What’s the Proper Method for Presenting and Evaluating a Claim of Whistleblower Retaliation Under Labor Code Section 1102.5?

Whistleblower

The U.S. Court of Appeals for the Ninth Circuit asked the California high court to decide which framework governs retaliation claims in the state: the one found in Labor Code section 1102.6 or the one found in the U.S. Supreme Court's decision in McDonnell Douglas Corp. v. Green (1973).

Background

Since 2003, the California Labor Code has set out a scheme for employee whistleblowing: Once an employee-whistleblower proves by a preponderance of the evidence that retaliation was a contributing factor in the employee's termination, demotion, or other adverse action, the employer then had to show that it would’ve taken the same action “for legitimate, independent reasons.”

However, Justice Leondra Kruger of the California Supreme Court noted in Lawson v. PPG Architectural Finishes, Inc., that in the years since section 1102.6 became law, some courts have persisted in instead applying “a well-worn, but meaningfully different,” burden-shifting framework found in the U.S. Supreme Court's decision in McDonnell Douglas Corp. v. Green (1973). Noting the lack of uniformity, the United States Court of Appeals for the Ninth Circuit asked the California high court to decide which of these frameworks governs section 1102.5 retaliation claims.

“Mis-Tinting” Slow-Selling Paint

From 2015 until he was fired in 2017, the plaintiff Wallen Lawson worked as a territory manager for PPG Architectural Finishes, Inc. (PPG), a paint and coatings manufacturer. Lawson was responsible for stocking and merchandising PPG paint products in Lowe's stores in Southern California.

PPG used two metrics to evaluate Lawson's performance: his ability to meet sales goals, and his scores on so-called “market walks,” in which his managers shadowed him to evaluate his rapport with Lowe's staff and customers. Lawson's direct supervisor, Clarence Moore, attended all but the first of these market walks. On that first market walk, Lawson received the highest possible rating, but after that, his market walk scores fell, and he frequently missed his monthly sales targets. In spring 2017, PPG placed Lawson on a performance improvement plan.

Lawson said at the same time, Moore began ordering him to intentionally “mis-tint” slow-selling PPG paint products—or tint the paint to a shade the customer hadn’t ordered. Lowe's would then be forced to sell the paint at a deep discount, allowing PPG to avoid buying back what would otherwise be excess unsold product. Lawson didn’t agree with this scheme and filed two anonymous complaints with PPG. He also told Moore directly that he refused to participate. The complaints led to an investigation, and PPG eventually told him to discontinue the practice. However, Moore stayed with the company and continued to directly supervise Lawson and oversee his market walk evaluations.

After a few months of determining Lawson hadn’t met the goals in his performance improvement plan, both Moore and Moore's supervisor recommended that Lawson be fired. He was.

The Plaintiff Files a Lawsuit

Lawson filed suit arguing that PPG fired him because he blew the whistle on Moore's fraudulent mis-tinting practices, in violation of the protections codified in Labor Code section 1102.5. PPG moved for summary judgment, and the district court applied the three-part burden-shifting framework set out in McDonnell Douglas to evaluate Lawson's section 1102.5 claim. Under that approach:

  1. The employee must establish a prima facie case of unlawful discrimination or retaliation;
  2. The employer bears the burden of articulating a legitimate reason for taking the challenged adverse employment action.
  3. The burden shifts back to the employee to demonstrate that the employer's proffered legitimate reason is a pretext for discrimination or retaliation.

On appeal to the Ninth Circuit, Lawson argued that the district court erred in applying McDonnell Douglas. He contended the court should’ve have applied the framework set out in Labor Code section 1102.6. Under that framework, Lawson contended his burden was merely to show that his whistleblowing activity was “a contributing factor” in his dismissal—rather than having to demonstrate that PPG's stated reason was pretextual.

The Ninth Circuit determined that the outcome of Lawson's appeal depended on which of the two tests applied, but signaled uncertainty on this. The Ninth Circuit noted that California’s appellate courts don’t follow a consistent practice and that the state supreme court has never ruled on the issue and asked the California Supreme Court to consider the question.

Justice Kruger’s Opinion Notes Confusion in California Courts

In her opinion, Justice Kruger explained that Section 1102.5 provides whistleblower protections to employees who disclose wrongdoing to authorities. Section 1102.5 prohibits an employer from retaliating against an employee for sharing information the employee “has reasonable cause to believe … discloses a violation of state or federal statute” or of “a local, state, or federal rule or regulation” with a government agency, with a person with authority over the employee, or with another employee who has authority to investigate or correct the violation.

When section 1102.5 was first enacted in 1984, the statute had only a set of substantive protections against whistleblower retaliation, with no procedures for proving retaliation. So, California courts looked to analogous statutory schemes for procedural guidance, many of which adopted the three-part McDonnell Douglas burden-shifting framework.

However, in 2003, the state legislature amended the Labor Code's whistleblower protections in response to a series of high-profile corporate scandals and reports of illicit coverups. These amendments were designed to “encourage earlier and more frequent reporting of wrongdoing by employees and corporate managers when they have knowledge of specified illegal acts” by “expanding employee protection against retaliation.”

The 2003 amendments added a procedural provision, section 1102.6, which states:

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.

But after section 1102.6 took effect, some California courts identified that provision as supplying the applicable standards for claims of whistleblower retaliation under section 1102.5, without relying on McDonnell Douglas's burden-shifting framework… and some courts continued to rely on the McDonnell Douglas framework without mentioning section 1102.6.

As the Ninth Circuit explained in its certification order, this varied approach has “sown widespread confusion as to which evidentiary standard actually applies to section 1102.5 retaliation claims.”

To respond, Justice Kruger opined that, by its terms, section 1102.6 describes the applicable substantive standards and burdens of proof for both parties in a section 1102.5 retaliation case:

  1. It must be “demonstrated by a preponderance of the evidence” that the employee's protected whistleblowing was a “contributing factor” to an adverse employment action;
  2. Once the employee has made that necessary threshold showing, the employer bears the burden of proof to demonstrate by clear and convincing evidence that the alleged adverse employment action would have occurred “for legitimate, independent reasons” even if the employee had not engaged in protected whistleblowing activities.

In this case, PPG argued that the sole pertinent effect of section 1102.6 was to codify a kind of defense available to employers, colloquially known as the “same-decision defense,” and to impose a heightened burden to prove the defense by “clear and convincing evidence.” Justice Kruger acknowledged that section 1102.6 does those things, but that’s not all it does.

“The first prong of the statute also tells us what plaintiffs must prove to establish liability, and by what evidentiary standard,” the justice explained.

Specifically, plaintiffs must show, by a preponderance of the evidence, that whistleblowing was a contributing factor in the employer's decision.

“This is a complete set of instructions for the presentation and evaluation of evidence in section 1102.5 cases,” Justice Kruger wrote. It wasn’t merely the codification of an affirmative defense.

Conclusion

The California Supreme Court answered the Ninth Circuit's question that section 1102.6 provides the governing framework for the presentation and evaluation of whistleblower retaliation claims brought under section 1102.5.

It places the burden on the plaintiff to establish, by a preponderance of the evidence, that retaliation for an employee's protected activities was a contributing factor in a contested employment action. The Court said that the plaintiff needn’t satisfy McDonnell Douglas to discharge this burden. Once the plaintiff has made the required showing, the burden shifts to the employer to demonstrate, by clear and convincing evidence, that it would have taken the action in question for legitimate, independent reasons even had the plaintiff not engaged in protected activity. Lawson v. PPG Architectural Finishes, Inc., S266001, 2022 Cal. LEXIS 312 (Cal. January 27, 2022).

Bottom Line

The California Supreme Court clarified that section 1102.6—not McDonnell Douglas—provides the applicable framework for litigating and adjudicating section 1102.5 whistleblower claims.

The plaintiff-employee's burden under § 1102.6 is to establish retaliation as a contributing factor by a preponderance of the evidence; then, the burden shifts to the employer to show a legitimate, independent reason for the adverse action by clear and convincing evidence. However, section 1102.6 doesn’t require the employee to show that the employer's non-retaliatory reason was pretextual.

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