NJ Previews What May Lie Ahead for NY Employers Under the State’s Amended Whistleblower Law

An amendment to New York Labor Law §740, effective Jan. 26, 2022, significantly expands protections for workers who report or object to their employer’s illegal or dangerous business activities. While the impact of these changes is yet to be determined, the body of case law that has developed across the Hudson River in New Jersey, which has had some of the most comprehensive whistleblower protections in the country for several years now, is an instructive starting point for those looking to anticipate the impact of New York’s whistleblower amendment.

While both New York and New Jersey have had whistleblower laws on their books for over 30 years, the trajectory of their respective laws has been divergent until now. Since its enactment in 1984, the New York whistleblower law has been narrowly construed, infrequently invoked, and, as a result, has generated little precedent. The same cannot be said of New Jersey’s Conscientious Employee Protection Act (CEPA). Enacted in 1986, CEPA has been more broadly interpreted, is frequently invoked, and has been extensively litigated—comprising a major aspect of New Jersey employment law.

With its recent amendment, New York’s law now matches—and in some ways, exceeds—the longstanding protections of New Jersey’s CEPA.

New York’s Prior Law

New York’s old whistleblower law protected only employees who reported the violation of a law, rule, or regulation by their employer that “creates and presents a substantial and specific danger to the public health or safety, or which constitutes health care fraud.” N.Y.L.L. §740(2)(a). These protections were designed to prohibit violations that affect the public at large, rather than individual plaintiffs. Employers seldom were susceptible to §740 claims.

Protection was triggered only by an actual violation of a law, rule, or regulation; meaning that an employee’s good faith but erroneous belief that such a violation existed was insufficient. See Webb-Weber v. Community Action for Human Services, 23 N.Y.3d 448 (2014). Additionally, the violation must have been of the kind that created a substantial and specific danger to the public health or safety. Remba v. Federation Empl. & Guidance Serv., 76 N.Y.2d 801, 802 (1990). This proved to be a difficult threshold for plaintiffs to cross. See, e.g., Starikov v. Ceva Freight, 153 A.D.3d 1377 (2d Dep’t 2017) (operating a customs business without a proper license considered insufficient); Cotrone v. Consolidated Edison Co. of New York, 50 A.D.3d 354 (1st Dep’t 2008) (leaving trucks containing hazardous materials unattended on a public street in violation of federal regulation deemed insufficient).

Bigger Battles Across the River

Among other protections, New Jersey’s CEPA prohibits employers from retaliating against an employee for engaging in any one of a range of protected activities, including disclosing, objecting to, or refusing to participate in an activity the employee reasonably believes (1) is in violation of a law or a legal regulation; (2) is fraudulent or criminal; or (3) is incompatible with a clear mandate of public health, safety, welfare or protection of the environment.

The New Jersey Supreme Court established the framework for analyzing CEPA claims in Dzwonar v. McDevitt. To establish a prima facie CEPA claim, plaintiffs must show: (1) they reasonably believed that their employer’s conduct violated a law, rule, or regulation promulgated pursuant to law or a clear mandate of public policy; (2) they performed a whistleblowing activity; and (3) a causal connection existed between the plaintiff’s protected activity and the adverse employment action. Dzwonar v. McDevitt, 177 N.J. 451 (2003). The court made clear that the goal of CEPA is not to make lawyers out of conscientious employees, but rather to prevent retaliation against those employees who object to employer conduct that they reasonably believe to be unlawful or indisputably dangerous to the public health, safety, or welfare. Id.

While New Jersey’s law imposes certain limits to what is considered a “reasonable” belief regarding a violation—in fact, the court in Dzwonar found plaintiff’s belief to be unreasonable as there was no substantial relationship between the complained of conduct and the law plaintiff claimed was violated—New Jersey courts generally find that the employee had a reasonable belief that a violation occurred. See, e.g., Hernandez v. Montville Tp. Bd. of Educ., 354 N.J. Super. 467, judgment aff’d, 179 N.J. 81 (2004) (elementary school custodian who objected to unsanitary conditions established that he reasonably believed school was in violation of health and safety regulations).

To proceed with a claim under CEPA, the court must find and enunciate the specific terms of a statute or regulation, or the clear expression of public policy (rather than a contract or company policy), that would be violated if the facts as alleged were true. For example, COVID-19 guidelines issued by New Jersey Gov. Phil Murphy, the Occupational Safety and Health Administration (OSHA), and the Centers for Disease Control (CDC) were found to be a sufficient basis for a CEPA claim. See Loeb v. Vantage Custom Classics (ESX-L-4762-20). On the other hand, in Hitesman v. Bridgeway, 218 N.J. 8, 24-41 (2014), the court found a violation of nursing code of ethics, an employee handbook, and a patient statement of rights insufficient to support a CEPA claim.

Consistent with claims for workplace discrimination, New Jersey courts examine circumstantial evidence to assess whether a plaintiff’s whistleblowing activity was a determinative or motivating factor in the alleged retaliatory action. For successful claims, plaintiffs have received damage awards of up to seven figures.

New York’s Expanded Protections

New York’s amended statute incorporates many aspects of the New Jersey law, and in some ways exceeds CEPA’s protections.

The amendment changes the law in several significant ways:

• More Than a Safety or Public Health Risk. The new law removes the requirement that an employer’s violation must create a substantial and specific danger to the public health or safety. Now, to assert a claim under §740, a plaintiff need only hold a reasonable belief that a violation of law, rule or regulation is taking place, regardless of whether that violation poses a public health or safety risk.
• ‘Reasonable Belief’ Standard. Section 740 as amended resembles CEPA by eliminating the requirement of an actual violation, requiring instead only that a worker possess a “reasonable belief” that a violation occurred. Like New Jersey courts analyzing CEPA claims, expect New York courts to potentially qualify this standard by requiring a substantial relationship between the complained of conduct and the allegedly violated law.
• Definition of ‘Employee’. Going further than CEPA, New York has expressly expanded protections to independent contractors and former employees.
• Retaliatory Actions. The amendments to §740 also expand the scope of retaliatory actions covered by the statute. Conduct constituting retaliatory action was previously limited to discharge, suspension or demotion of an employee, or other adverse action taken against an employee in the terms and conditions of employment. Now, an adverse action also includes (1) actions or threats that would “adversely impact a former employee’s current or future employment” (emphasis added) and (2) threatening to contact or contacting immigration authorities or another government agency about an employee’s suspected citizenship or immigration status, or that of the employee’s family or household member. This definition is likely broader than retaliatory actions under CEPA, which have been interpreted by New Jersey courts to require an adverse impact on an employee’s “compensation or rank” or to be “virtually equivalent to discharge.” Alsobrook v. Williams, 2008 WL 2445203 (N.J. Super. Ct. App. Div. 2008).
• Notice to Employer. Under the new law, an employee no longer must afford their employer a reasonable opportunity to cure an alleged violation. Instead, an employee need only make a “good faith” effort to notify the employer of a violation before disclosing it. Notice is not required if the employee reasonably believes that reporting the violation would be futile, if it will result in the destruction of evidence or harm to the employee, or where there is imminent danger to public health or safety.
• Statute of Limitations, Right of Action and Expanded Remedies. The statute of limitations was extended from one year to two—twice the length of time provided under CEPA. Plaintiffs also now have the right to a jury trial. In addition to back pay, remedies available under the statute now include front pay, civil penalties not to exceed $10,000 and punitive damages.
• Publication/Notice. Employers must inform employees of their rights under the new law by conspicuously posting notice in an accessible place customarily frequented by employees.

If claims brought under the New Jersey statute are any indication, New York employers that encounter whistleblower actions should expect case-by-case inquiries about certain threshold legal questions—including whether a worker held a “reasonable belief” of a violation and whether the court can articulate the specific terms of a law, rule, or regulation. The amended law should serve as another reminder to New York employers of the importance of documenting the legitimate business reasons for any adverse action taken against an employee, which may be critical evidence in defeating a §740 claim.

Reprinted with permission from the February 25, 2022 edition of the New York Law Journal © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected].