California Public Policy Prohibits Employer Retaliation Based on Mistaken Belief That Employee Engaged in Whistleblowing Activity

In Diego v. Pilgrim United Church of Christ (November 21, 2014) — Cal. App. 4th —), the California Fourth District Court of Appeal considered whether California public policy precludes employers from retaliating against an employee based on a mistaken belief that the employee reported violations of state regulations to a governmental agency.  The court concluded that employer retaliation based on such a mistaken belief is prohibited by public policy.

Cecilia Diego (“Diego”) sued her former employer, Pilgrim United Church of Christ (“Pilgrim United”), alleging that she was wrongfully terminated from her employment as assistant preschool director in violation of public policy.  Diego alleged she was terminated  as a result of the director’s mistaken belief that she had filed a complaint with the Community Care Licensing Division of the California Department of Social Services (“Licensing”), which resulted in an unannounced inspection of the preschool.  Pilgrim United argued that no constitutional or statutory authority extended whistleblower protections to employees merely believed to have engaged in protected activity, and contended that Diego was terminated due to insubordination, not due to the anonymous report.  The trial court granted summary judgment in favor of Pilgrim United, finding that because Diego had not actually complained to Licensing, her termination did not violate public policy as a matter of law.

The Court of Appeals reversed the trial court and remanded the case for further proceedings.  It found that Pilgrim United’s alleged actions in discharging Diego were sufficiently tethered to the public policy behind former section 1102.5(b) of the California Labor Code, which precluded employers from retaliating against employees for disclosing a violation of state regulations to a governmental agency.  Examining California Supreme Court cases and the Legislature’s statement of purpose in enacting the statute, the Court of Appeals concluded the public policy behind former section 1102.5(b) was to “encourag[e] workplace whistle-blowers to report unlawful acts without fearing retaliation.” 

Upon establishing the public policy behind the statute, the Court of Appeals then contemplated whether that policy applies to a terminated employee who was merely perceived by the employer to be a whistleblower.  The court concluded that it does.  Applying reasoning borrowed from Lujan v. Minagar (2004) 124 Cal.App.4th 1040 (recognizing that terminating a perceived whistleblower will discourage employees from reporting), the court stated that “when the termination of employment is based on the employer’s mistaken belief that the employee might disclose or has disclosed a violation of state regulations to a governmental agency, the result has a tendency to be injurious to the public or against the public good.” 

Thus, the court held that the public policy delineated in former Labor Code section 1102.5(b) applied to “preclude retaliation by an employer not only against employees who actually notify the agency of the suspected violations but also against employees whom the employer suspects of such notifications… Otherwise, the policy to encourage the reported of alleged violations will be frustrated.”  

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