Home » Dodd-Frank Act » Protecting the Perceived Whistleblower?

Protecting the Perceived Whistleblower?

In several contexts, an employee who blows the whistle on certain improprieties or unlawful conduct is afforded legal protection from retaliation. Under Sarbanes-Oxley, for example, a public company cannot retaliate against an employee who blows the whistle on corporate fraud. Similarly, Dodd-Frank protects employees who blow the whistle on securities fraud to the SEC from retaliation.

But with many reports being made anonymously, the situation can easily arise in which the company mistakenly believes a specific employee is the whistleblower when, in fact, she is not. If the company, based on that mistaken belief, takes adverse employment action against that employee, is it subject to liability for that “retaliation”?

The answer, at least in part, will necessarily depend on the jurisdiction. Although a strict application of the whistleblower laws in question may not entitle the employee to protection (e.g., an employee who makes no report cannot invoke Dodd-Frank), the employer may still be subject to liability under a common law cause of action. Indeed, an appellate court in California recently arrived at precisely that result.

In Diego v. Pilgrim United Church, an employee anonymously reported potential violations of state law pertaining to child day cares to the California Department of Social Services. Diego’s supervisor subsequently asked her questions and made comments demonstrating her belief that Diego was the whistleblower. She was not. Nonetheless, Diego was thereafter terminated. She filed suit alleging her termination was in retaliation for her supervisor’s belief that she blew the whistle.

The trial court dismissed the lawsuit, ruling that Diego had not demonstrated an important public policy was at issue in her termination because she never actually blew the whistle. The appellate court, however, reversed, reasoning that terminating perceived whistleblowers could discourage others from actually blowing the whistle.

From the employer’s perspective, it remains important to tread carefully when it becomes aware of a report. Terminating – or taking other adverse employment action – the whistleblower or perceived whistleblower is rarely the optimal response. And employees should remain cognizant that they may be able to invoke certain protection under whistleblower laws or, perhaps, by wrongful discharge litigation.

Diego v. Pilgrim United Church of Christ, 2014 WL 6602601 (Nov. 21, 2014)

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