Employment Law Observer

In the spirit of the season, we are using our annual "12 Days of California Labor and Employment" blog series to address new California laws and their impact on employers. On the eighth day of the holidays, my labor and employment attorney gave to me eight maids a-milking and SB 2299.

On March 1, 2024, the Second Circuit affirmed the judgment of the Southern District of New York in Brian La Belle v. Barclays Capital Inc, No. 23-448 (2d Cir. 2024).

On January 27, 2022, the California Supreme Court issued its Opinion in Lawson v. PPG Architectural Finishes, No. S266001, __  Cal. 5th ___, 2022 Cal. Lexis 312 (Jan. 27, 2022) regarding the proof paradigm in California "whistleblower" retaliation cases. This decision increases the evidentiary burden on defendants seeking summary judgment. It also clarifies that the proof paradigm in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), does not apply to California whistleblower claims. McDonnell Douglas established a three-step burden-shifting framework in discrimination cases. The California Supreme Court took the opportunity to clarify the evidentiary burdens and noted that section 1102.6 of the California Labor Code already provides a complete description of the evidentiary burden in a whistleblower case.

On February 21, 2018, the U.S. Supreme Court ruled that provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that protect whistleblowers from being fired, demoted, or harassed by their employers only apply to people who actually make a report of a violation of the federal securities laws to the Securities and Exchange Commission. The Dodd-Frank Act established a whistleblower program that was designed to motivate individuals to report securities laws violations to the SEC by providing whistleblowers with incentives and protections. Individuals who voluntarily report information to the SEC may be entitled to a cash award of 10 to 30% of the monetary sanctions collected in enforcement actions, and they are protected from retaliation by their employers for having provided that information.

In order to get whistleblower protection under the Sarbanes-Oxley Act of 2002, whistleblowers have to subjectively believe that fraud was occurring, their belief has to be reasonable, and they have to make a report to the Securities and Exchange Commission. The Seventh Circuit recently reaffirmed these conditions for legal protection in deciding that the former CEO of Orion Energy System, Inc. was not entitled to federal whistleblower protection in Verfuerth v. Orion Energy System, Inc., decided on January 11, 2018.

It’s the end of the year and while everyone is busy, employers in California should be aware of new laws and regulations that go into effect on January 1, 2018. In the spirit of the season, we are using the next "12 days of the holidays" to blog about one California law a day and that law’s impact on California employers. On the eleventh day of Christmas, my Labor and Employment attorney gave to me – eleven ladies dancing and AB 1102.

In the past two years, the SEC has charged six public companies with violating SEC Rule 21F-17, which prohibits confidentiality agreements that could impede employees from making whistleblower claims directly to the SEC. Since the Employment Law Observer reported on the SEC’s first case attacking a confidentiality agreement., the SEC has charged five more companies with Rule 21F-17 violations. In each case, the employer had confidentiality or severance agreements that either: (a) purported to limit the types of information that an employee may convey to the SEC or other authorities; or (b) required departing employees to waive their rights to any individual monetary recovery in connection with reporting information to the government. The employers settled the cases by, among other things, amending the agreements and paying a significant civil penalty.

It's that time of year again! School's back in session, the leaves are starting to change, and Hinshaw is putting on its annual Labor & Employment Seminar! Thursday, October 20th is the big day in Hoffman Estates, Illinois. Have you been wondering...

Lisa Pedersen was a dialysis clinic nurse who was responsible for assessing patients, working with physicians, and administering medication to patients. Pedersen was counseled about aggression in the workplace and other performance issues, which led her to become upset and yell at her manager. During a discussion later that day, Pederson articulated, for the first time, that she had previously noticed that a box of blood samples were incorrectly packaged and that she believed them to be compromised. Pedersen then notified another manager, a customer service representative, a vice president, and an employee relations manager of the suspected compromised samples. She also advised all parties that she felt she would be retaliated against as a result of exposing the potential contamination.

On January 21st, the Supreme Court affirmed a former air marshal's right to whistleblower protection relating to his leaking of air security plans to the media. The 7-2 decision written by Chief Justice John Roberts in the case, Department of Homeland Security v. MacLean, No. 13-894 (U.S. January 21, 2015), represents a rare victory for government whistleblowers who expose dangers to public health or safety.

Gary Vander Boegh worked as a landfill manager for the U.S. Department of Energy. While there, Vander Boegh engaged in what he claimed was protected whistleblowing activity, including reporting environmental violations that occurred at the plant. When Vander Boegh's employer lost its contract to provide waste management services for the plant, Vander Boegh applied at EnergySolutions, Inc., which had taken over the waste management contract, in the hopes that he would continue his job as landfill manager at the plant.  EnergySolutions refused to hire him. 

A federal district court in Connecticut this week held that the federal Dodd-Frank Act protects a larger class of “whistleblowers” than many previously thought. In allowing the claimant’s “whistleblower" retaliation claim to survive a motion to dismiss, the judge ruled that Dodd-Frank’s definition of “whistleblower” was broad enough to protect not only those who file official complaints with the Security and Exchange Commission (SEC), but also those who provide the SEC with informal letters complaining of unlawful practices. The judge rejected concerns that such an interpretation would allow Dodd-Frank’s anti-retaliation provision — with its longer statute of limitations and double-pay awards – to effectively swallow the corresponding provisions of the (less claimant-friendly) Sarbanes-Oxley Act: “the Dodd-Frank Act appears to have been intended to expand upon the protections of Sarbanes-Oxley,” the judge noted, “and thus the claimed problem is no problem at all.”

Former employees of private companies that act under contract as advisers to and managers of mutual funds organized under the Investment Company Act of 1940 filed suit against their respective employers for unlawful retaliation after they were terminated. The employees claimed that they were entitled to the whistleblower protection provision within the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1514A) (“SOX”) because they had reported potential fraud and security violations. The employers contested this, arguing that SOX’s protections did not extend to employees of private companies, and filed motions to dismiss the lawsuits.The district court disagreed with the employers, holding that this particular provision of SOX did protect employees of private companies that are contractors or subcontractors to “public companies" (as defined under the Act), where those employees were reporting violations relating to fraud against shareholders.

A tax manager at a home products company was terminated after reporting a tax fraud scheme to the company and federal agencies. Following the internal report, the tax manager received a negative performance evaluation from a supervisor involved in the alleged scheme. After the external reports and failed attempts to get the tax manager to sign a release of claims, the company terminated him and sued the tax manager for breach of contract and conversion. In response, the tax manager sued for a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). In a RICO claim, recovery is available upon a showing that the plaintiff was injured “by reason of” a pattern of racketeering activity. Based on the pleadings, the tax manager was limited to showing that he was injured “by reason of” the company’s retaliatory conduct to his whistleblower activity. In allowing the tax manager’s claim to survive a motion to dismiss, the U.S. Court of Appeals Seventh Circuit focused on a provision of the Sarbanes-Oxley Act making it unlawful to “knowingly . . . take[] any action harmful to any person . . . for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense.” Violation of this provision is a “racketeering activity” under the RICO, and the Seventh Circuit held that retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower. Accordingly, the alleged tax fraud scheme and retaliatory acts could not be viewed as isolated acts. After all, the same supervisors involved in the tax fraud scheme were responsible for the retaliatory conduct. Additionally, the timing between the whistle-blowing, attempts to get a release and the decision to terminate could support an inference that the tax manager was terminated for whistle-blowing after attempts to silence him failed. If possible, employers should prohibit supervisors accused of wrongdoing from making disciplinary decisions related to the complaining employee.