On January 27, 2022, in Lawson v. PPG Architectural Finishes, Inc., No. S266001,___ Cal.5th ___, the California Supreme Court made it harder for employers to prevail on whistleblower retaliation claims by embracing the more employee-friendly analytical framework set forth in California Labor Code section 1102.6.
Legal and Procedural Background
Before the Lawson decision, there were two competing analytical frameworks in assessing retaliation claims. The first is the three-part burden-shifting framework set out in McDonnell Douglas Corp. v. Green (1972) 411 U.S. 792, which (1) places the initial burden on the employee to establish a prima facie case of retaliation, (2) then shifts the burden to the employer to articulate a legitimate reason for its decision and (3) finally shifts the burden back to the employee to show the employer’s reason was pretextual. The second is the two-part analysis set forth in California Labor Code section 1102.6, which (1) places the initial burden on the employee to demonstrate by a preponderance of the evidence that retaliation was a “contributing factor” in the adverse employment action, and then (2) the burden shifts to the employer to prove by clear and convincing evidence that the adverse action would have occurred even if the employee had not engaged in protected conduct.
In Lawson, plaintiff Wallen Lawson complained of allegedly fraudulent activity and subsequently had his employment terminated. He sued his former employer PPG under section 1102.5. The U.S. District Court for the Central District of California applied the three-part, burden-shifting framework from McDonnell Douglas and granted the employer’s motion for summary judgment. In brief, the District Court ruled Lawson had established a prima face case of unlawful retaliation but failed to establish that the employer’s proffered legitimate reasons, including poor performance, were pretextual. Lawson appealed to the Ninth Circuit. The issue on appeal was the appropriate framework for Lawson’s section 1102.5 claim—McDonnell Douglas or Cal. Lab. Code section 1102.6. The Ninth Circuit acknowledged the existence of “widespread confusion” about the appropriate standard and observed the “state’s appellate courts do not follow a consistent practice.” It certified the issue for consideration to the California Supreme Court.
The “Contributing Factor” Analytical Framework Governs Section 1102.5 Whistleblower Retaliation Claims
In a unanimous decision written by Justice Leondra Kruger, the Court held the section 1102.6 governs retaliation claims. The Court based its conclusion on the statutory text, which “describes the applicable substantive standards and burdens of proof for both parties in a Section 1102.5 retaliation case.” Specifically, section 1102.6 provides:
In a civil action or administrative proceeding brought pursuant to Section 1102.5, once it has been demonstrated by a preponderance of the evidence that an activity proscribed by Section 1102.5 was a contributing factor in the alleged prohibited action against the employee, the employer shall have the burden of proof to demonstrate by clear and convincing evidence that the alleged action would have occurred for legitimate, independent reasons even if the employee had not engaged in activities protected by Section 1102.5.
The Court noted this section was enacted to achieve the public policy purpose of curtailing fraudulent and unlawful corporate financial and accounting activity and was “designed to encourage earlier and more frequent reporting of wrongdoing by employees and corporate managers” who have knowledge of specific illegal acts.
The Court opined that the McDonnell Douglas framework is not “well suited” to whistleblower retaliation claims because it presumes an employer has only a single reason for an adverse action which “is either discriminatory or legitimate.” But section 1102.5 contemplates recovery by a plaintiff even if only one of several reasons for the adverse employment action is based on impermissible retaliation. Thus, a section 1102.5 plaintiff can prove unlawful retaliation “even when other, legitimate factors also contributed to the adverse action.”
Notably, the “contributing factor” analysis does not prevent employers from taking adverse employment actions against whistleblowers. Rather, it requires employers to prove they would have made the same decision and taken the same adverse employment action, even if the employee had not complained. The Court confirmed employers will still “be able to raise a same-decision defense on summary judgment” and courts will still be able to dismiss “meritless” whistleblower retaliation claims before trial.
What This Means
The Lawson decision effectively increases the burden on employers and decreases the burden on employees in section 1102.5 whistleblower retaliation cases. Employees must now prove (by “a preponderance of the evidence”) that the protected activity “was a contributing factor in a contested employment action.” Employers must now prove (by “clear and convincing evidence”) they would have taken the same action against the employee “even had the plaintiff not engaged in protected activity.”
To proactively defend against whistleblower retaliation claims, employers should adopt a policy to prevent workplace retaliation from arising in the first instance. For example, a successful prevention strategy will include the following:
- Providing employees with multiple methods of reporting illegal activity;
- Disseminating whistleblower protection policies to employees;
- Appointing an appropriate person to investigate claims of illegal activity and a “whistleblower liaison” to communicate with whistleblowers, supervisors, and other involved parties;
- Training supervisors and HR personnel on appropriate methods to respond when employees report illegal activity;
- Ensuring any adverse employment actions with respect to whistleblowers are legally defensible.
We have substantial experience litigating whistleblower retaliation claims and assisting in proactively addressing compliance issues by helping employers update their policies and performing audits. If you are interested in discussing these issues, or have any questions about this blog, please feel free to contact us.