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Various federal and state laws protect individuals who “blow the whistle” and report company violations of the law, such as violations of workplace safety, financial reform and securities laws.
California Provides Broad Protections: In California, Labor Code Section 1102.5 encourages employees to notify an appropriate government or law enforcement agency when they have reason to believe that their employer is violating laws that were enacted to protect corporate shareholders, investors, employees and the general public. These are commonly referred to as “whistleblower” protections. Even without this legislation to protect employees, terminating an employee who reported such violations would likely be a wrongful termination in violation of public policy. Legislation effective January 1, 2014 amends Labor Code section 1102.5 to expand California whistleblower protections. It is illegal in California to make, adopt or enforce any rule, regulation or policy to prevent an employee from:
If the employee reasonably believes that the information discloses either of the following:
The amendments effective in 2014 expanded the law to include reports alleging a violation of a localrule or regulation. Prior to this time only state and federal statute, rules and regulations were covered. The 2014 amendments also expanded whistleblower protections to employees who disclose, or may disclose, information internally “to a person with authority over the employee or another employee who has authority to investigate, discover or correct the violation.” Prior to that time, only external disclosures made to government or law enforcement agencies were covered.
Labor Code section 1102.5 prohibits retaliation against an employee for disclosing this type of information or because the employer believes the employee may disclose this type of information. The 2014 amendments expanded the protection to prohibit retaliation when the employer simply believes that the employee may disclose information — even if the employee has not actually done so.
The employee is protected from retaliation when the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation or noncompliance with a local, state or federal rule or regulation. In other words, there does not need to be an actual violation of the law; the employee is protected if the employee had reasonable cause to believe that the information disclosed a violation of the law. Employers cannot discipline, terminate or otherwise takea dverse action against an employee who engages in protected whistleblower activity.
An employee who refuses to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a local, state or federal rule or regulation is also protected from retaliation. These protections apply even if the activity involved a former employer. The protection further extends to employees of:
The law specifically exempts rules, regulations or policies that implement the confidentiality of the lawyer-client privilege, the physician-patient privilege, or trade secret information. Also exempt are actions by employers against employees who violate these rules. If the employee shows that his/her whistleblowing contributed to the alleged adverse employment action against the employee, burden shifts to the employer to demonstrate, by clear and convincing evidence, that the alleged action would have occurred for legitimate, independent reasons even if the employee did not engage in protected activities.
The Attorney General maintains a confidential whistleblower hotline to receive calls from people with information about 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. Hotline calls are referred to the appropriate government authority for review and possible investigation. During the initial review of a call, the Attorney General or appropriate government agency must treat information that is disclosed through the whistleblower hotline, including the caller’s identity and the employer identified by the caller, as confidential.
Adverse Employment Action Defined: In Patten v. Grant Joint Union High School Dist., a California appeals court ruled that a school principal’s disclosure to legislative personnel about a school district’s use of blank “transfer of funds” forms was whistleblowing. The principal was entitled to a trial to determine if her lateral transfer from one school to another constituted a retaliatory adverse employment action. Both schools were middle schools and there was no change in the principal’s title, wages, benefits and duties. However, the court was persuaded that her material responsibilities were significantly diminished when she was transferred from a challenging assignment at a large underperforming school to a small school with high-achieving students and more parental support. As a relatively young principal with her administrative career ahead of her, the transfer could be viewed unfavorably. The court found that the transfer could be an adverse employment action even though the employee’s wages, benefits and duties were the same.
Required California Whistleblower Posting: You must display a list of employees’ rights and responsibilities under the whistleblower laws. The poster must include the whistleblower hotline telephone number, and the poster font size must be greater than 14 point type. State agencies can comply with the posting requirement by displaying a notice pursuant to Section 8548.2 of the Government Code or Subdivision (b) of section 6128 of the Penal Code. Posted notices must contain the whistleblower hotline number.
Other State and Federal Whistleblower Statutes: Additional state and federal whistleblower laws protect employees who report various types of unlawful activity. For example, in California, employees who complain that they are not being paid according to the state’s wage-and-hour laws are protected from retaliation. The federal Fair Labor Standards Act (FLSA) also contains an anti-retaliation provisions which protects employees who complain about violations of federal wage and hour laws. The U.S. Supreme Court has held that a verbal complaint is sufficient to trigger the FLSA's anti-retaliation provisions. The federal Occupational Safety and Health Administration (OSHA) is charged with enforcing whistleblower protections of more than 22 separate statutes, including the Sarbanes-Oxley Act and safety statutes.
Notice Requirements Under the American Recovery and Reinvestment Act of 2009: The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides protections for individuals that make specific disclosures about uses of Recovery Act funds. Employees of non-federal employers receiving Recovery Act funds are protected, including employees of state and local governments, contractors, subcontractors, grantees, and professional membership organizations acting on behalf of fund recipients. Disclosures showing gross mismanagement or gross waste, among other things, are protected. All job sites receiving Recovery Act funds must post the Recovery Act Whistleblower Rights Poster. All Recovery Act job sites are encouraged to post the Recovery Act Fraud Hotline Poster. For more information, and to download the posters visit the U.S. government's official website, Recovery.Gov.
Sarbanes-Oxley Whistleblower Protection: The Sarbanes-Oxley Act of 2002 protects employees who provide information or assist in investigations into conduct that the employee “reasonably believes” violates federal criminal law relating to:
The Sarbanes-Oxley Act also protects people who testify or otherwise participate in prosecuting these types of violations. The law protects employees of publicly traded companies and brokerage firms. The law prohibits retaliation or discrimination in employment, discharge and demotion or discipline. It protects employees from harassment or threats of adverse employment action.
On March 4, 2014, the U.S. Supreme Court ruled that Sarbanes Oxley whistleblower protections should be extended to cover employees of private companies that contract or subcontract with public companies.
The case was brought by employees of privately held companies (collectively FMR) that provide advisory and management services to the Fidelity family of mutual funds. As is common in the industry, the mutual funds served by FMR are public companies with no employees. The plaintiffs alleged that FMR retaliated against them after they “blew the whistle” on alleged fraud in financial reporting practices and planned SEC filings affecting Fidelity funds. FMR argued that SOX’s protections applied only to employees of public companies, and not to employees of private companies that contract with public companies. The Supreme Court disagreed and extended the whistleblower protections to employees of public companies’ private contractors and subcontractors.
The Securities and Exchange Commission and the federal Occupational Safety and Health Administration (OSHA) enforce the Sarbanes-Oxley Act. For more information, see the OSHA Fact Sheet, Filing Whistleblower Complaints under the Sarbanes-Oxley Act.