California Supreme Court Adopts Employee-Friendly Test for Whistleblower Retaliation Claims

Factual Background 

Plaintiff Lawson worked as a territory manager for defendant PPG Architectural Finishes, Inc., a paint and coatings manufacturer, from 2015 to 2017. In 2017, Lawson was placed on a performance improvement plan after receiving multiple poor evaluations. Shortly thereafter, Lawson made two anonymous complaints to PPG’s central ethics hotline, claiming that his direct supervisor had ordered him to intentionally “mis-tint” slow-selling PPG paint products so that PPG would not have to buy back unsold products from retailers. A few months later, after determining that Lawson had failed to meet the goals outlined in his performance improvement plan, Lawson was terminated.

Procedural Background 

Lawson filed suit in federal court, claiming that PPG had fired him because he blew the whistle on his supervisor’s fraudulent mis-tinting practices in violation of Labor Code section 1102.5. The District Court granted PPG’s motion for summary judgment by applying the three-part burden shifting test set forth in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), which provides that: (1) if the employee establishes a prima facie case of retaliation, (2) the burden of production shifts to the employer to articulate a legitimate reason for its decision, and if it does, (3) the burden shifts back to the employee to show that that the employer’s reason is pretextual. The district court determined that Lawson failed to demonstrate that PPG’s stated reasons for termination, i.e., poor performance, were pretextual.

Lawson subsequently appealed to the Ninth Circuit, arguing that the district court had erred by applying the McDonnell Douglas test instead of the test embodied in Labor Code section 1102.6. The Ninth Circuit certified the question to the California Supreme Court for its guidance.

California Supreme Court Decision 

In its January 27, 2022, decision, the California Supreme Court answered the Ninth Circuit’s question by holding that Labor Code section 1102.6 provides the governing framework for the evaluation of whistleblower claims brought under Labor Code section 1102.5. Under section 1102.6, an employee must show by a preponderance of the evidence that the whistleblowing activity was a “contributing factor” to the employee’s termination. The employer then must provide “clear and convincing” evidence that it would have taken the same action against the employee “even had the plaintiff not engaged in protected activity.” The Supreme Court further explained that “plaintiffs may satisfy their burden of proving unlawful retaliation even when other, legitimate factors also contributed to the adverse action” and that its holding was in line with the legislature’s purpose in enacting Labor Code section 1102.6 of expanding protections against retaliation.

Employer Takeaways 

California employers sued under Labor Code section 1102.5 et seq. must now meet a tougher standard. They must show by clear and convincing evidence that they would have taken the same action irrespective of the plaintiff’s whistleblower complaint. 

Under the McDonnell Douglas test, they would only need to show a legitimate reason for their actions and that the action was not pretextual. Employers may wish to review their anti-retaliation policies to ensure that whistleblower complaints are addressed in a timely and appropriate fashion and that termination decisions in the face of whistleblower complaints would have been made even if the whistleblower complaint had not been made.  

Arent Fox will continue to be available to assist on whistleblower termination and litigation matters, including advice and counsel on how best to conduct an investigation into whistleblower complaints. If you have questions about this case or issues related to anti-retaliation policies, please contact John P. Zaimes or Jeffrey B. Weston to discuss.