California Supreme Court Provides Clarity on Which Standard to Use for Retaliation Cases

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On January 27, 2022, the California Supreme Court in Lawson v. PPG Architectural Finishes, Inc., No. S266001, 2022 WL 244731 (Cal. Jan. 27, 2022), addressed the issue of which standard courts must use when analyzing retaliation claims brought under California Labor Code section 1102.5.

In requesting that the California Supreme Court answer this question, the Ninth Circuit Court of Appeals recognized that California courts have taken a scattered approach in adjudicating 1102.5 retaliation claims.  Most courts use the burden-shifting framework established in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973) (McDonnell-Douglas test), whereas others have taken more convoluted approaches.  Nevertheless, the Ninth Circuit determined that the outcome of the plaintiff in Lawson’s appeal depended on which was the correct approach, so it was necessary that the California Supreme Court resolve this issue before the appeal could proceed.

Ultimately, the California Supreme Court held that moving forward, California courts must use the standard set forth in Labor Code section 1102.6 to adjudicate a section 1102.5 whistleblower claim, once again making it more difficult for employers to defend against employment claims brought by former employees.

In this article, we summarize the facts and holding of the Lawson decision and discuss the practical effect this decision has on employers in California.

Summary of the Facts of Lawson v. PPG Architectural Finishes, Inc.

In Lawson, plaintiff Wallen Lawson worked as a territory manager for defendant PPG Architectural Finishes, Inc., a paint and coatings manufacturer.  Lawson was responsible for stocking and merchandising PPG paint products in Lowe’s home improvement stores in southern California.

In his lawsuit, Lawson alleged that in spring 2017 he was directed by his supervisor, Clarence Moore, to intentionally tint slow-selling paint to a different shade than what the customer had ordered, also known as “mis-tinting.”  By doing this, Lowe’s would then be forced to sell the paint at a significant discount, and PPG would then avoid having to buy back the excess unsold product.

Lawson claimed that he spoke out against these orders from his supervisor and filed two anonymous complaints with PPG’s ethics hotline, in addition to confronting Moore directly.  PPG opened an investigation and instructed Moore to discontinue this practice but did not terminate Moore’s employment.  Moore continued to supervise Lawson until Lawson was eventually terminated for performance reasons.

Retaliation Analysis Under McDonnell-Douglas Test

The California Supreme Court first examined the various standards California courts have used to that point in adjudicating 1102.5 retaliation claims.  PPG argued that the McDonnell Douglas burden-shifting framework should apply, whereas Lawson asserted that section 1102.6 provides the correct standard.

In McDonnell Douglas, the United States Supreme Court created a test for courts to use when analyzing discrimination claims brought under Title VII of the Civil Rights Act of 1964.  California courts had since adopted this analysis to assist in adjudicating retaliation cases.

Under the McDonnell-Douglas test, an employee establishes a prima facie case of retaliation by alleging sufficient facts to show that: 1) the employee engaged in a protected activity; 2) the employee was subjected to an adverse employment action; and 3) a causal link exists between the adverse employment action and the employee’s protected activity.  McDonnell Douglas, 411 U.S. at 802.  If the employee can put forth sufficient facts to satisfy each element, the burden of production then shifts to the employer to articulate a “legitimate, nonretaliatory reason” for the adverse employment action.  Finally, if the employer is able to meet its burden, the employee must then demonstrate that the employer’s given reason was pretextual.

On PPG’s Motion for Summary Judgment, the district court in Lawson in applying the McDonnell-Douglas test concluded that while 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, nonretaliatory reason for firing him – specifically for his poor performance on “market walks” and failure to demonstrate progress under the performance improvement plan he was placed on.  The court concluded that because Lawson was unable to provide sufficient evidence that PPG’s stated reason for terminating him was pretextual, summary judgment must be granted as to Lawson’s 1102.5 retaliation claim.

On appeal, Lawson argued that the district court did not apply the correct analysis on PPG’s Motion for Summary Judgment and should have analyzed the issue under the framework laid out in California Labor Code section 1102.6.  Lawson argued that under section 1102.6, an employee need only show that the employee’s “whistleblowing activity was a ‘contributing factor’” in the employee’s termination and is not required to show that the employer’s proffered reason for termination was pretextual.

California Labor Code Section 1102.6 and the California Supreme Court’s Ruling

In reviewing which framework applies to whistleblower claims, the California Supreme Court noted, as did the Ninth Circuit, that California courts did not have a uniform procedural basis for adjudicating whistleblower claims.  However, this changed in 2003 when California amended the Labor Code to include section 1102.6, which states in whole:

In a civil action or administrative proceeding brought pursuant to Section 1102.5, once it has been demonstrated by a preponderance of the evidence that an activity proscribed by Section 1102.5 was a contributing factor in the alleged prohibited action against the employee, the employer shall have the burden of proof to demonstrate by clear and convincing evidence that the alleged action would have occurred for legitimate, independent reasons even if the employee had not engaged in activities protected by Section 1102.5.

The Court recognized that there has been confusion amongst California courts in deciding which framework to use when adjudicating whistleblower claims.  However, in resolving this dispute, the Court ultimately held that section 1102.6, and not the framework laid out in McDonnell Douglas, provides the necessary standard for handling these claims.

In making this determination, the Court observed that the McDonnell-Douglas test is not “well suited” as a framework to litigate whistleblower claims because while McDonnell Douglas presumes an employer’s reason for adverse action “is either discriminatory or legitimate,” an employee under section 1102.5 can prove unlawful retaliation “even when other, legitimate factors also contributed to the adverse action.”

Effect on Employers in Handling Retaliation Claims Moving Forward

As employers have grown so accustomed to at this point, California has once again made it more difficult for employers to defend themselves in lawsuits brought by former employees.  Prior to the ruling in Lawson, an employer was only required to show that a legitimate, nonretaliatory reason existed for the adverse employment action, at which point the burden would then shift to the employee to show that the employer’s proffered reason was pretextual.  It should be noted that the employer’s reason need not be the only reason; rather, there only needed to be one nonretaliatory reason for the employee’s termination.

With the latest holding in Lawson, California employers are now required to prove by “clear and convincing evidence” that they would have taken the same action against an employee “even had the plaintiff not engaged in protected activity” when litigating Labor Code section 1102.6 retaliation claims.

It is important to note that for now, retaliation claims brought under California’s Fair Employment and Housing Act are still properly evaluated under the McDonnell-Douglas test.

Moving forward, employers should review their antiretaliation policies with legal counsel to ensure that whistleblower complaints are handled properly.  This includes training managers and supervisors on how to identify retaliation, the legal protections available, and the potential for exposure if claims of retaliation are not addressed swiftly and appropriately.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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