November 26, 2012

How to avoid running afoul of whistleblower laws

Posted in Employment Law by Gene Killian |

In the 1987 movie “Full Metal Jacket,” the sadistic Marine drill sergeant Hartman, unhappy with the progress of one of his less-talented recruits (Private Pyle), tells the others that they have not given Pyle “the proper motivation.”  So, from now on, whenever Pyle messes up (and we all know that he will), Hartman will not punish Pyle.  Instead, he will punish the rest of the platoon.  Pyle’s fellow recruits get the message, and late one night they administer an awful beating to Pyle.  If you’re interested, you can watch the speech that leads to the beating by clicking here, although the clip is definitely not suitable for work.

“Full Metal Jacket” shows us an example of a supervisor (Hartman) who knows that his underlings will listen to his thinly veiled suggestion and make life extremely uncomfortable for one of their brethren.  So here’s a question for managers in the business world:  Can you violate whistleblower laws if you yourself don’t directly retaliate against an employee, but instead create an environment where retaliation by others is virtually inevitable?

Given the recent proliferation of whistleblower claims in this bad economy, this is a very important (and possibly expensive) question.    In a recent national survey, 65% of S&P 500 executives said that their companies were only moderately prepared to handle whistleblower claims, and only 54% were confident that executives in their organizations understood what constituted unlawful retaliation.  Meanwhile, the SEC says it has received 3,000 whistleblower tips just this past year.    

In Flecker v. Statue Cruises, Inc., the New Jersey Appellate Division recently clarified the misguided type of management response that can result in liability.  You can read the full decision by clicking here.  Basically, Flecker was employed by a deckhand by Statue, a company that runs a ferry service in New York and New Jersey.  He became unhappy that the company’s collective bargaining agreement allowed for time-and-a-half only for work in excess of 48 hours per week (as opposed to 40).  He filed a class action complaint contending that the CBA violated state wage and hour laws.

After Flecker filed his suit, a Statue executive, Michael Burke, distributed a memo to Statue employees, identifying Flecker as the named plaintiff in the suit, and informing them that, in an effort to “mitigate damages,” the company would not schedule anyone for work in excess of 40 hours per week. The memo also stated, among other things:  “We are puzzled and disappointed that the Union apparently did not consider the impact the lawsuit would likely have on you and our Company. For those of you who will lose a day’s pay (or more) every week, I leave it to your good judgment whether Local 333’s possible involvement in this lawsuit was in your best interests.”  Yikes.

After reading the memo, Flecker’s fellow union members were apparently less interested in advancing the principles of the working class than they were in the fact that they were losing overtime pay opportunities, regardless of the fact that such opportunities weren’t triggered until the 48 hour line was crossed.  They began to harass Flecker to the point that he felt forced to quit his job.  A whistleblower suit followed.  One of the questions in the suit was whether Burke’s memo constituted an “adverse employment action” sufficient to trigger New Jersey’s Conscientious Employment Protection Act, known as “CEPA” [N.J.S.A. 34:19-3].

A review of the basics:  To establish a CEPA violation, a plaintiff must show: (1) a reasonable belief that the employer’s conduct was violating either a law, rule, regulation or public policy; (2) that he performed a “whistleblowing” activity; (3) that an adverse employment action was taken against him; and (4) a causal connection between the whistleblowing activity and the adverse employment action. 

On the question of whether the Burke memo could constitute an “adverse employment action,” the Court wrote:  “The universe of possible retaliatory actions under CEPA is greater than discharge, suspension, and demotion.  Consequently, that universe may include creating a hostile work environment through a memorandum that defendants knew or should have known would incite plaintiff’s co-workers, who then commenced harassing plaintiff about his lawsuit to such an extent that the work environment became so intolerable to plaintiff that he was forced to resign.”

(By the way, it’s been a rough few months for business memos and CEPA.  In a different but related context, in Ruffin v. Pleasantville Board of Education, a recent Atlantic County case, a teacher was fired while on maternity leave.  The school district’s HR director, properly thinking that such an action was unwise, got the outgoing board superintendent to reverse the improvident decision, but only orally.  Before the new superintendent took office, the HR director memorialized the reversal decision on the outgoing super’s letterhead.  The new superintendent fired the HR director for “an insubordinate and improper usurpation of authority.”  Result: a whistleblower suit, which the school district settled for $95,000 on the second day of trial.)        

The lesson:  When an employee complains about potential violations of law, managers need to examine carefully all actions (or inactions) that may impact the employee going forward.  Be warned:  “Before you embark on a journey of revenge, dig two graves.”  (Confucius)

One other thing to remember:  any time your company gets sued for wrongful termination, examine the allegations of the complaint carefully in connection with your insurance coverage, including but not limited to Employment Practices Liability Insurance.  If you assume you don’t have coverage, you won’t.