance can be found at http://sfgov.org/olse/PAID-SICK-LEAVE-ORDINANCE-PSLO.

4 Information about Oakland’s minimum wage and paid sick leave law can be found at http://www2.oaklandnet.com/government/o/CityAdministration/d/MinimumWage/index.htm. 

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