Unethical or Illegal? Quirky Question # 146

Quirky Question # 146:

One of our employees recently complained about certain company practices that she contended were unethical.  She did not contend the company engaged in illegal activity — just unethical conduct.  We pointed out to her that we did not want someone working for the company if she truly believed we were engaging in unethical practices.  Our anxiety about this situation was exacerbated when she told us she had reported the company’s practices to the press and a government agency.  We fired her.  She now contends that she was a whistleblower, protected by Minnesota’s Whistleblower statute.  Should we be concerned?

Roy’s Analysis:

It is somewhat difficult for me to evaluate whether you should be concerned.  As you related, your employee has reported the situation (whatever it might consist of) both to the press and a governmental agency.  Thus, it would appear that your company is confronting three inter-related questions: a) how will the issue play out in the press; b) what will the governmental agency do with the information; and c) is your company facing any legal liability for terminating this employee.  Although I will focus my comments primarily on the third issue, it seems to me that ultimately, the first two issues may be of greater importance to your firm. 

You note that your employee has claimed she is protected by the Minnesota Whistleblower statute.  Maybe.  Maybe not.  

As a prefatory matter, you should understand that Minnesota is somewhat unusual with respect to its Whistleblowing laws.  Although we have a Whistleblower statute, Minn. Stat. § 181.932, Minnesota also has a common law equivalent.  The common law claim was first recognized by the Minnesota Court of Appeals in 1986, when the intermediate appellate court found for a plaintiff gas station employee who was fired for refusing to pump leaded gasoline into a car designed for unleaded gas.  Phillips v. Clark Oil and Ref. Co., 396 N.W.2d 588 (Minn. App. 1986).  While that decision was being considered by the Minnesota Supreme Court, the legislature enacted the Whistleblower statute referenced above.  Shortly thereafter, in 1987, the Minnesota Supreme Court affirmed the intermediate appellate court’s ruling in Phillips.  408 N.W.2d 569 (Minn. 1987).  Although there was some residual ambiguity about whether the statute preempted the parallel common law claim, subsequent decisions have demonstrated that the common law claim survived the enactment of the statute.  In short, at least in Minnesota, your company needs to be sensitive about potential liability under both the statute and under the similar, though not identical, common law theory. 

Based on the facts you have described briefly, there would appear to be at least two key issues bearing upon whether your company need be concerned about your former employee’s claims that she is a whistleblower.  First, did she make a “report,” as that term has been defined under the statute?  You noted that your employee “complained” but you have not really described the nature or content of her complaint.  Therefore, I’ll simply flag this issue for you, emphasizing that courts have required an “official” or “formal” report, not merely an offhand remark to a co-worker or supervisor.  These decisions seem designed to ensure that not every expression of discontent about some facet of the workplace can later be converted into a supposed “whistleblower” complaint in a post-hoc, post-termination analysis.  You also noted in your question that, in addition to registering an internal complaint, your employee also communicated her concerns to an (unnamed) governmental agency.  Again, depending on the nature, scope and content of her communication, this may suffice to constitute a “report” under the statute. 

The second issue is whether your employee complained of illegal conduct.  Based on your description, this portion of the analysis may present your most compelling defense.  The Minnesota Whistleblower statute prohibits an employer from taking adverse action against an employee because the employee made a good faith report of any violation, or suspected violation, of any federal or state law, or rule adopted pursuant to law.  

Here, for better or worse, your company already has taken adverse action – you fired the employee.  Further, you did so precisely because of the concerns she expressed about your company’s practices – the complaints she registered appear to have been the cause of her discharge.  

Despite these facts, it would seem as though your company may be able to avoid any liability for this discharge because, at the time your employee expressed her concerns (however she may have articulated them), she did not believe that she was reporting on illegal conduct.  As you stated in your question, your employee contended that certain company practices were unethical.  An employee’s perception (and related report) that a company is acting “unethically” without the accompanying accusation that the conduct violates a federal or state statute or rule may not rise to the level of a protectible complaint under the Whistleblower statute. 

For example, in a case decided by the Eighth Circuit approximately one year ago, Chial v. Sprint/United Management Company, No. 08-2012 (8th Cir. 2009), the federal appellate court considered a summer judgment grant by a trial judge in the District of Minnesota.  The facts in Chial were relatively straightforward, relating to a commission compensation scheme adopted by one of defendant’s managers.  Chial felt the practice was unethical and constituted “commissions fraud” on the employer, since the approach allowed employees to claim higher commissions than the amount to which they were entitled.  Chial reported the practice to her supervisor and, after further investigation, the practice was barred by the company.

Chial’s efforts to report the practice were not rewarded, however.  About a month after she first registered her objections to the approach, she was given a verbal warning relating to her performance.  Two months later she received a written warning.  After taking a stress-related leave and then returning to work, she was given a final warning.  About seven months after raising the issue regarding the propriety of the commission scheme, a scheme the company later repudiated, Chial was terminated.  Despite these facts, Chial’s claims were dismissed.

The trial and appellate courts both pointed out that the “statutorily protected conduct . . . is the good faith reporting of a violation or suspected violation of law.”  (Emphasis added.)  Moreover, to constitute “whistleblowing,” the report must be made “for the purpose of exposing an illegality.”  The Eighth Circuit emphasized that “for an employee to make a good faith report, she must subjectively believe the conduct is unlawful at the time she makes the report and she must make the report because the conduct is unlawful.”  (Emphasis added.) 

At her deposition, Chial testified that at the time she made the complaint, she did not believe that the practices about which she complained constituted a violation of either federal or state law.  The appellate court observed, “Because she did not believe the practice was unlawful when she reported it, she could not have made the report for the purpose of exposing an illegality.” 

The same deposition testimony doomed Chial’s common law Whistleblower claim as well.  The appellate court found that Chial did not refuse to participate in the commission scheme on the basis of any good faith belief that the practice was “illegal.” Because she did not have that belief at the time she reported on the conduct, her common law claim was also deficient.

Although Chial’s candid deposition testimony proved fatal to her claims, your situation may be a bit more complicated.  First, as you stated, your employee already has reported the situation to a governmental agency.  While not conclusive evidence, this suggests that your employee felt the ethical transgressions at your company were of sufficient gravity to report them to a governmental agency.  Perhaps this implicates an actual or suspected violation of law or rule; perhaps not.  Depending on the nature of the underlying conduct, the nature of her report, and how her report is perceived by the agency, your employee may be better positioned than Chial to contend she was reporting on illegal behavior.  Second, you also stated that your employee reported the situation to the press.  Here, too, this suggests that your employee felt the public interest may be at stake, a concern absent in the Chial decision.  Whether the public interest also involves legal ramifications cannot be discerned from the facts presented.  (The “public interest” component also implicates a separate issue relating to Whistleblower law; concerns raised cannot be entirely personal to the complaining employee.  I will address that topic in another Blog post.)

 Two final observations.  Although the unethical/illegal distinction has been addressed in Chial and other decisions (often with positive outcomes for employers), there are times when the distinction between these two concepts is quite blurry.  Unethical conduct can easily rise to the level of illegal conduct, and the more egregious the behavior, the less likely courts are to require some magic “illegality” language to find a Whistleblower claim legitimate. 

Finally, I would caution against the notion that discharge is appropriate because your company does not want to employ someone who considers your practices unethical, even if not illegal.  Rather, I would encourage you to address your employee’s concerns, either by persuasively explaining why the practices are ethical, or if there is some moral ambiguity, possibly modifying the practices.  If the practices complained of are entirely legit and your employee is simply misguided, then the issue I suggest you explore is whether, recognizing that your employee has a different perception, she nevertheless will be able to commit herself to meeting your performance expectations and the company’s business goals.  If her objections to your company’s practices are so pronounced that she cannot make that commitment, then an end of the employment relationship may be the only alternative.  But I would consider alternatives before leaping to that conclusion.