California Supreme Court Sets Framework for Whistleblower Retaliation Claims

Employment Law

A territory manager for paint and coatings manufacturer PPG Architectural Finishes, Wallen Lawson was responsible for stocking and merchandising PPG paint products in Lowe’s home improvement stores in Southern California.

In the spring of 2017, Lawson filed two anonymous complaints with PPG’s internal ethics hotline. He claimed that his supervisor ordered him to intentionally mis-tint slow-selling PPG paint products to a shade the customer had not ordered. This would force Lowe’s to sell the paint at a deep discount and enable PPG to avoid buying back what would otherwise be excess unsold product.

The complaints led to an investigation, and his supervisor was told to discontinue the practice. The supervisor remained with the company, however, and recommended that Lawson be terminated a few months later.

Lawson filed suit in California federal court. He alleged that PPG fired him because he blew the whistle on the fraudulent mis-tinting practices in violation of Section 1102.5.

PPG moved for summary judgment. Relying on a series of cases, the district court applied the three-part, burden-shifting framework laid out in McDonnell Douglas to evaluate the claim and granted the motion.

Lawson appealed. He argued that the district court erred by applying the McDonnell Douglas standard and should have instead applied the framework set out in Labor Code Section 1102.6.

Reasoning that the outcome of the appeal hinged on which of the two tests applied, the Ninth Circuit sent the issue to the California Supreme Court. In a unanimous decision, the court sided with Lawson.

“Unsurprisingly, we conclude courts should apply the framework prescribed by statute in Labor Code [S]ection 1102.6,” the court wrote. “Under the statute, employees need not satisfy the McDonnell Douglas test to make out a case of unlawful retaliation.”

When Section 1102.5 was first enacted in 1984, the statute supplied only a set of substantive protections against whistleblower retaliation, unaccompanied by any provision setting forth procedures for proving retaliation, the court explained. Courts began applying the McDonnell Douglas test to these cases.

But in 2003, the California legislature amended the Labor Code to add 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.”

While some California courts identified the new provision as supplying the applicable standards for claims of whistleblower retaliation under Section 1102.5—without relying on McDonnell Douglas’ burden-shifting framework—others continued to rely on McDonnell Douglas.

The use of different standards by different courts over several years created widespread confusion, the California Supreme Court acknowledged.

“To resolve the confusion, we now clarify that [S]ection 1102.6, and not McDonnell Douglas, supplies the applicable framework for litigating and adjudicating [S]ection 1102.5 whistleblower claims,” the court wrote. “By its terms, [S]ection 1102.6 describes the applicable substantive standards and burdens of proof for both parties in a [S]ection 1102.5 retaliation case.”

The court disagreed with PPG that the only impact of Section 1102.6 was to codify the “same-decision defense” and to impose a heightened burden to prove the defense by “clear and convincing evidence.”

While Section 1102.6 does those things, it also explains what plaintiffs must prove to establish liability and by what evidentiary standard, the court stated.

“Specifically, plaintiffs must show, by a preponderance of the evidence, that whistleblowing was a contributing factor in the employer’s decision,” the court wrote. “This is a complete set of instructions for the presentation and evaluation of evidence in [S]ection 1102.5 cases; it is not merely the codification of an affirmative defense.”

Nor was the court willing to concede that Section 1102.6 worked together with McDonnell Douglas.

The three-part McDonnell Douglas test was not written for the evaluation of claims involving multiple reasons for the challenged adverse action, the court said, but instead focused on “identifying the single, true reason” for the adverse action, where, in contrast, Section 1102.6 allows whistleblower plaintiffs to show that retaliation was a “contributing factor” to the adverse action.

Also problematic: the third step of McDonnell Douglas, which requires the plaintiff to prove that an employer’s proffered legitimate reason for taking an adverse action was a pretext for impermissible retaliation.

“Under [S]ection 1102.6, a plaintiff does not need to show that the employer’s nonretaliatory reason was pretextual,” the court wrote. “There is, then, no reason why whistleblower plaintiffs should be required to satisfy the three-part McDonnell Douglas inquiry – and prove that the employer’s proffered legitimate reasons were pretextual – in order to prove that retaliation was a contributing factor under [S]ection 1102.6. To the contrary, placing this unnecessary burden on plaintiffs would be inconsistent with the legislature’s evident purpose in enacting [S]ection 1102.6: namely, ‘encourag[ing] 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.’”

To read the opinion in Lawson v. PPG Architectural Finishes, Inc., click here.

Why it matters: The California Supreme Court left no doubt that courts should no longer apply the McDonnell Douglas framework when evaluating whistleblower retaliation claims under Section 1102.5. Instead, courts should use Section 1102.6: Once an employee-whistleblower establishes by a preponderance of the evidence that retaliation was a contributing factor in the employee’s termination, demotion or other adverse action, the employer bears the burden of demonstrating by clear and convincing evidence that it would have taken the same action for legitimate, independent reasons.



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