Aaron MacDonald v. State of California, et al.
Court of Appeal, Third District (August 27, 2013)
In this case, the Third District of the Court of Appeal acknowledged and clarified the question that troubled many employers until now. Namely, an employee must exhaust the administrative process created by Labor Code § 98.7 before filing a whistleblower retaliation lawsuit brought under Labor Code §1102.5.
Plaintiff Aaron MacDonald (“MacDonald”) was hired by the State of California (“State”) to work for the California State Assembly (“Assembly”) at an office in San Joaquin County. A few months after starting his new job, MacDonald complained to several of his supervisors that one of them was illegally smoking in the office, violating two state laws. One of the supervisors assured MacDonald that the problem was serious and would be dealt with, but two weeks later, MacDonald was fired. MacDonald filed suit against the Assembly and the State for retaliation, discrimination and wrongful termination.
MacDonald claimed: (1) retaliatory discharge in violation of Labor Code § 1102.5; and (2) retaliatory and discriminatory discharge in violation of Labor Code § 6310. The defendants demurred, arguing that MacDonald was required to exhaust his administrative remedy with the Labor Commissioner under Labor Code § 98.7 before he could sue. The trial court agreed and sustained the demurrer, dismissing the case with prejudice. MacDonald appealed.
The Third District Court of Appeal affirmed the trial court’s decision, stating that MacDonald was required to exhaust administrative remedies by taking his complaint to the Labor Commissioner before suing in court. Specifically, Labor Code § 1102.5 provides employees with protection from retaliation for “disclosing information to a government or law enforcement agency, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation or noncompliance with a state or federal rule or regulation. Government Code § 7597 provides public employees with similar protection. In 2003, § 1102.5 was amended to provide protection for employees who refuse to participate in illegal activities. Labor Code § 1102.5 (c) bars retaliation “for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation or noncompliance with a state or federal rule of regulation.”
Labor Code § 98.7 provides an administrative remedy for employees seeking protection of Labor Code § 1102.5 and Government Code § 7597. It states that an employee “ . . . may file a complaint with the division within six months after the occurrence of the violation..” If the Labor Commissioner finds that a violation has occurred, it shall order appropriate remedies. The same remedies are available in a lawsuit. If the employer fails to comply within ten days, the Labor Commissioner may file an action in court, or if the commissioner declines to act, the employee may bring action in court.
MacDonald argued that the language of Labor Code § 98.7 is permissive, and not restrictive. MacDonald relied on the court of appeal case Lloyd v. County of Los Angeles (2009) 172 Cal.App.4th 320, which held that the Labor Code did not require exhaustion of administrative remedies prior to suing in court. Lloyd’s ruling emphasized the language of the Labor Code provision, which states that a party “may file a complaint” with the Labor Commissioner, rather than using a restrictive words such as “must” or “shall.” The court of appeal criticized Lloyd, stating that the case incorrectly interpreted the law. The appellate court noted that the longstanding rule in California is that if an administrative remedy is provided in a statute, that remedy must be pursued before suing in court, even if the statute uses non-mandatory language such as the word “may.”
After criticizing the reasoning in Lloyd, the appellate court held that another case, Campbell v. Regents of University of California (2005) 35 Cal.4th 311, more accurately interpreted the law regarding exhaustion of administrative remedies in the Labor Code. Campbell involved a lawsuit by an employee of the Regents of the University of California and stated that the employee was required to exhaust the university’s internal administrative remedies before suing in court.
The court of appeal rejected MacDonald’s contention that Campbell only applied to internal department administrative remedies, not remedies contained in the Labor Code. The Appellate Court emphasized that Campbell regarded the university’s internal rule as if it were a statute, and held that the Labor Code requires exhaustion of administrative remedies before filing a lawsuit.
With this split in authority, it is probable that the Supreme Court will address the issue of permissive or mandatory exhaustion of remedies. In the meantime, MacDonald is beneficial to employers in that the Labor Commissioners can resolve many claims speedily, without the involvement of the courts. This also translates into fewer costs for the employer. Unlike litigation, the administrative process can be completed in months rather than years, which is particularly important in matters where liability exists.
For a copy of the complete decision see: