Employee Job Duties Are Relevant to Whether an Employee Has Made a Good Faith Complaint Under Minnesota’s Whistleblower Statute

In a 4-3 decision with a plurality opinion, the Minnesota Supreme Court ruled that Minnesota’s whistleblower statute, Minn. Stat. § 181.932, does not contain a job duties exception that bars employees who report illegal conduct or suspected illegal conduct as part of their job duties from bringing a claim under the statute. The employee’s job duties are relevant, however, in determining whether the employee made the report in “good faith” for the purpose of exposing illegal conduct so that the employee’s report qualifies as protected activity under the statute. Kidwell v. Sybaritic, Inc., Nos. A07-584, A07-788, Minnesota Supreme Court (June 24, 2010).

Factual Background

Brian Kidwell, the former in-house general counsel for Sybaritic, Inc., filed a lawsuit alleging that he was terminated in retaliation for complaining to management about the company’s alleged illegal activities, including obstruction of justice for failing to turn over damaging documents during discovery in a pending litigation matter. Sybaritic filed a counterclaim against Kidwell alleging breach of fiduciary duty and conversion.

While employed by Sybaritic, Kidwell made the complaint at issue in what the court referred to as the “Difficult Duty” email. In the email, Kidwell stated that he had become aware of activity which, as general counsel, he had a duty to report. Kidwell stated that, as the attorney of record, he had a duty to report to management his belief that the company was intentionally withholding several damaging emails in a pending lawsuit. Kidwell believed Sybaritic had a duty to disclose these emails in discovery. (Kidwell’s email also referenced other potentially illegal conduct that was not the subject of the appeal.) Kidwell testified at trial that he sent the Difficult Duty email to Sybaritic management “[b]ecause I hoped that we could pull this company back into compliance by enlisting some of the other members of management, and as the person responsible for the legal affairs of the company, that’s what I had to do.” Kidwell also sent a copy of the Difficult Duty email to his father.

Three weeks after sending the Difficult Duty email, Sybaritic terminated Kidwell’s employment. Sybaritic stated that it terminated Kidwell’s employment because, following the email, Kidwell had various performance issues. In addition, during a search of Kidwell’s email for information the company needed while Kidwell was on vacation, the company discovered that Kidwell had sent the privileged Difficult Duty email to his father. Upon learning of the email to Kidwell’s father, Sybaritic felt it could no longer trust Kidwell to maintain company confidences and decided to terminate his employment.

The trial judge instructed the jury that it had found that Kidwell breached his fiduciary duty to Sybaritic. The trial judge instructed the jury to determine what damages, if any, Sybaritic suffered as a result of the breach. Following a trial on the merits, the jury found that Sybaritic terminated Kidwell in violation of the whistleblower statute. The jury also concluded that Sybaritic did not suffer any damages as a result of Kidwell’s breach of fiduciary duty.

Sybaritic appealed. The Minnesota Court of Appeals reversed, holding that Kidwell did not engage in statutorily protected conduct because he was fulfilling the duties of his position as general counsel when he reported the suspected violation of the law to Sybaritic management.

Legal Analysis

The Minnesota Supreme Court affirmed the Court of Appeals decision, but on different grounds. In reviewing the language of Minnesota’s whistleblower statute, the plurality held that the whistleblower statute’s protections do not contain an exception for reports of suspected illegal conduct made as part of an employee’s job duties. Thus, the Supreme Court rejected the Court of Appeals’ holding that, as a matter of law, a report is not protected under the whistleblower statute if the employee makes the report in fulfillment of his or her job duties.

Instead, the plurality found that an employee’s job duties are relevant to determining whether the employee made the report of suspected illegal conduct in “good faith” as required by the statute. In determining whether a report is made in good faith, Minnesota courts look at the content of the report and the employee’s purpose in making the report. Citing Obst v. Microtron, Inc., 612 N.W.2d 196 (Minn. 2000), the plurality stated that the “central question” is whether the employee made the report for the “purpose of blowing the whistle, i.e., to expose illegality.” An employee’s job duties are relevant to that question.

In analyzing this issue, the court turned to Huffman v. Office of Personnel Management, 263 F.3d 1341 (Fed. Cir. 2001), which interpreted the federal Whistleblower Protection Act. In Huffman, the court found that an employee is not engaging in protected activity when he or she has, “as part of his normal duties, been assigned the task of investigating and reporting wrongdoing by government employees and, in fact, reports that wrongdoing through normal channels.”

The plurality found that the same is true under the Minnesota whistleblower statute. When an employee responsible for investigating and reporting illegal behavior makes a report of such behavior, the employee will need more than just the report itself to support his or her claim that the employee made the report as a “neutral party” who intended to “blow the whistle” for the protection of others. One way an employee could meet this burden is by demonstrating that the employee reported the suspected illegal conduct to someone outside the “normal channels” through which the employee would normally make a report.

Following this analysis, the plurality concluded that no reasonable jury could have found that Kidwell engaged in protected activity under the facts presented. The court concluded that the text of the Difficult Duty email and Kidwell’s testimony at trial demonstrated that he made the report as part of his job duties and not for the purpose of protecting others. Accordingly, the court affirmed the ruling of the Court of Appeals and found that Kidwell had not stated a claim under Minnesota’s whistleblower statute.

In his concurring opinion, Chief Justice Eric Magnuson stated that, while he agreed with the outcome in this case, he would have found that Kidwell’s breach of fiduciary duty to his client, Sybaritic, barred Kidwell’s claim for recovery. The Chief Justice reasoned that clients have an absolute right to terminate the attorney-client relationship when a lawyer breaches his or her fiduciary duty to the client. “That right cannot be burdened by any claim from the lawyer for compensation or damages.”

The dissent disagreed with the reasoning in both the plurality and concurring opinions. According to the dissenting Justices, the plurality opinion creates an artificial evidentiary hurdle requiring proof of mental state and fails to give the proper deference to the jury’s determination of Kidwell’s subjective intent in sending the Difficult Duty email. In analyzing the concurrence, the dissenting Justices found that the concurring opinion crafted an exception to the whistleblower statute relating to the attorney-client relationship that has no basis in the text of the statute. According to the dissenting Justices, this is beyond the authority of the court.

Practical Impact

Although this case is about an in-house counsel, the ruling has a broader impact on any case involving any employee with legal or corporate compliance duties. When confronted with a whistleblower claim from one of these employees, employers should carefully consider how the employee made the complaint and whether the employee will be able to present sufficient evidence of an intent to protect others to support a whistleblower claim. This case places a burden on these employees to demonstrate the purpose behind their complaints and could require these employees to change how they make complaints if they seek whistleblower protections.

This decision also could help proactive employers identify when an employee has an attorney involved at the complaint stage to allow the employer to obtain counsel early and respond accordingly. Following this decision, employers should pay special attention to compliance employees who make complaints outside their “normal channels” and who draft complaints filled with language designed to demonstrate their intent to protect others with their complaints.