Client Alert

California Supreme Court Clarifies Standards for Whistleblower Claims Under California Labor Code Section 1102.5

04 Feb 2022

What Happened? Before last week, some courts had applied the standard in California Labor Code section 1102.6 to resolve whistleblower claims under California Labor Code section 1102.5, while other courts had applied the traditional burden-shifting framework from McDonnell Douglas Corp. v. Green.[1] On January 27, 2022, however, the California Supreme Court issued a unanimous decision in Wallen Lawson v. PPG Architectural Finishes, Inc. confirming that the arguably more employee-favorable standard in Labor Code section 1102.6, not McDonnell Douglas Corp. v. Green, applies to whistleblower claims brought under Labor Code section 1102.5.[2]

By way of background, Section 1102.5 provides in pertinent part, that:

An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for disclosing information, 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 conducting an investigation, hearing, or inquiry, 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, regardless of whether disclosing the information is part of the employee’s job duties.

Section 1102.6 requires that an employee first establish, by a preponderance of the evidence, that retaliation was a contributing factor in the adverse action.[3] In order to avoid liability, an employer must then demonstrate, by clear and convincing evidence, that it would have taken the same action “for legitimate independent reasons” even if the plaintiff had not engaged in the protected activity[4]

In contrast, under the McDonnell Douglas three-part burden-shifting framework, the employee must first establish a prima facie case of unlawful discrimination or retaliation.[5] The employer then bears the burden of articulating a legitimate reason for taking the challenged adverse employment action.[6] The burden then shifts back to the employee who, in order to prevail, must demonstrate that the employer’s reason was a pretext for discrimination or retaliation.[7]

What Are the Differences in the Two Standards?

The differences relate to the burden of proof and which party has it. Section 1102.6 puts the burden on the employer to show by clear and convincing evidence that it would have taken the same action even if the plaintiff had not engaged in protected activity.[8] In contrast, even though McDonnell Douglas is known as a burden-shifting test, the onus remains on the plaintiff throughout to prove that the defendant intentionally discriminated against him or her.[9]> In addition, the employer’s burden under section 1102.6 to produce “clear and convincing evidence” is a heavier burden than that required by McDonnell Douglas, which is to produce admissible evidence to allow a trier of fact to conclude the decision was not motivated by discriminatory animus.[10]

Under the McDonnell Douglas test, the district court held that Lawson’s claims failed, due to Lawson’s inability to satisfy the third step of the test.[11] Yet, on appeal, the Ninth Circuit indicated that the outcome hinged on which test applied and posed the question to the California Supreme Court due to inconsistency at the appellate court level.[12]

Lawson was a manager for defendant PPG Architectural Finishes, Inc. (PPG), a paint manufacturer. Lawson’s performance started on a positive note, but declined and he was placed on a performance improvement plan. Around the same time, Lawson alleges he was ordered by his direct supervisor to mistint slow-selling PPG paint products in a move to benefit the company. Lawson filed two anonymous complaints with the PPG ethics hotline. The supervisor was ordered to stop the practice, but remained with the company and as Lawson’s direct supervisor. A few months later, Lawson’s employment was terminated based on failure to satisfy his performance improvement plan (PIP).

Under the McDonnell Douglas test, the district court found that Lawson had made out a prima facie case for retaliation under section 1102.5.[13] Based on PPG’s evidence that it fired Lawson for failing to meet the requirements of his PIP, the court found that PPG had met its burden to provide a legitimate, nondiscriminatory reason for the termination of employment.[14] Ultimately, the court found that Lawson did not meet his burden to show that this proffered reason was pretext, particularly because Lawson’s declining performance scores were not attributable to retaliatory intent and because PPG’s reason for terminating Lawson did not change over time.[15]

Do the Differences Really Matter?

Lawson argued that Section 1102.6 should apply instead. If the district court had applied Section 1102.6 instead of McDonnell Douglas, there would have been no requirement for Lawson to prove that PPG’s purported reason for terminating Lawson was pretext. Further, the Ninth Circuit indicated that it believed the outcome of Lawson’s appeal hinged on which standard applied, raising the possibility that it viewed it as likely that the evidence Lawson submitted to build his prima facie case of retaliation would meet Section 1102.6’s preponderance of the evidence standard that retaliation was a contributing factor in his termination.[16] The burden would have remained on PPG to show by clear and convincing evidence that it would have taken the same action “for legitimate independent reasons” even if the plaintiff had not engaged in the protected activity.

In its holding, the California Supreme Court reasoned that McDonnell Douglas was not designed for “the evaluation of claims involving multiple reasons for the challenged adverse action.”[17] Specifically, McDonnell Douglas seeks a “single, true reason for the adverse action [which] creates complications in a so-called mixed-motives case, in which the employer is alleged to have acted for multiple reasons, some legitimate and others not[.]”[18]

The Court also analogized Section 1102.6 to the federal Sarbanes-Oxley Act, which has a “nearly identical burden-shifting framework” for whistleblower cases.[19] It noted that courts have generally held that the burden-shifting framework in the Act replaces McDonnell Douglas rather than supplements it.[20] Further, the Court opined that McDonnell Douglas does not serve the legislative purpose of Section 1102.6: to encourage more frequent reporting of wrongdoing by employees and corporate managers by expanding protection against retaliation.[21] Rather, the Court believed McDonnell Douglas places an unnecessary burden by requiring that an employee show that an employer’s nonretaliatory reason for an adverse employment action was pretextual.[22]

While future cases may define the threshold for what constitutes “clear and convincing evidence” in whistleblower cases brought under Section 1102.5, it is evident that the Section 1102.6 standard makes it harder for employers to prevail on summary judgment.

Takeaways for Employers

  1. In California, the standard for establishing a whistleblower claim under Labor Code section 1102.5 is lower than under California’s analog to Title VII, the Fair Employment and Housing Act.[23]
  2. A plaintiff pursuing relief under Section 1102.5 does not have to prove that an employer’s proffered reason for an adverse employment action was pretext.
  3. When adjudicating a Section 1102.5 claim, a court will consider all factors in determining if even one was “a contributing factor” in the adverse employment action.
  4. Clear documentation of the reasons for making employment decisions is more important than ever.

[1] McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973).

[2] Wallen Lawson v. PPG Architectural Finishes, Inc., __ P.3d __, No. S266001, 2022 WL 244731 (Cal. Jan. 27, 2022).

[3] Labor Code section 1102.6.

[4] Id.

[5] McDonnell Douglas, supra, at 802.

[6] Id.

[7] Id. at 804.

[8] Labor Code section 1102.6.

[9] McDonnell Douglas, supra, at 804.

[10] Wallen Lawson v. PPG Architectural Finishes, Inc., 982 F.3d 752, 759–760 (9th Cir. 2020).

[11] Id. at 760.

[12] Id.

[13] Lawson v. PPG Architectural Finishes, Inc., __ P.3d __, No. S266001, 2022 WL 244731, at *3 (Cal. Jan. 27, 2022).

[14] Id. at *4.

[15] Id. at *4-*5.

[16] Id. at *2-*3.

[17] Id. at *7.

[18] Id.

[19] Id. at *8.

[20] Id.

[21] Id. at *9.

[22] Id. at *8-*9.

[23] Id. at *3.

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