New Jersey’s ‘Pro-employee’ Whistleblower Act

Court decisions favoring plaintiffs, make winning a CEPA claim harder for employers.

By Lorna Pappas, Contributing Writer On Jul 22, 2016

There’s a theme running through most of the court cases being decided under the Conscientious Employee Protection Act (CEPA) in New Jersey and that theme is bad news for employers: Most cases in which employees “blow the whistle” on an employer they reasonably believe to be violating a law, and are later terminated, even for unrelated causes, are being decided on behalf of employees. Even watchdog/compliance officers hired specifically to report company violations are winning their cases, making it very difficult for employers to terminate a whistleblower without risking a retaliation claim under CEPA, also known as the Whistleblower Act.

These decisions also adversely affect companies’ willingness to hire a compliance officer, even though they want their daily activities closely and objectively reviewed and evaluated to assure policies and procedures conform to regulations.

It was the Lippman v. Ethicon case decided in 2015 that brought the net down on employers. Previous to this claim, compliance officers and other employees whose jobs entailed alerting senior management to possible violations were not protected by CEPA, which had been good news for businesses. Some other CEPA case outcomes prior to that 2015 decision also gave businesses a sigh of relief.

For example, in 2011’s White v. Starbucks, Kari White, then a Starbucks district manager, reported theft, unsanitary conditions and other improprieties taking place at some stores within her jurisdiction. Reportedly due to misconduct, she was asked to resign (she did) or be fired. This triggered White’s CEPA claim against Starbucks Corporation, which was dismissed on the grounds that the nature of her complaints was part of her job duties, and thus she was not protected under CEPA. This was great news for businesses.

More good news for employers came from the New Jersey Supreme Court in the 2013 Longo v. Pleasure Productions case, when the plaintiff sought punitive damages under CEPA. In its decision against Longo, the Supreme Court “set a very high bar for recovering punitive damages,” explains David Rosen, chair of the employment and labor group at Sills, Cummis & Gross of Newark. “Plaintiffs must present ‘clear and convincing evidence’ that upper management actually participated in the wrongful conduct or was willfully indifferent to it. This was an important victory for businesses.”

In 2014, in Hitesman v. Bridgeway, James Hitesman, an R.N. working for a nursing home operated by Bridgeway, claimed he was dismissed because he blew the whistle on certain practices and procedures. Bridgeway countered that Hitesman was terminated for violating company rules by contacting the media with his concerns. The Supreme Court ruled in favor of Bridgeway, stating, in essence, “you have to point to an actual law you reasonably believe was violated, not a rule in an employee handbook or certain professional codes of ethics,” Rosen says. “This decision also was considered a victory for the business community because is narrowed the universe of claims that terminated employees can bring under CEPA.”

The Hammer Comes Down on New Jersey

But the hammer came down on New Jersey businesses when the Lippman v. Ethicon decision gave watchdog employees the same rights as any other employee: They now could seek whistleblower protection under CEPA. The result in New Jersey is one of the broadest-reaching whistleblower laws in the country, providing coverage for more whistleblower action than most any other state. What makes the law so broad and challenging is that whistleblowers claiming retaliation under CEPA don’t have to prove that the employer actually violated a law or regulation ― just that they reasonably believe a violation occurred. That’s why there are more pro-employee decisions being made in New Jersey compared to other states.

In brief, the act clearly declares that an employer cannot take retaliatory action against employees who: 1) disclose or threaten to disclose an activity or policy they reasonably believe violates a law or defrauds shareholders, investors and other entities; 2) provide investigative information; 3) testify against the employer; and/or 4) refuse to engage in the alleged policy or activity. These activities include anything incompatible with clear public policy concerning the public safety, welfare and protection of the environment.

In addition, the statute also states that protection against retaliation does not apply unless the employee has brought the activity, policy or practice to the attention of his/her supervisor by written notice and given the employer reasonable opportunity to make corrections. However, disclosure is not required where the employee reasonably believes that violation is already known to one or more supervisors or where the employee fears physical harm as a result of the disclosure.

In its entirety, the statute is considered remedial legislation designed “to protect and [thereby] encourage employees to report illegal or unethical workplace activities and to discourage public- and private-sector employers from engaging in such conduct,” according to the New Jersey Supreme Court. Once a year, employers with a staff of 10 or more workers must distribute a detailed notice of this law to employees.

Do Your Due Diligence

“Today, if someone reports a compliance issue, and it’s their job to bring that forward, that person can claim retaliation if later he or she doesn’t get a bonus, raise, promotion or is fired for unrelated issues,” states Rosemary Gousman, managing partner of Fisher Phillips of Murray Hill. “I think this puts employers in a difficult position with employees in those watchdog positions: They have to be more than careful when taking employment actions against them to be sure they really are being consistent with how they treat watchdog employees as opposed to other employees. My advice to companies is to do your due diligence to assure you are treating all employees consistently.”

Because New Jersey’s CEPA laws are so encompassing, “ridiculous claims have come before me ostensibly under the CEPA statute, since any case using the word ‘fraud’ is a potential CEPA claim,” reports Keith Reinfeld, counsel at Fox Rothschild of Roseland. “As these claims continue to clog the courts, the craziest part is that the New Jersey Legislature and Supreme Court keep expanding the statute’s coverage on behalf of employees.

“I believe the key to complying with the statute is to have an open compliance hotline so people can not only report illegal or fraudulent activities, but get them on record,” adds Reinfeld. “On the flip side, when employers fire someone, they need to explicitly document the cause for termination, so that the employee cannot say it was retaliation. It all comes down to better employee management and stricter documentation of disciplinary actions.”

John Schmidt, an attorney with Lindabury McCormick of Westfield, reports that based on the majority of CEPA cases decided recently, “it’s become harder for employers to win a whistleblower claim in New Jersey,” he reports. “The many written decisions ruling in favor of the employee show a strong reassertion of the court’s position that CEPA is remedial legislation, meaning the legislature adopted it to somehow correct societal evils and therefore it is to be liberally interpreted so that its remedial purpose can be accomplished. That is the overriding theme I’ve seen throughout all these cases and the only one that makes sense when you read some of these decisions.”

For example, now that the statue provides such a broad definition of the word “employee,” one that no longer includes compliance officers, the court seems to liberally construe the Whistleblower Act so that the greatest number of employees can fall within its rubric.

Some of the courts’ CEPA decisions, especially Lippman v. Ethicon, have been difficult for businesses to absorb, says Rosen, and many business groups have argued against that particular ruling. “In addition, the ruling could and may already have a chilling effect on companies who otherwise would be enthusiastic about hiring a watchdog employee: Despite the fact that the trend has been to hire people specifically to be sure regulations are being followed precisely, some companies feel they inadvertently may be investing in a future termination suit under CEPA.”

If the business community wants to change the Whistleblower Act, “they will have to persuade the New Jersey Legislature to put some exceptions under the statute,” Rosen contends.

Can the statue go the other way and become even more pro-employee? Gousman reports that “absent from a huge public event like Enron,” it’s difficult for her to imagine the law being amended to make it more protective, since it’s already very comprehensive. “This law already contemplates most forms of misconduct on which employees may blow the whistle,” she states. “What could be broader than an action that is incompatible with clear public policy concerning the public safety, welfare and protection of the environment, which also covers fraudulence, criminal behavior and more? That’s very broad!”

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