Reporting illegal conduct

Does reporting illegal conduct by a co-worker constitute a wrongful termination claim?

On December 1, 2014, the Sixth District Court of Appeal offered some clarity on the issue of which forms of whistle-blowing activity give rise to a wrongful termination claim. In Ferrick v. Santa Clara University (Cal. App. 6th Dist. Dec. 1, 2014) 2014 Cal. App. LEXIS 1091, the court of appeal determined whether the plaintiff’s complaint stated a cause of action for wrongful termination in violation of public policy. These claims require a showing that the employer terminated (or took some other adverse action) against the plaintiff in violation of a policy that is (1) supported by constitutional or statutory provisions, (2) provides benefit to the public, (3) exists at the time of the termination, and (4) is fundamental and substantial. (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 889-890.)

First, the court in Ferrick analyzed the plaintiff’s wrongful termination claim under the Labor Code’s general whistle-blower statute (section 1102.5). It determined whether any of the plaintiff’s reports concerned what she reasonably could believe were violations of any law or regulation. The court concluded that the allegations concerning the plaintiff’s report about commercial bribery (a public university employee accepting kick-backs) were sufficient, but that the remaining allegations about embezzlement, evasion of taxes, and driving without a valid license were not. These conclusions were based on the particular allegations in the case, and turned on whether the plaintiff could show that the activity she reported constitutes a violation of a specific law or regulation; or, in the case of the driving without a valid license, whether the plaintiff could show that the applicable regulation concerns a significant and fundamental public policy. The court also rejected the plaintiff’s theories that her reports constitute claims under workplace safety statutes (Labor Code section 6310 and 6400 et seq.) and the False Claims Act (Government Code section 12650 et seq).

Second, with respect to the kick-back allegation, the court decided whether the Penal Code prohibition on commercial bribery constitutes a significant and fundamental public policy. It noted a split of authority on the question of whether an employee’s report of a co-worker’s alleged unlawful activity is protected by a fundamental public policy. In American Computer Corp. v. Superior Court (1989) 213 Cal.App.3d 664, the Fourth District Court of Appeal concluded that an employee’s report of an investigation of a co-worker’s suspected embezzlement from a former employer served only the interests of the employer, and, therefore, did not support a wrongful termination claim. Two years later, in Collier v. Superior Court (1991) 228 Cal.App.3d 1117, the Second District Court of Appeal decided that the plaintiff’s report of suspected criminal conduct (bribery and kick-backs) by co-workers concerned a fundamental public policy in a workplace free of illegal activity. It reasoned that the report served not only the employer’s interest, but the public interest in deterring crime and the interests of people who stood to suffer harm from the activity.

The court in Ferrick concluded that the decision in Collier was better reasoned. It found that the Collier decision was consistent with the court’s recognition in Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66, that section 1102.5 expresses a broad public policy interest in encouraging workplace whistle-blowers to report unlawful acts without fearing retaliation. The court in Ferrick also pointed to the Legislature’s recent amendment of section 1102.5 to protect disclosures to employers (in addition to reports to government or law enforcement agencies).

The decision in Ferrick provides greater weight to the view that an employee’s report of illegal conduct by a co-worker concerns a fundamental public policy, and, therefore, supports a wrongful termination claim. But until the Supreme Court of California decides the issue, it remains an open question.

Posted by deanroyerlaw