Protecting Whistleblowers from Retaliation – California Supreme Court Upholds Section 1102.6 Employee-Friendly Standards Test, Not Employer-Friendly McDonnell Douglas Test

The California Supreme Court has resolved a nearly 20-year-old disagreement over the burden-shifting test that applies to whistleblower retaliation claims. Since 2003, some courts have applied the framework set out in Labor Code Section 1102.6, while others have applied the test outlined in the U.S. Supreme Court decision McDonnell Douglas Corp. vs. Green (1973) 411 US 792.

Following certification by the Ninth Circuit to resolve the dispute, the California Supreme Court found that Section 1102.6 governs and employees are not required to satisfy the Mc Donnel Douglas test.

Conflicting tests

Section 1102.5 of the Labor Code protects California employees from retaliation for reporting unlawful conduct perceived by their employer.

Section 1102.6, which sets out the standard for assessing such requests for retaliation, states that once the employee establishes “by the preponderance of the evidence” that the retaliation was a “contributing factor” in the termination, demotion or other adverse action by the employee, the onus then shifts to the employer to demonstrate “by clear and convincing evidence” that it would have taken the same adverse action “for legitimate and independent reasons”.

The similar, but significantly different, Mc Donnel Douglas test charges the employee to present prima facie evidence of discrimination or retaliation. The burden then shifts to the employer to articulate a “legitimate reason” for the adverse action, upon which the burden shifts back the employee to demonstrate that the legitimate reason invoked is a “pretext” of discrimination or reprisal. It is this last obstacle by the plaintiff to prove the pretext which was considered by the Lawson to research.

the Lawson Facts

The plaintiff, Wallen Lawson, worked for a manufacturer (PPG) selling paint products to Lowes. According to Lawson, his manager told him to intentionally tint some slow-selling paint products to force Lowes to sell the paint at a discount and save PPG from having to buy back the unsold product. Lawson declined to participate and filed anonymous complaints with PPG’s ethics hotline. PPG investigated and told the manager to stop the practice, but allowed the manager to continue supervising Lawson. Lawson’s performance reviews declined, and he was fired several months later.

Lawson filed a lawsuit in California District Court under Section 1102.5, alleging he was fired for exposing his manager’s fraudulent practices. PPG sought summary judgment. The district court applied the Mc Donnel Douglas test. Finding that Lawson had failed in his obligation to prove the pretext, the court granted summary judgment to PPG.

On appeal, the Ninth Circuit asked the California Supreme Court for guidance on which charge transfer test to apply.

Section 1102.6 governs the submission and evaluation of whistleblower retaliation allegations under Section 1102.5

The California Supreme Court began by explaining that, as originally drafted, Section 1102.5 provided only substantive protections against whistleblower retaliation without identifying the process by which a plaintiff could enforce those protections. Based on analogous case law in the FEHA context, California courts have borrowed the Mc Donnel Douglas burden shifting test, which was created to test claims of circumstantial evidence of employment discrimination under Title VII. Following this precedent, California authorities held that an employer could avoid whistleblower retaliatory liability if they could prove that they would have made the same adverse employment decision, regardless of the reason for the retaliation.

In response to several high-profile scandals, the legislature amended whistleblower laws and added section 1102.6 in 2003 to encourage employees to report illegal acts and protect them in doing so. Section 1102.6 is a purely procedural section that clearly sets out the burdens of proof and the respective evidentiary standards to be applied in whistleblower claims brought under Section 1102.5.

Unfortunately, California jurisdiction remained divided after 2003, with some courts recognizing and applying the new standard of Section 1102.6 and others continuing to apply the Mc Donnel Douglas test. This confusion has spread to federal courts applying California law.

The California Supreme Court examined the legislative history behind the 2003 amendments to whistleblower laws as well as the evolution of the understanding of the employer/employee dynamic since Mc Donnel Douglas has been decided. She pointed to the fact that in 1973 the law “generally presumed ‘that the employer has a single reason for taking adverse action against the employee and that the reason is either discriminatory or legitimate'”. The test is designed to compel the parties to identify the “real” reason for the employer’s action. The law has since evolved to recognize the reality that employers frequently act for multiple reasons, so-called “mixed motive” cases, and the California Supreme Court has previously determined that the Mc Donnel Douglas test is not appropriate for assessing mixed motive FEHA discrimination actions.

The Court recognized that the framework of Article 1102.6 is more favorable to employees than the Mc Donnel Douglas test, but explained that it made sense in the context in which it was enacted. The addition of section 1102.6 was intended to help employees feel safe in reporting their employer’s illegal activities. Forcing them to prove the pretense by their employers was contrary to this intention. Accordingly, whistleblower retaliation claimants need only meet the requirements of Section 1102.6, not the additional requirements imposed by Mc Donnel Douglas.

Key points to remember

This decision has significant implications for employees and employers because Section 1102.6 significantly shifts the burden of proof in favor of the employee. The clear and convincing standard of proof is high and requires the employer to prove that motives for retaliation played virtually no role in their decision to take adverse employment action. Employers will need to ensure that they develop a thorough and comprehensive pool of evidence establishing the legitimate reasons that justified the adverse actions they have taken against the whistleblower.

This decision is also a compelling reminder that even with a reasonably clear statutory directive like section 1102.6, entrenched precedent can be difficult to change and can create confusing and inconsistent results. The best place to start any legal analysis is the text of the law itself.

Case information: Lawson v. PPG Architectural Finishes – filed January 27, 2022, 12 Cal. 5th 703 (https://www.courts.ca.gov/opinions/documents/S266001.PDF)