LEGAL GUIDE: WHISTLEBLOWER

There is a strong public policy in California to encourage employees to report organizations that they reasonably believe are operating in violation of the law. The California legislature has enacted laws that protect such employees and provide incentives for them to become a whistleblower. Every employer in California should be familiar with their potential legal and financial exposure under these laws. Likewise, every California employee should be aware of the rights, protections and incentives provided to them as a whistleblower.

California False Claims Act ("CFCA")

The CFCA is modeled on the federal False Claims Act [31 U.S.C. §§ 3729, et seq. "FFCA") and has comparable protection for whistleblowers. The CFCA is codified under California Government Code §§ 12650, et seq. CFCA permits the recovery of civil penalties and treble damages from any person who knowingly presents a false claim for payment to the State of California or a political subdivision. [State of California ex rel. Standard Elevator Co. v. West Bay Builders, Inc. (2011) 197 Cal.App.4th 963, 973.] A CFCA action may be initiated by any person as a qui tam plaintiff in the name of the state or political subdivision whose funds are involved. If such an action is successful, the qui tam plaintiff is entitled to a percentage of the damages. The purpose of the CFCA is to ferret out fraud on the government by offering an incentive to persons with evidence of such fraud to come forward and disclose that evidence to the government.

The typical whistleblower happens across evidence of fraud during the course of his or her employment. In essence, these statutes prohibit an employee from being terminated or discriminated against in any other manner by his employer be cause of lawful acts of the employee. [McVeigh v. Recology San Francisco (2013) 213 Cal.App.4th 443, 455; Gov't. Code § 12653, subd. (a).] The CFCA is violated when a person knowingly presents or causes to be presented a false or fraudulent claim for payment or approval. [Id. at 458; Gov't. Code § 12651, subds. (a) (1) and (2).]

A contractor found to be in violation of the CFCA is subject to treble damages, civil penalties of not less than $5,500 and not more than $11,000 for each violation, and reimbursement of the plaintiff's attorneys' fees and costs. [Gov't. Code § 12651, subd. (a).]

California's Whistleblower Statute

California Labor Code § 1102.5, subd. (b), provides in relevant part that an employer shall not retaliate against an employee for disclosing information, or because the employer believes that the employee disclosed or may disclose information to a government or law enforcement agency, or to a person with authority over the employee who has the authority to investigate, discover, or correct the violation or noncompliance, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute. In addition to other penalties, an employer that is a corporation is liable for a civil penalty not exceeding $10,000 for each violation of this section. [Labor Code § 1102.5.]

Wrongful Termination in Violation of Public Policy

An employee may maintain a tort action against his former employer when his discharge violates fundamental principles of public policy. [Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170.] Fundamental public policy prohibits the retaliatory discharge of employees for whistle blowing in the public interest and forbids retaliatory action. [McVeigh v. Recology San Francisco, supra, 213 Cal.App.4th 443, 472.] The remedies for such a tort cause of action is reimbursement for all damages to the plaintiff proximately caused by the defendant's conduct, including punitive damages in an amount sufficient to punish and deter such conduct in the future.

Breach of Employment Contract

The employment relationship is fundamentally contractual. [Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 335-336, citing, Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 696.] While the statutory presumption of at-will employment in California is strong, it does not prevent the parties from agreeing to any lawful limitation on the employer's termination rights, such as an agreement that the employee will be terminated only for good cause. However, such an agreement is predicated upon the existence of a good faith, fair and honest reason, not one that is trivial, capricious, unrelated to business needs or goals, or pretextual. [Id., citing, Foley v. Interactive Data Corp., supra, 47 Cal3d 654, 677, 680, emphasis added.]

Breach of the Implied Covenant of Good Faith and Fair Dealing

A covenant of good faith and fair dealing is implied by law in all contracts. In essence, it requires that neither party do anything to deprive the other party of the benefits of the agreement. [Foley v. Interactive Data Corp., supra, 47 Cal.3d 654, 683-684.] In the employment context, the implied covenant prevents the employer from frustrating the employee's enjoyment of rights provided by the contract, including the right to continued employment absent good cause for discharge. [Kelecheva v. Multivision Cable T.V. Corp. (1993) 18 Cal.App.4th 521, 531-532.] A breach of an employment contract may also constitute a breach of the implied covenant of good faith and fair dealing but the damages are the same. [Guz v. Bechtel National, Inc., supra, 24 Cal.4th 317, 352.] However, this covenant prevents a party from acting in bad faith to frustrate the contract's actual benefits. Thus, the covenant is violated if the termination of employment was a mere pretext to cheat the worker out of another contract benefit. [Id. at 353, fn. 18.]

If you are an employee who is now or may become a whistleblower, or if you are an employer that wishes to insure you are complying with the laws governing whistleblowers, contact our experienced employment attorneys to inform you of your rights, duties and obligations and to help guide you through the process.