Analysis: California whistleblowers beware; complaining to the wrongdoer may not protect you from retaliation
February 27, 2023 – Imagine you witness your boss do something illegal at work and decide to blow the whistle. You protest directly to your boss, who seems best positioned to stop the illegal conduct. But having been caught and called out, your boss fires you, threatens to report you to government authorities, and warns you never to come back.
Most employees—especially those at small businesses and those higher up on the corporate ladder—would think that California’s strong employment laws protect them in this situation. Labor Code Section 1102.5(b), for example, prohibits retaliating against an employee for actually or potentially “disclosing information” “to a government or law enforcement agency,” “a person with authority over the employee,” or “another employee who has the authority to investigate, discover, or correct” the illegality. Surely the employee would have a claim under 1102.5 if she were fired simply for calling out her boss’s crimes.
Not so fast, says a divided panel on the Court of Appeal. In a case mirroring the hypothetical above, the employee complained directly to Gonzalo Estrada—her boss and the owner of the nightclub at which she worked—about not being paid for her last three shifts. This upset Mr. Estrada, who immediately fired the employee, threatened to report her to immigration authorities, and warned her never to return to the nightclub.
The trial court entered judgment against the employee, finding that because she complained to a manager who already knew about the illegal conduct, rather than to a law enforcement agency, she failed to state a claim.
Because 1102.5 clearly protects employees who report internally as well as those who report to law enforcement, the Court of Appeal ruled that the trial court erred. But the Court of Appeal found the error harmless because the employee’s complaint about wage theft didn’t reveal anything new to Mr. Estrada. Citing a slew of dictionary definitions of “disclose,” the majority reasoned that “foundational” to a “disclosure” is “the revelation of something new, or at least believed to be new, to the person or agency to whom the disclosure is made.” Because the employee didn’t and couldn’t allege Mr. Estrada was ignorant—as the person responsible for paying her wages, how could he be?—the Court of Appeal tossed the case.
The dissenter criticized the majority’s interpretation for being “unduly restrictive” and “thoroughly inconsistent” with the Legislature’s intent to protect employees from retaliation and to encourage them to report their concerns. The dissent reasoned instead that to “disclose” means to “report or to communicate information” about unlawful activity—“regardless of whether the recipient…is already aware of that information.”
While the Court of Appeal’s opinion was unpublished and therefore not precedential, the California Supreme Court nevertheless granted review to consider whether Labor Code section 1102.5(b) “protects an employee from retaliation for disclosing unlawful activity to a person or agency that already knows about the unlawful activity.” (See People ex rel. Lilia Garcia-Brower v. Kolla’s, Inc., Case No. S269456.)
The high Court’s decision to review the issue may be designed to preemptively prevent a conflict percolating among the Courts of Appeal. In Hager v. County of Los Angeles (2014) 228 Cal.App.4th 1538, for example, a different panel held that “a [d]isclosure within the meaning of section 1102.5(b) occurs even if the recipient is already aware of the information reported to it.” (Hager, however, involved a public sector employee—opening up an avenue for the California Supreme Court to distinguish between private and public sector employees.)
In practical terms, the Supreme Court’s decision will have profound effects no matter how the justices resolve the question.
If the Supreme Court agrees with the Court of Appeal, the success of “internal” retaliation claims will turn on whether the employee selects the right person to disclose information to. That may leave employees at small businesses—where the illegality may already be known to most or even all of those with the “authority to investigate, discover, or correct” the illegality—with substantially lesser protection than employees at large companies with access to sprawling HR departments. Even in large companies, employees’ best course of conduct would not be intuitive—isn’t the best person with “authority” to “correct” the illegality the person who is breaking the law? Moreover, in companies of all sizes, employees would be incentivized to forgo internal reporting procedures and to report instead to government agencies in the first instance—depriving employers of the opportunity to correct the conduct before it escalates and their liability grows. Finally, as the plaintiff points out, when faced with a rule that requires an employee to choose between the risk of ruining the employment relationship by reporting externally, and the risk of “irremediable retaliation” by reporting internally, the only “truly safe course” is to “do nothing at all.”
Whatever the result, the California Supreme Court’s recent attention to retaliation claims under Labor Code section 1102.5 is notable. This is the second 1102.5 case it has taken in as many years, the last being Lawson v. PPG Architectural Finishes, Inc. (2022) 12 Cal.5th 703, in which it resolved a split among the Courts of Appeal by endorsing an employee-friendly evidentiary standard for proving retaliation claims. In the unanimous opinion by Justice Kruger, Lawson held that once an employee establishes by a preponderance of the evidence that she suffered an adverse consequence for disclosing illegality, the burden shifts to employers to prove by clear and convincing evidence that the employee would have suffered the bad outcome even if she had not identified any wrongdoing. Plaintiffs need not, as they must under federal law, prove that they were retaliated against for a pretextual reason.
In the meantime, employees who see or experience unlawful conduct and are considering blowing the whistle should be cautious about not only what they report, but who they report to. Until the law is settled, employees should consider consulting with an experienced employment attorney who can help guide them through the pitfalls.
The California Supreme Court will hear argument in People ex rel. Lilia Garcia-Brower v. Kolla’s, Inc., Case No. S269456 on Wednesday, March 8, 2023 at 1:30 pm in San Francisco. Live streaming and recordings of arguments are available on the Supreme Court’s website here.
Kyle is an associate at San Francisco-based Phillips, Erlewine, Given & Carlin LLP, where he represents employees subjected to retaliation, discrimination, harassment, and wage theft across California. In addition to his trial court practice, Kyle is a member of the firm’s appellate team, handing matters in the state and federal appellate courts, including the California Supreme Court where he currently serves as counsel for plaintiffs in Raines v. US Healthworks (Case No. S273630) and Gantner v. PG&E (Case No. S273340).