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Circumstantial Evidence Can Prove Retaliatory Anti-Whistleblower Motive

Wrongful termination suits often rely on proof of motive—did the employer terminate the employee for an unlawful reason? But employers that act for illegal motives aren’t likely to admit it, so the law has established ways to prove unlawful motives through circumstantial evidence. But there is more than one formula for that proof, depending on the situation. The California Supreme Court recently explained when those various formulas apply.

Bad Performance or Retaliation?

From 2015 until he was fired in 2017, Wallen Lawson worked as a territory manager for PPG Architectural Finishes, Inc., a paint and coatings manufacturer. He was responsible for stocking and merchandising PPG paint products in Lowe’s home improvement stores in Southern California. The company rated Lawson’s performance in a number of ways. Initially, he received the highest possible ratings, but the positive evaluations didn’t last, as scores soon took a nosedive. In spring 2017, after he missed several monthly sales targets. PPG placed him on a performance improvement plan.

According to Lawson, that same spring, PPG began ordering him to intentionally deliver slow-selling paint in shades the customer had not ordered. He didn’t agree with the scheme, filed two anonymous complaints with the company’s central ethics hotline, and told his supervisor he refused to participate. Some months later, after determining Lawson had failed to meet the goals outlined in his performance improvement plan, PPG fired him.

Lawson filed suit in the U.S. District Court for the Central District of California, claiming PPG fired him because he blew the whistle on its fraudulent mistinting practices, in violation of Labor Code Section 1102.5, California’s whistleblower retaliation protection statute. That section prohibits an employer from retaliating against an employee for sharing information he “has reasonable cause to believe . . . discloses a violation of state or federal statute” or of “a local, state, or federal rule or regulation” with a government agency, with a person with authority over the employee, or with another employee who has authority to investigate or correct all the violations.

Test to Prove Whistleblower Retaliation

When the whistleblower retaliation protection statute was enacted in 1984, it didn’t contain any procedures for proving retaliation. For the next 20 years, courts generally adopted the three-part McDonnell Douglas burden-shifting framework in Section 1102.5 cases, much as courts did in employment discrimination and retaliation cases filed under California’s Fair Employment and Housing Act (FEHA) or the federal Title VII of the Civil Rights Act of 1964, generally when there was no direct evidence of unlawful motive and circumstantial proof must be evaluated:

  • First, “a plaintiff must show that he engaged in protected activity, that he was thereafter subjected to adverse employment action by his employer, and there was a causal link between the two.”
  • If so, the burden of production shifts to the employer to come forward with evidence of (not to prove) “a legitimate, nondiscriminatory reason for the adverse employment action.”
  • Third, the employee bears the burden of presenting facts that could prove any articulated legitimate nondiscriminatory reason was actually a pretext (cover-up) for impermissible retaliation.

That third step of the test allows an employee to prove discrimination by proving pretext, even without direct evidence of discrimination.

Importantly, in 2003, amendments were made to the whistleblower retaliation protection statute designed to “encourage earlier and more frequent reporting of wrongdoing by employees and corporate managers when they have knowledge of specified illegal acts” by “expanding employee protection against retaliation.” The amendment added its own special burden of proof: Once an employee shows “by a preponderance of the evidence” that whistleblower retaliation was a contributing factor in the adverse job action, the employer must prove “by clear and convincing evidence” that the same result would have occurred for legitimate, independent reasons anyway.

Even though the whistleblower law has included that burden of proof for the past 18 years, McDonnell Douglas became so ingrained between 1984 and 2003 that many courts continued to apply it to cases brought under the whistleblower retaliation protection statute.

McDonnell Douglas’ Fatal Third Level

PPG asked the court to dismiss Lawson’s claim without trial under the McDonnell Douglas test. Lawson could prove he was fired, and PPG could articulate poor performance as a “legitimate, nondiscriminatory reason” for the termination. But Lawson couldn’t meet the final hurdle—to prove the company’s reason was a pretext—so his case was dismissed. Lawson appealed to the U.S. 9th Circuit Court of Appeals (which covers California).

The 9th Circuit noticed the wide split of authority among California courts on what an employee had to prove to establish a whistleblower retaliation claim and asked the California Supreme Court the proper method for presenting and evaluating a whistleblower retaliation claim under Labor Code Section 1102.5

The supreme court answered clearly: The Labor Code framework governs. Once an employee-whistleblower establishes by a preponderance of the evidence that retaliation was a contributing factor in his termination, demotion, or other adverse action, the employer then bears the burden of demonstrating by clear and convincing evidence it would have taken the same action “for legitimate, independent reasons.” Employees need not satisfy the McDonnell Douglastest to make out a case of unlawful retaliation.

The 2003 amendments to the whistleblower retaliation protection statute were designed to “encourage earlier and more frequent reporting of wrongdoing by employees and corporate managers when they have knowledge of specified illegal acts” by “expanding employee protection against retaliation.” The amendment “reflects the broad public policy interest in encouraging workplace whistleblowers to report unlawful acts without fearing retaliation.”

The supreme court recognized the confusion: Some California courts used the statutory standards for claims of whistleblower retaliation and not McDonnell Douglas’ burden-shifting framework, and other courts continued to rely on the McDonnell Douglas framework without mentioning the statute. “To resolve the confusion, we now clarify that section 1102.6, and not McDonnell Douglas, supplies the applicable framework for litigating and adjudicating section 1102.5 whistleblower claims.”

McDonnell Douglas offers one method for proving such intent, but it is not the only possible method of proving discriminatory or retaliatory intent. It does not apply when the employee presents direct evidence of discrimination. The supreme court found it was not a method of proof well suited to whistleblower claims—which has its own (and different) statutory order of proof or mixed motive claims in general.

‘Determinative Factor’ or Contributing Factor?

The more important issue in this case is the court’s reinforcement of the extra burden of proof on the employer when there is a “mixed motive,” both a lawful and unlawful motive working together. Under the usual common law burden, the employee would have to prove the unlawful motive made the difference, was the determinative “but for” factor.

The 2003 whistleblower retaliation protection amendment flips that burden and requires whistleblower plaintiffs to show only that retaliation was a “contributing factor” in the termination, demotion, or other adverse action, even when other, legitimate factors also contributed to the adverse action. A “contributing factor” includes “any factor, which alone or in connection with other factors, tends to affect in any way the outcome of the decision.” And having to prove your explanation “by clear and convincing proof” is a pretty high standard an employer has to meet when employment decisions are justified and motivated by legitimate business factors but some degree of retaliation or other unlawful motive is infecting the process as well. A situation to avoid.

The supreme court also opined that McDonnell Douglas was decided at a time when the law generally presumed “the employer has a single reason for taking an adverse action against the employee and that the reason is either discriminatory or legitimate.” Therefore, while courts have adopted the McDonnell Douglas test for FEHA employment discrimination cases that don’t involve mixed motives, the supreme court found it shouldn’t govern mixed-motives cases, where the employee bears only an initial burden of showing discrimination “was a substantial factor motivating his or her termination.”

The supreme court found the central problem was McDonnell Douglas’ third step, which requires proof an employer’s proffered legitimate reason was a pretext for impermissible retaliation. A whistleblower employee doesn’t need to show the employer’s nonretaliatory reason was pretextual. Even if the employer had a genuine, nonretaliatory reason for its adverse action, he still carries his burden if it also had at least one retaliatory reason that was a contributing factor.

The court told the 9th Circuit that the statute, not McDonnell Douglas, governs presentation and evaluation of whistleblower retaliation statutory claims. An employee need not satisfy McDonnell Douglas to discharge this burden. Wallen Lawson v. PPG Architectural Finishes, Inc., Supreme Court of California, S266001, January 27, 2022.

Bottom Line

This decision really doesn’t teach us anything new about the McDonnell Douglas test, which isn’t designed for every situation and isn’t supposed to be slavishly applied as a magic formula. The supreme court has long recognized that “the method suggested in McDonnell Douglas . . . was never intended to be rigid, mechanized, or ritualistic.”

In most situations in which a special standard isn’t established in the statute, the basic logic of the McDonnell Douglas test applies. The employee needs to pre­sent something that demands an explanation from the employer, such as, “Why did you fire me right after I complained to you about immoral conduct?” Only then is the employer compelled to present its legitimate nondiscriminatory reason for its action because, as the U.S. Supreme Court said in 1978, “We know from our experience that more often than not, people do not act in a totally arbitrary manner, without any underlying reasons, especially in a business setting.”

Once it gets that far, the third step of the McDonnell Douglas test is about whether the employer is telling the truth about its reason. The burden of proof on everybody at every stage is “more likely than not.” That practical, flexible, and logical test has been ingrained in employment cases in courts across the country for half a century and isn’t going away soon.

The real takeaway from this decision is that in any mixed-motive case, the employer has to prove “by clear and convincing proof” that the improper motive made no difference and the same decision would have been made. This is very different from the usual employment case, where the employee has the burden of proof at all times. It means you have to be very careful not to allow an improper motive to be any part of your evaluation or decision making process. Recognizing that any termination can be challenged after the fact, please be sure you have and are able to present a legitimate nondiscriminatory reason for any adverse employment action you take.

Mark Schickman, an editor of California Employment Law Letter, can be reached at mark@schickmanlaw.com.