Responding to the recent wave of corporate fraud sweeping the nation, new amendments to California´s Labor Code encourage employees to "blow the whistle" on the unlawful activities of corporate employers. Based on the theory that a corporation´s employees are uniquely positioned to have knowledge of and report corporate misconduct, the amendments:
- establish a whistleblower hotline
- require employers to post a notice regarding the rights of whistleblowers
- extend the protections afforded to whistleblowers
- increase the penalties for violating the whistleblower laws.
The new whistleblower legislation went into effect on
The Whistleblower Hotline
One important feature of the new whistleblower legislation is that it requires the Attorney General to create and maintain a whistleblower hotline. The purpose of the hotline is to "receive calls from persons who have information regarding possible violations of state or federal statutes, rules, or regulations, or violations of fiduciary responsibility by a corporation or limited liability company to its shareholders, investors, or employees."[1] Calls placed to the whistleblower hotline are referred to the appropriate government authority for an initial review and, when merited, further investigation. All information obtained by the Attorney General or appropriate agency during the initial review period-including the identities of the caller and the employer-is considered confidential. The new whistleblower legislation expressly indicates that calling the whistleblower hotline does not have any impact on the existing statutes of limitation.
Notice Requirements
Another important feature of the new whistleblower legislation is that it requires employers to "prominently display"[2] a summary of the whistleblower laws. This notice must be in lettering "larger than 14 pica type"[3] and include the telephone number of the whistleblower hotline (1-800-952-5225). Provided that their existing notices are updated to include the telephone number of the whistleblower hotline, state agencies that are already required to display similar postings under Government Code Section 8548.2 or Penal Code Section 6128 need not post additional notices.
The Division of Labor Standards Enforcement (DLSE) has posted a sample notice on its website (www.dir.ca.gov/dlse/WhistleblowersNotice.pdf). According to the DLSE, this notice complies with the new whistleblower legislation except for the fact that it is not larger than size 14 pica type. As a result, employers who adopt the DLSE´s sample should revise it to ensure that it satisfies the sizing requirements. Of course, employers are also free to develop their own notices. Employers who do so, however, should be sure to include "a list of employees´ rights and responsibilities under the whistleblower laws, including the telephone number of the whistleblower hotline[.]"[4]
Additional Protections from Retaliation
Existing law already prohibits employers from adopting rules or policies that prevent employees from reporting corporate misconduct. It also prohibits employers from retaliating against employees who disclose information about unlawful corporate activity to a government or law enforcement agency. The new whistleblower legislation extends these protections in two important ways. First, it prohibits retaliation against employees who refuse to participate in an activity that would result in a violation. Accordingly, employers must exercise caution to avoid altering the terms and conditions of employment regarding any employee who believes that he or she has been asked to do something unlawful. Second, the new whistleblower legislation also prohibits retaliation against employees who previously exercised their whistleblowing rights during former employment. Thus, an employer must avoid taking any action that could be interpreted as retaliatory when it obtains information that a current employee reported his or her former employer for corporate wrongdoing. Caution is also merited when making a decision not to hire an applicant whose former employer has indicated that he or she is a "trouble-maker," a "complainer," or the like. In keeping with existing whistleblower laws, these extended protections do not apply to situations involving employees who violate the confidentiality of the attorney-client privilege, the physician-patient privilege, or trade secret information.
The new whistleblower legislation also establishes new evidentiary standards for civil lawsuits and administrative hearings regarding alleged violations of its provisions. Specifically, once an employee demonstrates by a preponderance of the evidence that the employee´s protected activity was a "contributing factor" to the employer´s alleged retaliatory conduct, the employer must then shoulder the heavier burden of proving by "clear and convincing" evidence that it based its actions on legitimate-and independent-business reasons.[5]
Increased Penalties
The new whistleblower legislation also supplements the penalties for employers who violate the whistleblower laws. Prior to the amendments, employers who failed to comply with the whistleblower laws were guilty of a misdemeanor with a penalty of up to one year in county jail, a fine of up to $1,000, or both. Corporations found guilty were subject to a fine of up to $5,000. While these penalties remain in effect, the new whistleblower legislation authorizes additional civil penalties for corporations and limited liability companies of up to $10,000 per violation.
In sum, employers must now prominently display a list of employees´ rights and responsibilities under the whistleblower laws, including the telephone number of the whistleblower hotline. Furthermore, while employers have always had reason to exercise extreme caution when dealing with employees who report unlawful conduct, they now have additional statutory reasons for exercising such caution when dealing with employees who refuse to participate in an activity that they believe would result in a violation and employees or applicants with a known history of making complaints about corporate wrongdoing during previous employment.
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[5] While a "preponderance of the evidence" refers to over 50% of the believable evidence, "clear and convincing evidence" is a more stringent standard requiring an even higher probability.
Micah Parzen is an associate in the Labor and Employment Practice Area at Luce, Forward,
