Employment Law Alert : Gibbons P.C.: Labor Relations, Employment Contracts, Employee Benefits, & Wrongful Discharge Lawyers & Attorneys

Introduction

In a case of particular interest to New Jersey employers, the New Jersey Supreme Court has been asked to review an appellate ruling that an employee who reported violations of law to her superiors was not a “whistle-blower” because her reporting was required as part of her job duties. A decision by the Supreme Court will have a substantial impact on the scope of New Jersey’s whistle-blower statute, the Conscientious Employee Protection Act (“CEPA”) .

Factual Background

In White v. Starbucks, plaintiff Kari White was employed as a district manager in Starbucks’ Upper Mid-Atlantic Region, where she was responsible for the overall management of six Starbucks locations including some in New Jersey. According to the job description for plaintiff’s position, she was responsible for, among other things, “ensuring that employees adhere to legal and operational compliance requirements.” Prior to formally assuming her management role, plaintiff participated in a six-week training period, where she received instruction in retail management and compliance with public health laws. She also received and reviewed a manual titled “Starbucks Food Safety, Store Cleanliness and Store Condition Standards.”

Plaintiff’s Alleged “Whistle-Blowing” Activities

Throughout her six-week training period and subsequent employment, plaintiff notified her supervisors about various alleged violations of law and company policy, including: (1) stolen merchandise from a Hoboken store where plaintiff had trained; (2) the lack of thermometers in refrigerated food and beverage cases; (3) unsanitary conditions within the Newark store; (4) alcohol consumption by employees while on the job, the alleged physical attack of a customer, after-hours sex parties, and the electronic transmittal of a pornographic photograph between an employee and the Iselin store manager; and (5) inaccessible configuration of tables and chairs at one store.

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In our June 15, 2011 post, we reported on Donelson v. DuPont Chambers Works, a case in which two employees alleged they were retaliated against after they raised safety concerns about the employer’s manufacture of a dangerous chemical. The jury rendered a verdict in favor of one employee (Seddon) and against the other (Donelson). On appeal, the New Jersey Supreme Court held that the employer was liable under New Jersey’s Conscientious Employee Protection Act (“CEPA”) for the economic losses of Seddon, who was unable to continue working because of his mental injuries caused by the employer’s retaliatory actions. The Court reversed the decision of the Appellate Division that Seddon could not recover his economic losses because he had not been discharged or constructively discharged from his job. The Supreme Court remanded the case to the Appellate Division to decide the issues of punitive damages and attorneys' fees.

In the Appellate Division’s recent decision on November 7, 2011, the employer fared no better than it had in the Supreme Court. The jury had awarded Seddon $500,000 in punitive damages. The Appellate Division concluded that the evidence was more than sufficient for the jury to find that the employer’s conduct was "especially egregious," thus meriting an award of punitive damages. The employer’s “especially egregious” conduct consisted of, among other things, subjecting the employee to disparaging emails, wrongly accusing him of falsifying manufacturing records of a caustic chemical, suspending him after he called the employer’s harassment hotline and forcing him to work a one-man shift after he returned to work. Interestingly, the Appellate Division held that the nature of the employee’s complaints to management, involving concerns of “grave safety risks” posed by the employer’s manufacturing process, added to the “especially egregious” nature of the acts of retaliation for CEPA purposes. Thus, the court upheld the trial court’s decision not to vacate the punitive damages award.

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“The Whistleblower Improvement Act of 2011,” a new bill which would amend the whistleblower program under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), was introduced by Representative Michael Grimm (R-NY) on July 11, 2011. The new bill addresses the concern that the whistleblower program of the Dodd-Frank Act, as it currently stands, will undermine internal compliance programs as there is no requirement in the statute that employees first report potential securities violations to the employer before going to the U.S. Securities and Exchange Commission (“SEC” or “Commission”). With limited exceptions, the proposed legislation would require employees to first report any misconduct through the employer’s internal reporting system before going to the Commission. As we previously reported, the Final Rules implementing the Dodd-Frank Act whistleblower program became effective on August 12, 2011.

Employers should take particular note of the following provisions of the bill:

• It requires an employee whistleblower who seeks the monetary incentive award available under the Dodd-Frank Act whistleblower program, to first report information regarding violations of the securities laws to his or her employer before reporting that information to the Commission and to report such information to the Commission within 180 days after reporting the information to the employer.
• Internal reporting is not a precondition for receipt of the monetary award if the SEC concludes that the employer lacks either a policy prohibiting retaliation for reporting potential misconduct or an internal reporting system that allows for anonymous reporting, or if the SEC determines, in a preliminary investigation, that internal reporting was not a viable option for the whistleblower. To assess whether internal reporting was a viable option, the Commission would look for either (1) evidence that the highest level of management committed or was involved in the reported misconduct or (2) evidence of the employer’s bad faith.

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Publicly traded employers should be aware that the U.S. Securities and Exchange Commission (“SEC”) recently adopted Final Rules implementing the whistleblower program under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). Consistent with the Final Rules, which become effective on August 12, 2011, employers should not interfere with an employee’s efforts to communicate with the SEC or take any adverse actions against an employee for exercising his or her rights under the whistleblower program. In addition, employers should have clear policies in place for employees to be able to report any perceived violations of federal securities laws and employees should be trained on the procedures for reporting any such violations. The Act creates a private right of action for whistleblowers who have suffered retaliation and remedies include reinstatement, double back pay with interest, litigation costs, expert witness fees, and reasonable attorney’s fees.

The Dodd-Frank whistleblower program provides an incentive for individuals to report alleged violations of the securities laws to the SEC by providing a monetary reward in the event of a successful enforcement action. In order to be considered for an award, a whistleblower must voluntarily provide original information to the SEC that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million. Final Rules at 245.

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In a case of particular interest to New Jersey employers, the New Jersey Supreme Court ruled on June 9, 2011, in Donelson v. DuPont Chambers Works (A-112-09) that an employee who files suit under the Conscientious Employee Protection Act (“CEPA”) may recover back and front pay, even if the employee was not fired or constructively discharged, if the employee can show that he became mentally disabled as a result of the employer’s retaliation. The Court rejected the conclusion of the Appellate Division that the same standards govern remedies under CEPA and the New Jersey Law Against Discrimination (“LAD”), and that a constructive discharge must be proven to obtain back and front pay damages.

Factual Background

Plaintiff John Seddon (“Plaintiff”), a thirty-year employee of DuPont Chambers Works, filed complaints with DuPont management and the Occupational Safety and Health Administration regarding alleged unsafe conditions in the workplace. Plaintiff contended that after he engaged in whistle-blowing activities, DuPont retaliated against him, including placing him involuntarily on short-term disability with pay. Following his return to work, DuPont required Plaintiff to work twelve-hour shifts in isolation, a requirement Plaintiff characterized as “torture.” Plaintiff sought psychiatric treatment and then took a voluntary six-month leave of absence. At the conclusion of his six-month leave, Plaintiff retired with a disability pension from DuPont.

The Complaint and Jury Award

Plaintiff filed a complaint under CEPA, alleging that DuPont retaliated against him for complaining about workplace safety concerns, and that as result of DuPont’s actions, he suffered a mental breakdown rendering him unfit for continued employment at DuPont. Notably, Plaintiff did not claim that he was terminated or constructively discharged by DuPont.

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The New Jersey Supreme Court has just announced a new test under which an employer may be held liable for unlawful retaliation when taking action against an employee who misappropriates and uses confidential company documents against the employer in support of a discrimination claim. Those who believe that simplicity is a virtue not practiced often enough will not have their minds changed by the New Jersey Supreme Court’s decision in Quinlan v. Curtiss-Wright Corporation, in which the Court, by a 5-2 majority, established a complex and confusing seven-part “balancing test” for determining whether an employee’s wrongful taking of company documents nevertheless constitutes “protected activity” under the New Jersey Law Against Discrimination (the “LAD”). Applying this test, the Court held that the plaintiff in Quinlan could have been terminated for the wrongful taking of documents, but should not have been terminated for her attorney’s use of one of the documents at a deposition.

The Quinlan decision has serious implications for employers who seek to protect their confidential information and demand the loyalty of their employees. The clearest takeaway from this decision is that extreme care must be taken when dealing with an employee who has misappropriated confidential documents in conjunction with a discrimination claim. Presumably the employer in Quinlan would have avoided liability for retaliation if it had terminated the employee before the document at issue surfaced in the deposition. But under the Court’s seven-part balancing test, this might not have been the case under similar but not identical facts. Any employer action must be supported by a clear and consistent policy. Quinlan reinforces the importance of having clearly worded and effective policies concerning confidential business and personnel information and of consistent and uniform enforcement of those policies.

To continue reading, the full article can be viewed here.

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