California Dances Away From The Whistleblower Three-Step

Seyfarth Synopsis: Addressing the method to evaluate a whistleblower retaliation claim under Labor Code section 1102.5, the California Supreme Court concluded that courts should apply the framework prescribed by statute in Labor Code section 1102.6, and that employees need not satisfy the McDonnell Douglas three-step test to make out a case of unlawful retaliation. Lawson v. PPG Architectural Finishes, Inc.

Facts

Wallen Lawson worked as a territory manager for PPG Architectural Finishes, Inc., a paint manufacturer. Lawson was responsible for stocking and merchandising PPG products in a large nationwide retailer's stores in Southern California. PPG used two metrics to evaluate Lawson’s performance: his ability to meet sales goals, and his scores on so-called market walks, during which PPG managers shadowed Lawson to evaluate his rapport with the retailer's staff and customers. On Lawson’s first walk, he received the highest possible rating, but the positive evaluations did not last, and his market walk scores soon took a nosedive. Lawson also frequently missed his monthly sales targets. Shortly thereafter, PPG placed Lawson on a performance improvement plan (PIP).

Close in time to Lawson being placed on the PIP, his direct supervisor allegedly began ordering Lawson to intentionally mistint slow-selling PPG paint products (tinting the paint to a shade the customer had not ordered). The large nationwide retailer would then be forced to sell the paint at a deep discount, enabling PPG to avoid buying back what would otherwise be excess unsold product. Lawson did not agree with this mistinting scheme and filed two anonymous complaints. Lawson also told his supervisor that he refused to participate. The complaints led to an investigation. PPG eventually told Lawson’s supervisor to discontinue the practice, but the supervisor remained with the company, where he continued to directly supervise Lawson.

Some months later, after determining that Lawson had failed to meet the goals outlined in his PIP, Lawson’s supervisor recommended that Lawson be fired, and he was.

Lawson sued PPG in a California federal district court, claiming that PPG fired him in violation of Labor Code section 1102.5, because he had reported his supervisor’s fraudulent mistinting practice. The district court applied the three-part burden-shifting framework laid out in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), to evaluate Lawson’s Section 1102.5 claim.

The Trial Court Decision

The district court granted summary judgment against Lawson’s whistleblower retaliation claim because Lawson failed to satisfy the third step of the McDonnell Douglas test. Although Lawson had established a prima facie case of unlawful retaliation based on his efforts to stop the paint mistinting scheme, PPG had sustained its burden of articulating a legitimate, non-retaliatory, reason for firing him—Lawson’s poor performance—and the district court found that Lawson had failed to produce sufficient evidence that PPG’s stated reason for firing Lawson was pretextual.

Lawson appealed the district court’s order to the Ninth Circuit.

The Ninth Circuit’s Decision

Lawson argued that the district court erred in applying McDonnell Douglas, and that the district court should have instead applied the framework set out in Labor Code section 1102.6. Lawson contended that his burden was merely to show that his whistleblowing activity was “a contributing factor” in his dismissal, not to show that PPG’s stated reason was pretextual.

The Ninth Circuit determined that the outcome of Lawson’s appeal hinged on which of those two tests applied, but signaled uncertainty on this point. The Ninth Circuit observed that California’s appellate courts do not follow a consistent practice and that the California Supreme Court has never ruled on the issue. As a result, the Ninth Circuit requested for the California Supreme Court to consider the question, and the request was granted.

The California Supreme Court’s Decision

The Supreme Court held that Section 1102.6, not McDonnell Douglas, supplies the applicable framework for litigating and adjudicating Section 1102.5 whistleblower claims. Under this framework, the employee first must show “by a preponderance of the evidence” that the protected whistleblowing was a “contributing factor” to an adverse employment action. If the employee makes that threshold showing, then the employer must show “by clear and convincing evidence” that the challenged adverse employment action would have occurred “for legitimate, independent reasons” even if the employee had not engaged in protected whistleblowing activities.

What Lawson Means for Employers

Section 1102.6 now makes it easier for employees alleging retaliation to prove their case and avoid summary judgment. The employer’s high evidentiary standard thus will make pre-trial resolution of whistleblower retaliation claims extremely difficult.