The Supreme Court of California, in response to a question certified to it by the US Court of Appeals for the Ninth Circuit, clarified on January 27 in a unanimous opinion that California Labor Code Section 1102.6 provides the framework for evaluating whistleblower retaliation claims filed under Labor Code Section 1102.5.
In bringing Section 1102.5 retaliation claims, employees are not required to satisfy the three-part burden-shifting test the US Supreme Court established in 1973 in its landmark McDonnell Douglas Corp. v. Green decision. The Supreme Court of California held that whistleblower retaliation claims brought under Section 1102.5 are to be analyzed using the “contributing factor” standard in Labor Code Section 1102.6, much like the more lenient and employee-favorable evidentiary standard for evaluating whistleblower retaliation claims brought under the Sarbanes-Oxley Act of 2002, 18 USC § 1514A (SOX). Under this more lenient standard, an employee establishes a retaliation claim under Section 1102.5 with a preponderance of the evidence that the whistleblowing activity was a “contributing factor” to an adverse employment action.
Labor Code Section 1102.5 prohibits an employer from retaliating against an employee for disclosing or providing information to the government or to an employer conduct that the employee reasonably believed to be a violation of law. Prior to the 2003 enactment of Labor Code Section 1102.6, courts generally used the McDonnell Douglas test, commonly applied to federal workplace discrimination claims, to analyze Section 1102.5 whistleblower retaliation claims. Under the McDonnell Douglas test, the employee must first establish a prima facie case of unlawful discrimination or retaliation. The burden then shifts to the employer to articulate a legitimate, nondiscriminatory reason for taking the challenged adverse employment action. If the employer proves that the adverse action was taken for a legitimate, nondiscriminatory reason, then the burden shifts back to the employee to demonstrate that the employer’s proffered legitimate reason is a pretext for discrimination or retaliation.
Adopted in 2003 (one year after SOX became federal law), Section 1102.6 requires that an employee alleging whistleblower retaliation under Section 1102.5 first establish by a preponderance of the evidence that the alleged retaliation was a “contributing factor” in the employee’s termination, demotion, or other adverse employment action. If the employee meets this initial burden, then the burden shifts to the employer to demonstrate by clear and convincing evidence—a higher standard of proof than the employee is required to satisfy—that it would have taken the same action for “legitimate” reasons that are independent from the employee’s protected whistleblower activities. Unlike the McDonnell Douglas test, Section 1102.6 does not shift the burden back to the employee to establish that the employer’s proffered reasons were pretextual. After Section 1102.6 took effect, however, many courts in California continued to apply the McDonnell Douglas test to analyze Section 1102.5 whistleblower retaliation claims.
In Lawson v. PPG Architectural Finishes, Inc., Lawson filed two anonymous complaints with PPG’s ethics hotline about his supervisor’s allegedly fraudulent activity. The complaints resulted in an internal investigation. At the same time, PPG counseled Lawson about poor performance, and eventually terminated his employment. Lawson then filed a complaint in the US District Court for the Central District of California against PPG claiming his termination was in retaliation for his whistleblower activities in violation of Labor Code Section 1102.5.
The district court applied the McDonnell Douglas test to evaluate Lawson’s Section 1102.5 claim and concluded that Lawson could not establish that PPG’s stated reason for terminating his employment was pretextual. The court granted summary judgment to PPG on the whistleblower retaliation claim. On appeal to the Ninth Circuit, Lawson argued that his Section 1102.5 claim should have been analyzed using the Labor Code Section 1102.6 framework. The Ninth Circuit referred to the Supreme Court of California the question of which evidentiary standard applies to Section 1102.5 claims. The state supreme court accepted the referral and received briefing and arguments on this question.
In a unanimous opinion authored by Associate Justice Leondra Kruger, the court determined the Labor Code Section 1102.6 framework should be applied to evaluate claims under Section 1102.5.
The court found that the McDonnell Douglas test is not suited to “mixed motive” cases, where the employer may have had multiple reasons for the adverse employment action. Thus, there is no reason, according to the court, why a whistleblower plaintiff should be required to prove that the employer’s stated legitimate reasons were pretextual. The court also noted that the Section 1102.6 standard is similar to, and consistent with, the more lenient standard used in evaluating SOX whistleblower retaliation claims. In addition, the court noted that requiring plaintiffs to satisfy the McDonnell Douglas test would be inconsistent with the California State Legislature’s purpose in enacting Section 1102.6, which was intended to expand employee protection against retaliation.
Given the court’s adoption of (1) the “contributing factor” standard, (2) an employer’s burden to establish by clear and convincing evidence that it would have taken the unfavorable action in the absence of the protected activity, and (3) the elimination of a burden on the employee to show pretext in whistleblower retaliation claims under Labor Code Section 1102.5, employees likely will threaten to file more such claims in response to employment terminations and other adverse employment actions.
Employers should review their anti-retaliation policies, confirm that their policies for addressing whistleblower complaints are up-to-date, and adopt and follow robust procedures for investigating such claims. In addition, employers should consider reassessing litigation defense strategies in whistleblower retaliation cases brought under Section 1102.5.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Los Angeles
Kathryn T. McGuigan
Orange County
Daryl S. Landy
Philadelphia
Sarah E. Bouchard
Princeton
Thomas A. Linthorst
New York/Washington, DC
Lincoln O. Bisbee