In late-2013 Governor Jerry Brown signed into law three  bills (SB 496, SB 666 and AB 263), which together significantly expanded California Labor Code Section 1102.5 (Section 1102.5), California’s general whistleblower statute. While litigation continues in California courts regarding whether these amendments apply retroactively, one thing is certainly clear, whistleblower claims in California will assuredly be on the rise going forward based on these new amendments.

Prior to 2014, Section 1102.5 essentially prohibited an employer from retaliating against an employee who either (1) discloses information to a governmental or law enforcement agency based on a reasonable belief that the employer is violating a statute, rule, or regulation, or (2) refuses to participate in an employer activity that would result in a violation of a statute, rule, or regulation. Under the prior version of Section 1102.5, internal complaints by an employee to his employer were not enough to support a claim of retaliation under Section 1102.5.

The new amendments to Section 1102.5 extend whistleblower protection not only to employees under the circumstances described above, but also to employees who report suspected illegal behavior: (1) internally to “a person with authority over the employee” or to another employee with the authority to “investigate discover, or correct” the reported violation; or (2) externally to any “public body conducting an investigation, hearing, or inquiry.” Taking it a step even further, the new amendments also provide protection to employees who allege that they have been retaliated against because the employer “believes” that the employee disclosed or may disclose information internally or externally. This last amendment is potentially most troubling because it effectively exposes an employer to potential allegations of retaliation under Section 1102.5 based on the mere belief that an employee disclosed or might disclose information about a reasonably-believed violation of federal, state, or local law, even if the employee in fact did not make such a disclosure.

In addition to significantly expanding what employee conduct is protected under Section 1102.5, AB263 also amended another Labor Code section which has a significant impact on Section 1102.5. Prior to the passage of AB263, longstanding California Supreme Court precedent had held  that pursuant to Labor Code section 98.7, an employee was required to file a complaint with the Labor Commissioner as a prerequisite to filing a lawsuit in state or federal court alleging retaliation under Section 1102.5, often referred to as administrative exhaustion.[1]  Thus, prior to the passage of AB263, where an employee failed to first satisfy his or her administrative exhaustion requirements before filing a lawsuit in state or federal court alleging retaliation under Section 1102.5, an employer could effectively move to dismiss the employee’s claims on procedural grounds. AB 263 expressly did away with this mandatory administrative exhaustion requirement when it amended Labor Code section 98.7 and added subsection (g), which states “In the enforcement of this section, there is no requirement that an individual exhaust administrative remedies or procedures.”

Thus, the new amendments to Section 1102.5 dramatically change the statute both procedurally and substantively. Violations of Section 1102.5 can have serious consequences for employers, including civil penalties of up to $10,000 per violation. This $10,000 penalty is in addition to all other penalties and damages that an employee may be entitled to.

What this all means to California employers is that just about any complaint made or believed to have been made by an employee internally or externally alleging activity reasonably believed to be unlawful can now form the basis for a whistleblower retaliation claim under Section 1102.5.  An employer’s best defense in avoiding significant exposure under Section 1102.5 is to regularly review and update internal policies, handbooks and procedures, to ensure that these policies reflect the changes effected by the amendments to Section 1102.5. California employers would also be well advised  to apprise their managers and supervisors of the new amendments and to emphasize the need for proper documentation when complaints are made by employees of the type discussed herein.

[1] See Campbell v. Regents of University of California (2005) 35 Cal.4th 311.

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