State Whistleblowing Laws Provide Whopping Verdicts
Employers have finally started to recognize that the risks attendant to whistleblower claims in federal legislation such as the False Claims Act, the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act can be enormous. But what about state whistleblower laws? Last year, employers in jurisdictions including New Jersey and Michigan were slapped multimillion-dollar verdicts under state-specific whistleblower statutes. See Mooney v. Atlantic City, No. L00204710 (N.J. Super. Ct. Law Div. Oct. 16, 2013); Cadwell v. City of Highland Park, 2013 WL 3971570 (Mich. Cir. Ct. Feb. 25, 2013).
Unlike federal whistleblower laws, state whistleblower laws vary greatly by jurisdiction. In fact, the simple question, "Who is a whistleblower?" has a different answer in different states. Some states, such as New Jersey and Florida, have enacted sweeping whistleblower laws that prohibit private employers from retaliating against employees who object to or refuse to participate in unlawful activities, report unlawful activities to governmental agencies and/or assist in governmental investigations. See Fla. Stat. 448.102; N.J. Stat. 34:19-1 et seq. Other states offer more limited protections. New York's whistleblower law, for example, only prohibits retaliation against private employees who disclose or threaten to disclose conduct that "creates and presents a substantial and specific danger to the public health or safety, or which constitutes health care fraud." N.Y. C.L.S. Lab. 740 et seq.
What is more, if the developments in state whistleblower laws last year are any indication, we are likely to see an awfully wide expansion in whistleblower protections.California, New Jersey and Minnesota have significantly expanded existing whistleblower laws, and New York and Pennsylvania are considering paying bounties to encourage whistleblowers to come forward.
In October 2013, California significantly expanded its whistleblower protection statute. The California Labor Code previously prohibited employers from impairing employees' right to report reasonably believed violations of state or federal laws, rules or regulations to a government or law enforcement agency. The new law, which took effect on Jan. 1, extends this prohibition to cover employees who report purported illegal behavior internally to "a person with authority over the employee" or to another employee with the authority to "investigate discover, or correct" the reported violation; and externally to any "public body conducting an investigation, hearing, or inquiry." Cal. SB No. 496 (2013).
Perhaps more startling to employers is that the amendment subjects them to liability for "anticipatory retaliation." In other words, they can be held liable for retaliation against an employee based on the mere belief that the employee might be a whistleblower.
New Jersey amended its Law Against Discrimination (LAD) to prohibit an employer from retaliating against any employee who requests certain employment information, provided that the purpose of the request is to investigate potential discriminatory treatment or take legal action for discriminatory treatment regarding compensation. While an employer is not required to release such information in response to an employee's request, the statute prohibits reprisals against any employee who makes such a request.
Additional statutory protections for whistleblowers in New Jersey may be forthcoming, as legislation proposed by a member of New Jersey's Senate would further amend the LAD as well as New Jersey's Conscientious Employee Protection Act and the state's Worker Freedom from Employer Intimidation Act to extend legal protections and remedies to unpaid interns, who cannot now be considered whistleblowers.
Not to be outdone by California and New Jersey, Minnesota amended its whistleblower law to clarify that its law is to be interpreted in the broadest possible manner. The Minnesota Whistleblower Act, enacted in 1987, provides that an employer shall not "penalize" any employee for that employee's "good faith" reporting of a violation, suspected violation or planned violation of law. M.S.A. 181.932. The amendments to the act suggest that the statute will be construed quite broadly by defining "good faith" as "anything that is not in false or in reckless disregard for the truth" and "penalize" as "conduct that might dissuade a reasonable employee from making or supporting a report, including post-termination conduct by an employer or conduct by an employer for the benefit of a third party."
Following the much ballyhooed whistleblower bounty provisions in Dodd-Frank, which authorize the U.S. Securities and Exchange Commission to pay substantial awards to individuals who provide original information concerning violations of federal securities laws, state legislatures in New York and Pennsylvania are considering enacting laws that would similarly provide financial incentives for whistleblowers. New York's Senate has passed a bill that, if enacted, would mirror the Dodd-Frank bounty provision by rewarding whistleblowers who provide information to the New York State Department of Financial Services (DFS) — an agency established in October 2011 to regulate banks and insurance companies conducting business in New York. If enacted, the law would allow eligible whistleblowers to recover between 10 percent and 30 percent of monetary sanctions obtained by the DFS for violations of New York's banking, insurance and financial services laws. It remains to be seen how the bounty program would be funded and administered.
Pennsylvania lawmakers have similarly introduced legislation that would reward whistleblowers. If passed, the Pennsylvania False Claims Act would allow whistleblowers to file a civil lawsuit against anyone alleged to have committed health care or other fraud against the state. The proposed law emulates some of the key provisions of the federal False Claims Act, which has led to the recovery of more than $30 billion for the government since 1986. Like the federal statute, the Pennsylvania law would enable whistleblowers to share in any recovery and would provide employment protections for those who pursue false claims lawsuits. The bill also specifies that if the alleged fraud is proven in court, violators would be liable for triple the damages sustained by the state. While the whistleblower may initiate the lawsuit, the state attorney general's office would have primary responsibility for investigating and prosecuting the action.
In addition to the proposed False Claims Act, in February 2013 the Pennsylvania House of Representatives passed a bill that would expand Pennsylvania's whistleblower law to private employers who receive state funds. The bill is under consideration by the Pennsylvania Senate.
While whistleblower protections may vary greatly from state to state, one issue is certain — given the tremendous financial and reputational damage that whistleblower claims have engendered, employers should remain vigilant about developments in state laws and continually review and update their compliance protocols and policies accordingly.
Harris Mufson and Noa Baddish are associates in the labor and employment practice at Proskauer Rose.