California Appellate Court Clarifies Whistleblower Protections in Equal Pay Act Case

Quick Hits

• The California Court of Appeal held that an employee’s reasonable, good-faith belief that an employer violated the law may support a whistleblower retaliation claim under California Labor Code section 1102.5(b), even if the employee’s legal interpretation is ultimately mistaken.
• The court emphasized that section 1102.5(b)’s “objective reasonableness” of the employee’s belief is a question of fact for the jury, not a matter of law for the court.
• The decision underscores that section 1102.5(b) is intended to encourage employees to report suspected legal violations without fear of retaliation, even if they lack legal training.

Background

The plaintiff, Manuel Contreras, a sanitation department employee, believed his employer was violating the California Equal Pay Act (EPA) by paying him less than coworkers performing similar duties. Contreras did not contend that his unequal wages were based on his sex, race, or ethnicity. After consulting with a deputy labor commissioner who mistakenly advised that there was a “potential violation” and reviewing a California Labor Commissioner’s Office frequently-asked-question (FAQ) guidance document—which was itself incomplete and ambiguous, stating that the EPA was strengthened by “[r]equiring equal pay for employees who perform ‘substantially similar work,’ when viewed as a composite of skill, effort, and responsibility”—Contreras (a layperson without formal legal training) concluded, mistakenly, that the EPA required equal pay for substantially similar work, regardless of protected class status. He raised his concerns with management, presenting the FAQ document and requesting a raise. Shortly thereafter, his employment was terminated.

Contreras filed suit, alleging, among other claims, whistleblower retaliation under section 1102.5(b). At trial, the jury found in his favor on all claims, awarding economic and non-economic damages, as well as statutory penalties. The employer moved for JNOV on the whistleblower claim, arguing that the employee’s mistaken understanding of the EPA—specifically, his failure to allege pay disparity based on sex, race, or ethnicity—precluded liability under section 1102.5(b). The trial court granted the motion, finding the employee could not claim whistleblower protection based on a nonexistent or inapplicable legal violation.

Key Holdings

Reasonable but Mistaken Legal Belief Sufficient for Whistleblower Protection. The Court of Appeal reversed the trial court’s entry of JNOV, holding that section 1102.5(b) does not require an employee to be legally correct, only that the employee have “reasonable cause to believe” a violation occurred. The court distinguished between claims based on a “nonexistent law” and those based on a reasonable misinterpretation of an existing statute, finding that the latter might support a whistleblower claim.

Jury’s Role in Assessing Reasonableness. The court found substantial evidence supported the jury’s determination that the employee’s belief had been reasonable, given the ambiguous language in the Labor Commissioner’s FAQ document and the deputy labor commissioner’s statements. The court noted that the FAQs’ omission of protected class language in several sections could have reasonably misled a layperson.

Legislative Purpose and Public Policy. The decision reaffirms the broad remedial purpose of section 1102.5(b), which is to encourage employees to report suspected violations of the law without fear of retaliation, even if their legal analysis is imperfect. The court cautioned that requiring legal accuracy would undermine the statute’s protective intent.

Key Takeaways

• Employers in California may be liable for whistleblower retaliation under section 1102.5(b), even where an employee’s belief that a violation of the law has occurred is mistaken, so long as the belief is objectively reasonable.
• An employee’s reliance on guidance by enforcing agencies, even where such guidance is legally incorrect, may be relied upon in determining whether the employee’s belief is objectively reasonable.
• Nevertheless, as the court noted, “Section 1102.5 requires ‘objective reasonableness,’ and it ‘does not protect employees who do not believe or who unreasonably believe that the information they are disclosing shows a violation of the law.’” (Internal citations omitted.)
• Employers should be careful when responding to employee complaints about potential legal violations, even if an employee’s legal theory appears flawed.
• The decision highlights the importance of clear communication and training regarding wage and hour laws and the need for careful handling of employee complaints to avoid potential retaliation claims.

The Contreras decision serves as a reminder that California’s whistleblower protections are broadly construed and that employee complaints based on a mistaken understanding of the law may still provide a basis for a retaliation claim. The decision may lead enforcement agencies, such as the Labor Commissioner’s Office, which are charged with protecting employee rights, to provide more vague and less precise guidance, as the court system will ultimately determine whether the law was violated. Employers may want to review their internal complaint procedures and train managers to respond appropriately to employee concerns regarding potential legal violations.

Ogletree Deakins’ California offices, Pay Equity Practice Group, Wage and Hour Practice Group, and Whistleblower and Compliance Practice Group will continue to monitor developments and will provide updates on the California, Ethics / Whistleblower, Pay Equity, and Wage and Hour blogs as additional information becomes available.

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