Employers may begin to see an increase in whistleblower litigation.

Effective January 1, 2014, the Legislature, through Senate Bill 496, amended Section 1102.5, California’s “whistleblower protection” statute.  We covered this in our “year in review” seminar, but given the scope of the changes in the law, we wanted to make sure to get the word out to those of you who may have missed it.

First, the revised statute now expands the statute’s protections to employees who report suspected violations of the law internally to “a person with authority over the employee” or to another employee with the authority to “investigate discover, or correct” the reported violation.  This means, to trigger whistleblower protection, the employee does not have to report the alleged violation to any entity, agency, or person outside the company.

Second, whistleblower protection now extends to external reports to any “public body conducting an investigation, hearing, or inquiry.”

Third, it is now unlawful for any employer to have any rule, regulation, or policy that prevents the disclosure of reasonably-believed violations of local (in addition to state and federal) laws, rules, or regulations.  Previously, the statute had been interpreted to exclude violations of local laws (see Edgerly v. City of Oakland (2012) 211 Cal.App.4th 1191).

Fourth, the revised statute also newly imposes liability where any person acting on the employer’s behalf (i.e., a manager) retaliates against an employee who either does engage in protected whistleblowing activity or who the employer believes has disclosed or may disclose the information externally or internally. This so-called “anticipatory retaliation” is particularly troubling, because the employee alleging retaliation may not have disclosed or even planned to disclose anything.

Fifth, the protection of whistleblowers applies even if disclosing illegal activity is part of the employee’s job duties. For example, a publicly traded company’s compliance officer is now protected for disclosing alleged illegal activity even though her job requires her to report such activity, externally or internally.  This change was in reaction to previous California court decisions, which had previously interpreted this section not to provide protection to an employee whose duties include disclosure of legal compliance information.

Although the change in law creates new sources of liability for California employers – with penalties of up to $10,000 per violation – the law at least clarifies a prior split of authority. California and federal law are now harmonized regarding whether an employee must first report an alleged violation of securities laws to the SEC to receive protection against retaliation under the Dodd-Frank Act. A California employee is protected under state and federal law, regardless of whether he or she first reports violations of securities laws to a government or law enforcement agency, to a specified public body, or via an employer’s internal reporting procedure.

In light of the expanded protection for whistleblowers who report unlawful conduct to or about their employers, employers should update their anti-retaliation policies to reflect these new provisions and request that employees acknowledge receipt of this update.  Employers should train managers and supervisors regarding their compliance obligations and anti-retaliation laws. Employers must be even more diligent in investigating employee reports promptly, impartially (i.e., a supervisor who is accused should not be the one to investigate), and take appropriate corrective action.  Employers should always carefully document the legitimate business reasons for adverse employment decisions such as discipline and terminations, but the expansion of whistleblower protections to difficult-to-disprove “internal complaints” and perceived planned complaints makes this even more important.  And, if at all possible,  persons accused of alleged violations should not be permitted to make unilateral decisions adverse to the complaining employee.

Summary of Program

Join the attorneys from Weintraub Tobin’s Labor and Employment Group as they discuss important legal developments from 2013 and review the complexities of a number of new laws facing employers in 2014.

Program Highlights

  • New Federal and State Legislation and Regulatory Requirements
  • Updates in the World of Harassment, Discrimination and Retaliation Law
  • Privacy: Social Media and Beyond
  • Keeping up with the Complex Law Relating to Leaves of Absences and Reasonable Accommodations
  • Developments and Trends in Wage and Hour Litigation

Date:       April 30, 2014

Time:      9:00 a.m. – 12:00 p.m.

Location:   Irvine Company Office Properties, 610 Newport Center Drive, Newport Beach, CA 92660

For more information and to register for this seminar, please click here for a copy of the Flyer – Employment Law Update.

It is a truism that preliminary injunctions are “rare” and “exceptional” remedies.  But rarity is context specific.  As a percentage of cars made, Cobra GTs are rare.  If you are standing in the plant where they are made, however, they are anything but rare.  So, while it may well be true that preliminary injunctions, as a percentage of all cases filed are “rarely granted,” that does not mean that most preliminary injunctions are denied.   Although I have no numbers, my experience is that most preliminary injunctions that are brought before a court are likely granted.  That is because attorneys who prepare such applications go through a fairly rigorous self-selection.

Attorneys do not like to lose and they rarely try to bring a preliminary injunction if they don’t think they can satisfy a court that the facts necessitate its issuance.  The same is true of temporary restraining orders which, after all, are only a short term preliminary injunction which can be acquired on shortened (and sometimes no) notice.  When an attorney runs into court with a stack of papers screaming that his client’s hair is on fire and that the defendant is lighting the matches, most judges will, just out of caution and prudence, be inclined to order the defendant to stop playing with matches.  This is especially so in trade secret misappropriation and unfair competition cases.  A plaintiff company runs into court essentially asserting that it will be destroyed or irreparably injured unless the court issues an injunction.  It claims that its customer lists or information associated with customer lists known by former employees is being used to destroy or injure it.  On those facts, many judges will issue a preliminary injunction.  The truth in trade secret and business unfair competition cases is that preliminary injunctions are common.

It may also be less of a big deal than everybody thinks.  Such orders will typically say something like: “don’t use your former employer’s trade secrets.”  Orders in excess of that injunction, or that prohibit contact with particular customers, may be subject to a writ of supersedeas or expedited appellate court review.  While some trade secret and unfair competition cases settle after the preliminary injunction issues, increasingly we see cases where the preliminary injunction is put into place will proceed to trial or disposition by later motion.  On motions for preliminary injunction or application for TRO, the defendant has all the disadvantages.  Plaintiff has had substantial time (or at least more time than defendant) to develop evidence, prepare declarations, obtain computer forensics and the like in advance of filing the motion.  Defendant is on, well, the defense and must hurriedly prepare declarations, computer forensics.  This rush often puts defendants at an extreme disadvantage.

Cautionary note:  Many defendants will rush to prepare declarations which commits them to statements that they may later regret.  Very few individuals remember with any accuracy the content of email communications, or what stored documents or computer forensics will actually show when they are examined.  It is all too common an experience that a party will assert that they have never had any contact with X, Y or Z only to find several emails contradicting that assertion in later discovery.  Counsel must take great care not to let defendants overcommit factually in declarations filed in response to a preliminary injunction in advance of electronic communications and documents being collected and reviewed.

In a recent decision, the Court of Appeals for the Second Appellate District upheld a $150,000 sexual harassment verdict and a $680,000 attorneys’ fee award against one of the Countries’ largest rigging and drilling company, Nabors.  Given the nature of the allegations and the size of the award against the drilling tycoon, expect to see more of these types of cases in the near future.

Max Taylor, the Plaintiff in Taylor v. Nabors Drilling USA, LP (2014) 222 Cal. App. 4th 1228, began his employment as a “floor hand” on a drilling rig for Nabors in 2008.  Starting at an entry-level position, Taylor was subject to daily verbal abuse by his supervisor and by senior employees.  Several times a day they called him, among other things, “queer,” “fagot,” and “homo,” and posted pictures of him around the restroom with derogatory sexual comments.  Taylor’s supervisor and coworkers knew that Taylor was not a homosexual, knew that Taylor had a girlfriend, and their spouses’ and Taylor’s girlfriend would even go shopping together.  In addition to verbally abusing Taylor, his coworkers would also physically assault him by, among other things, spanking his buttocks.  According to Taylor’s girlfriend, Taylor would come home after work emotionally distressed.

Approximately one-and-a-half-years after his employment with Nabors began, Taylor complained to human resources about the harassment.  In response, Nabors removed Taylor’s supervisor from Taylor’s rig and the other employees stopped harassing him.  After a thorough investigation Nabors terminated the supervisor.  Three months later, however, Nabors terminated Taylor citing workplace absences, tardiness, and a confrontation with one of his new supervisors.  Three months later, Taylor filed suit alleging hostile work environment, failure to prevent sexual harassment, unlawful retaliation, and wrongful termination.  A jury awarded him $160,000 in damages based on his hostile work environment claim alone.

On appeal, the court upheld the jury award noting that “sex was used a as a weapon to create a hostile work environment” for Taylor.  The court further noted that Taylor’s seniors “’employed attacks on (Taylor’s) identity as a heterosexual male as a tool of harassment.’” Nabors argued that the rig crew’s comments were not sexually motivated as they all knew Taylor was not a homosexual.  In response, the court cited the newly amended Labor Code section 12940(j)(4)(C), which became operative on January 1, 2014, and which specifically provides that “sexual harassing conduct need not be motivated by sexual desire.”  As such, the court held that “a heterosexual male is subjected to harassment because of sex under the FEHA when attacks on his heterosexual identity are used as a tool of harassment in the workplace, irrespective of whether the attacks are motivated by sexual desire or interest.”  The court upheld $150,000 of the $160,000 award for non-economic damages to Taylor as well as the entire $680,520 attorney fees award.

While the facts of this case may seem shocking to some, to others who work in the oil fields this might seem like routine hazing.  Therein lays the problem.  In an industry where new employees are commonly known as “worms,” the historic hazing rituals in these small crews working at remote locations is difficult to break.  Given the amount of damages awarded, and given that this is the first case to discuss the newly-revised Labor Code section 12940(j)(4)(C), we expect to see an increase in sexual harassment cases filed against companies performing oil field services such as drilling, cementing, fracking, and treatment where small crews are the norm.  Such companies would be well advised to not only ensure that they are promoting trustworthy mature individuals to such crews, but regularly training them in sexual harassment, and mandating that every crew’s binder includes, at the very least, examples of what types of conduct is not permissible.

One of the key pieces of evidence a plaintiff in a trade secret case usually looks for is the downloading of company information from its computers prior to a former employee departing and joining a competitor.  Generally, this “smoking gun” type of evidence shows that the employee on his or her last day accesses and downloads a bunch of proprietary company information that is then used at his or her new place of business to compete with the former employer.  This key evidence can be used to support an application for a TRO/preliminary injunction early in the case to give the employer a litigation advantage.  However, merely finding evidence of the downloading may not be sufficient to establish trade secret misappropriation should the case go forward.  This was one of the issues that faced the Court in in Integral Development Corp. v Tolat, a recent decision rendered by the U.S. District Court for the Northern District of California.

Dr. Viral Tolat was one of the co-founders of Integral, a software development company and service provider in the area of online trading on foreign exchange markets.  From 1993 to December 2012, Dr. Tolat served as Integral’s Chief Technology Officer and Head of Integral Products and Services.  In December 2012, Dr. Tolat left Integral and joined one of its competitors.

Integral sued Dr. Tolat for trade secret misappropriation, among other claims.  Dr. Tolat moved for summary judgment and the Court granted it as to Integral’s trade secret misappropriation claim against him.

In addition to finding that Integral failed to identify the information it claimed to be trade secret with sufficient particularity, as well as a failure to establish damages, the Court concluded that Integral had not established that Dr. Tolat had misappropriated its alleged trade secrets.  Integral offered evidence that Dr. Tolat had downloaded a copy of Integral’s source code while still employed there and while he was engaging in negotiations to join the competitor.  Integral also argued that there was the short period of time for the competitor to bring its product to market, which showed that Dr. Tolat must have misappropriated Integral’s trade secrets.  The Court found that this “evidence” was insufficient to show that Dr. Tolat misappropriated the information, i.e., used the information he downloaded improperly.

Dr. Tolat was able to offer evidence that he deleted the information he downloaded prior to beginning his work at the competitor.  Further, there was no evidence that he had accessed or used the information after leaving Integral.

The Integral decision reminds plaintiff employers that their burden of establishing trade secret misappropriation is not met simply by showing that a former employee has downloaded or copied company information.  Rather, to prevail on a claim of trade secret misappropriation, the plaintiff employer must obtain evidence that the former employee has in fact used that information for improper purposes.  Otherwise, a plaintiff employer is at risk of losing its trade secret misappropriation claim.