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  4.  » How to Complain of Illegal Activities: A Primer for the Whistleblower

Federal Whistleblower Protections

There are hundreds of state and federal whistleblower laws covering a myriad of industries. In order to determine whether or not you should blow the whistle, it’s critical to know in advance which laws apply to your specific complaint and industry. The law that you sue under will affect the amount of money you can recover, whether your case will be heard by a judge, jury, or administrative agency, and whether the complains you are contemplating are even protected speech.

The major federal whistleblower laws are:

  • The False Claims Act, which is applicable to any fraud committed in connection with federal procurement or contracting
  • Section 406 of the Internal Revenue Code, which covers complaints alleging tax fraud and underpayment of taxes
  • Section 21F of the Securities Exchange Act, applicable to fraud committed in connection with the purchase or sale of securities and fraud on taxpayers
  • Section 23 of the Commodities Exchange Act, which covers transactions involving oil, gas, foreign currency, and agriculture

Sorting out which of these laws, and other laws, apply to your case is confusing for the layperson. Further, it’s difficult for a non-attorney to determine whether or not complaints about the conduct at issue are protected speech and covered by the antiretaliation laws.

A perfect example of a “counter-intuitive” decision by a court holding that speech was not protected is Garcetti v. Ceballos. In Ceballos, an employee of the Los Angeles District Attorney’s Office noticed that police officers and other city employees were systematically submitting false and misleading affidavits to judges in an effort to secure warrants. The employee complained to his supervisors about the fraud. In retaliation, the managers transferred the employee to another department, and then rejected the employee’s application for promotion.

Following several appeals, the case was taken by the U.S. Supreme Court. By a majority of 5-4 the court, led by the conservative justices, held that the employee was not entitled to protection because the employee’s job description included some responsibilities requiring him to review and analyze affidavits. The court thus carved out an “official duties” exception to the First Amendment protections against retaliation, holding that an employee who makes a complaint which is related to his/her “official duties” is not protected against retaliation by his/her supervisors for making the complaint. The judges who supported this ridiculous decision were, not surprisingly, Alito, Scalia, Roberts and Thomas. However, somewhat surprisingly, Justice Kennedy joined in this decision and wrote the opinion for the majority.

In his dissent, Justice Stevens pointed out the absurdities of tethering First Amendment protections to the contents of an employee’s job description. The Ceballos decision shows just how unpredictable the whistleblower protections are. It’s critical to determine early on what your rights are and which law applies to your situation.

Statutory Protections For Whistleblowers

In California, whistleblowers are protected by specific statutes that prohibit retaliation against employees for reporting illegal conduct to their employer or to an outside agency. The statute also protects employees who refuse to participate in illegal activities.

The primary purpose of these laws is to encourage employees who witness illegal or fraudulent activity to report the illegal conduct so that it stops. The laws are designed to make the employees feel more comfortable that their employers will not engage in retaliatory conduct in reprisal for them making the complaints. If the employer does retaliate, the employee has the right to proceed with a lawsuit, making retaliation something that the employer will suffer for.

Some of the statutes that protect whistleblowers from retaliation are called “qui tam” statutes. The whistleblower statutes originate back to the Dark and Middle ages, when kings and landowners lacked sufficient resources to properly monitor the activities of their subjects. In the 13th century, the English crown encouraged its subjects to come forward with reports of crimes through a process called “qui tam pro domino rege quam pro seipso“— which roughly translated “one who acts as much for the king as for himself.” In qui tam actions, private citizens bring lawsuits against another private party who has allegedly defrauded the state. By so doing, the private party stands to benefit not only the King, but also him/herself.

California Statutes Protecting Whistleblowers From Retaliation

The following is a list of the most important whistleblower statutes applicable to employees providing services in the state of California:

  • The California False Claims Act: Government Code Section 12650, et seq. (protects employees who complain about billing fraud and other fraudulent activities toward the State or other governmental bodies). This law is also referred to as California’s Qui Tam statute. It provides for treble damages. Essentially, the False Claims Act (“FCA”) is designed to prevent private contractors from submitting false or fraudulent invoices, or engaging in other activities, to secure overpayment from the government for goods or services. Actions under the FCA are filed under seal, with notice provided to the State or political subdivision. The State then has a period of time during which it may investigate the claims.

Pursuant to Government Code section 12652(c)(6), the state or political subdivision whose funds are concerned may, after investigating a claim brought by a private citizen, elect or decline to intervene in the case. In cases where the State intervenes, “the action shall be conducted by the Attorney General and the seal shall be lifted.” Gov. Code § 12652(c)(6)(A). In cases where state declines to intervene, “the seal shall be lifted and the qui tam plaintiff shall have the right to conduct the action.” Gov. Code § 12652(c)(6)(B).

Gov. Code § 12652(e)(1) governs how an action where the state has intervened is managed. It provides that “If the state or political subdivision proceeds with the action, it shall have the primary responsibility for prosecuting the action.” The statute also determines the rights of qui tam plaintiffs in cases where intervention has occurred. “The qui tam plaintiff shall have the right to continue as a full party to the action.” Id. The state also has the right to dismiss or settle claims, even where the qui tam plaintiff has objected. See Gov. Code §§ 12652(e)(2)(A), (B).

  • The California Whistleblower Protection Act. Government Code Section 8547.1, et seq. (Allows state employees to report waste, fraud, violations of law, or health or safety threats, and to be free from retaliation for doing so). The State Legislature enacted the California Whistleblower Protection Act based on its finding that state employees should be free to report waste, fraud, abuse of authority, violation of law, or threat to public health without fear of retribution. The legislature further found and declares that public servants best serve the citizenry when they can be candid and honest without reservation in conducting the people’s business. Allegations of violations of the whistleblower statutes by state personnel will be investigated by the State Personnel Board pursuant to Government Code Section 19683.
  • California Labor Code Section 1102.5 is the most commonly applicable retaliation/whistleblower statute. Under Labor Code Section 1102.5, employers are prohibited from retaliating against an employee for reporting information, conduct, behavior, or other activities that the employee reasonably believes may violate a local, state, or federal law, rule, or regulation. Also, pursuant to the statute, it is illegal for employers to punish an employee for refusing to participate in an activity that would result in a violation of a local, state, or federal rule or law. The requirements of a claim for violations of Labor Code Section 1102.5 are that the Plaintiff employee must prove, by a preponderance of evidence, (1) that he or she engaged in protected activity, (2) that he/she has suffered an adverse employment action (such as a demotion, negative performance evaluation, decrease in pay, benefits, or termination); and (3) that there is a causal connection between the protected activity and the adverse employment action. Where an employee brings a retaliation case under Labor Code Section 1102.5, he/she may rely on circumstantial evidence (by proving a close temporal proximity in the timing of the complaint in relationship; to the adverse employment action), or by direct evidence, such as an e-mail from a supervisor complaining about the employees reporting of illegal activities.
  • Health and Safety Code Section 1278, et seq. protects employees of health care facilities from retaliation for reporting matter affecting patient safety. Health and Safety Code 1278.5(b)(1)(A) states that no health care facility shall discriminate or retaliate against any person who has “presented a grievance, complaint or report to the facility.”

In Fahlen v. Sutter Central Valley Hospitals (2012) 208 Cal. App. 4th 557, the California Court of Appeal interpreted and applied Health and Safety Code Section 1278. Dr. Mark Fahlen was a physician practicing at defendant’s health care facility. While he was making his rounds one day, he had a heated argument with some of the nurses working under his supervision. He claimed that the nurses failed to follow his direction. He later leveled accusations to management that the nurses had been insubordinate and provided substandard medical services to patients.

The hospital then terminated Fahlen’s contract. It appointed an investigative committee to review the decision and then to submit it finds to the hospital’s executive committee. After conducting an investigation, the committee recommended that Fahlen’s contract not be continued. Fahlen contested the decision. The hospital’s judicial peer review committee subsequently then reversed the decision not to reappoint Fahlen. However, the hospital’s board of trustees later reversed the judicial review committee and Fahlen was terminated.

Fahlen chose not to seek a judicial review of this decision. Rather, he decided to file a complaint in civil court against the hospital in California. He alleged many causes of action. One of the causes of action he alleged was retaliation in violation of the whistleblower statute, Health and Safety Code 1278.5. In response, the hospital filed a “demurrer” to the complaint, which is a legal pleading designed to challenge the sufficiency of the allegations of the complaint. The hospital also filed “anti-SLAPP motion” under Code of Civil Procedure § 425.16.

A party may file a SLAPP case where they have been prevented from exercising their free speak rights. An anti-SLAPP lawsuit is a case alleging that the case filed by the Plaintiff was designed to prevent the filing party from exercising her/her/its free speech rights. The hospital alleged that Fahlen has failed to exhaust its internal grievance procedures because he didn’t seek judicial review of the board of trustee’s decision. The hospital made the contention that the hospital peer review proceedings were official proceedings authorized by law. Therefore, according to the arguments advanced by the Hospital, the decision not to renew the doctor’s contract was shielded from challenge and they could not be sued over it.

The court rejected the hospital’s arguments. It concluded that the Health and Safety Code prevents retaliation against anyone who makes a complaint or grievance with respect to patient safety. It held that the anti-SLAPP provisions would apply to actions for defamation and abuse of process. The court denied the anti-SLAPP motion as to the retaliation cause of action based on its findings that Fahlen had showed he could prevail on the merits of the underlying case.

The court held that the doctrine of administrative exhaustion was important and that, in certain instances, it might preclude an individual from pursuing a lawsuit in court without seeking review of decision by an internal committee. However, the court held that retaliation was likely to have occurred in Fahlen’s case based on the record before it. Therefore, the peer-review process may have been a quasi-judicial proceeding could be retaliatory action itself. The court held that a reversal of o decision by the peer review committee could only occur when the underlying decision was “arbitrary and capricious,” a requirement that a party judicially challenge such decisions would narrow an individual’s right to redress under the statute if required to exhaust the administrative remedy.

The court described in detail in its decision that it was worried about construing Health and Safety Code Section 1278 in a way that would make it more difficult for a potential whistleblower to request relief under the law. The court described in detail its fears that a different decision would result in delays caused by a requirement that the party seek judicial review of the final administrative decision when the alleged adverse decision was based on whistleblowing.

As a result of Fahlen, a doctor or health care worker may not need to exhaust all internal review and grievance processes in order to bring a complaint for retaliation. The court held that retaliation for trying to improve the hospital’s quality of car violated fundamental public policies of the State of California.

Up next: Practical Tips for the Whistleblower