New Potential Conflict Of Interest For California Attorneys

ornia: On October 12, 2013, California Governor Jerry Brown signed into law 

Senate Bill (SB) 496, amending the whistleblower retaliation provisions set forth in section 1102.5 of California’s Labor Code. These amendments, which took effect on January 1, 2014, significantly broaden the scope of California’s whistleblower protections.

Since 1984, section 1102.5 has prohibited California employers from retaliating against employees who report what they reasonably believe to be violations of federal or state laws to a government or law enforcement agency. SB 496 includes three important expansions of the law that apply to companies with employees in California.

First, SB 496 extends protection to “internal whistleblowers.” These are employees who, rather than report alleged violations to government or law enforcement agencies, report the violations internally to authorized personnel within the company. SB 496 extends coverage to whistleblowers who bring potential violations to the attention of employees with the “authority to investigate, discover, or correct” the alleged violation, such as supervisors or human resources managers.

Second, SB 496 extends the scope of whistleblower protection to employees “regardless of whether disclosing the information is part of the employee’s job duties.” Previously, at least some California courts held that employees who brought retaliation claims based on protected activity falling within their normal job duties were not entitled to whistleblower protection. SB 496 now extends whistleblower protection to persons who hold positions such as in-house counsel and compliance officer, even where those employees are responsible for raising compliance issues as part of their daily job duties.

Third, SB 496 expands whistleblower protection beyond instances in which an employee actually discloses information about a violation, and prohibits retaliation when an employer “believes that the employee disclosed or may disclose” violations of the law. The amendments also expand the scope of violations to include noncompliance with local rules and regulations, in addition to violations of federal or state laws.

The amendments create significant challenges for employers. For example, they extend the scope of potential liability to instances of anticipatory retaliation, when an employee has not yet disclosed but “may” disclose violations of the law. One particularly difficult example of expanded liability concerns in-house counsel, who now theoretically can pursue claims under section 1102.5 in spite of their job duties regarding legal compliance. It will be interesting to see how the California courts manage these claims, given the conflicting priorities of open disclosure embodied in whistleblower protection statutes and an attorney’s simultaneous ethical duty to safeguard client confidences. California has long recognized the importance of safeguarding attorney-client privileged communications, and the Business and Professions Code imposes a broad ethical duty of confidentiality that lawyers owe to their clients.

Employers that have employees in California should carefully update their policies to reflect the changes of SB 496. This includes alerting managers and supervisors about the extended scope of the new retaliation provisions and providing these employees with appropriate training, given that their conduct in handling internal whistleblower complaints could now be at issue in litigation. Employers should also review their compliance procedures to make sure they are comfortable with their designation of persons who are authorized to investigate whistleblower complaints, given the scrutiny the amendments will place on these persons’ conduct in handling internal complaints.