On October 8, 2023, Governor Gavin Newsom signed SB 497 into law, which amends Labor Code sections 98.6, 1102.5, and 1197.5 effective January 1, 2024. The amendments establish a rebuttable presumption of retaliation if an employer takes an adverse action against an employee within ninety (90) days of that employee’s protected activity. The amendments also impose a maximum $10,000 civil penalty for each violation.
“Wait! They’re changing ‘retaliation’ again? What am I supposed to do?” Short answer: What constitutes “retaliation” is the same as it’s been, and employers’ obligations regarding retaliation haven’t changed. What the “rebuttable presumption” amendment does is make it easier for an employee to prove a “prima facie” case of retaliation and survive early-stage challenges to their pleadings. To learn how, read on.
Employer Obligations Under Labor Code Sections 98.6, 1102.5, and 1197.5
Labor Code section 1102.5, commonly referred to as the “whistleblower” statute, prohibits an employer from taking an adverse action against an employee who engages in protected activity such as disclosing information to a state, federal, or local agency that the employee reasonably believes constitutes a violation of law, regulation, or statute. Labor Code section 1197.5 prohibits employers from retaliating against an employee for invoking their rights under the California Equal Pay Act, and section 98.6 prohibits employers from retaliating against employees who report wage and hour violations.
The concept is straightforward, but understanding what constitutes a “protected activity” or an “adverse action” is key to protecting your employees’ rights and avoiding liability for violations of the statute. California courts have interpreted both “protected activity” and “adverse actions” with an eye toward the realities of the workplace.
What is protected activity?
Each section of the Labor Code amended by SB 497 protects its own category of employee action. Broadly speaking, these statutes prohibit employers from taking retaliatory action against employees who report a reasonable belief that the employer has violated some sort of law or regulation.
Under Labor Code section 1102.5, “protected activity” includes disclosing information to a government or law enforcement agency that the employee reasonably believes involves a violation of state, local, or federal law or regulations, or refusing to participate in activity that would involve the violation of law Labor Code section 1102.5 also prohibits employers from making, adopting, or enforcing any policy that prevents an employee from disclosing such information to a government or law enforcement agency. The information the employee discloses can involve misconduct by either the employer or fellow employees.
Under Labor Code section 1197.5, protected activity would include an employee reporting suspected wage discrimination on the basis of an employee’s sex, race, or ethnicity. For example, if a female employee reports to her supervisor that she believes she is getting paid less, because of her gender, than a male colleague who is performing substantially similar work, she is engaging in protected activity.
Protected activity under section 98.6 would include, for example, an employee’s report that the employer failed to pay overtime wages properly or report of other wage-and-hour violations to the labor commissioner.
Importantly, section 1102.5 provides that an employee of a government agency who discloses such information to their own employer makes “a disclosure of information to a government or law enforcement agency.” So even if an employee of a government agency only reports alleged misconduct internally and does not make a report with an official state or federal agency, they have still engaged in protected activity under section 1102.5.
What’s an adverse employment action?
An adverse employment action is any change that materially affects the terms, conditions, or privileges of employment. Terminations, demotions, and other discipline are classic examples of adverse employment actions. Individual actions like nitpicking performance or laterally transferring an employee without any materially adverse consequences usually are not considered “adverse actions” for the purposes of retaliation, but California courts have found the following actions to be “adverse”:
Whether an action materially affects the terms, conditions, or privileges of employment is, of course, a factually intensive inquiry that will change based upon the specific and unique circumstances of each employee. However, employers should understand that even seemingly neutral decisions, taken after an employee engaged in protected activity, can under some circumstances form the basis of a retaliation claim.
‘Prima Facie’ Case of Retaliation
If an employee can show that they engaged in protected activity and were subject to an adverse employment action, they’re close to establishing a “prima facie,” or presumptive, case of retaliation. But the employee also needs to establish a causal connection between that protected activity and adverse employment action. In other words, they need to show that the adverse employment action was motivated by the protected activity.
To determine whether a causal connection exists, courts will look at whether the totality of the circumstances indicates that an employer had a retaliatory motive for the adverse employment action. A common factor employees use to demonstrate retaliatory motive is the timing of the adverse action (for example, whether the adverse action was taken shortly after the protected activity). Additionally, the employee must demonstrate that the employer had knowledge of the protected activity when it decided to enact the adverse employment action.
So, to claim retaliation before SB 497, employees had to demonstrate: 1) they engaged in protected activity; 2) they were subject to an adverse employment action; and 3) there was a causal connection between the protected activity and the adverse employment action. SB 497 does not change this analysis for purposes of employees whose alleged adverse employment action occurred more than ninety days after their protected activity. But for employees who can show that they suffered an adverse employment action within ninety days of their protected activity, SB 497 drastically reduces the work employees have to do to establish a “prima facie” case of retaliation.
SB 497 is just the latest in recent adjustments to the evidentiary requirements employees must satisfy when bringing a retaliation claim. In 2022, the California Supreme Court clarified in Lawson v. PPG Architectural Finishes, Inc. that employees only have to show by a preponderance of the evidence that their protected activity was a contributing factor in their adverse employment action, after which employers must show by clear and convincing evidence that they had legitimate, non-retaliatory reasons for the action. Rejecting the McDonnell Douglas burden-shifting test in the retaliation context (typically used in discrimination cases), the Lawson decision requires employers to meet a higher evidentiary standard when proving that they had a legitimate business reason for an adverse employment action.
The New ‘Rebuttable Presumption’ of Retaliation
A presumption is a legal principle that assumes one conclusion based on the existence of a set of specific facts. More simply, a presumption allows courts to assume “C,” if “A” and “B” exist. In the context of SB 497 and its amendments to the Labor Code, courts will now presume that an employer retaliated against an employee if that employee suffers an adverse employment action within ninety days of protected activity.
This presumption makes it much easier for such employees to prove a prima facie case of retaliation. Whereas before SB 497, every employee needed to demonstrate the three elements of a prima facie case of retaliation to survive early challenges to their claim, now, employees whose adverse action falls within the ninety-day window are presumed to have experienced retaliation. This lessens the employee’s burden in proving up the causal connection element of their retaliation claim, and it will make it harder for employers to dispose of these retaliation claims at the early stages of litigation.
But it’s important to note: This presumption is rebuttable. This means that, even if an employee demonstrates that they suffered an adverse action within ninety days of protected activity, the employer can offer evidence demonstrating other justifications for the adverse action (for example, employee misconduct or poor performance). For employees in this ninety-day window, the burden of proof has shifted to employers to show a legitimate, non-retaliatory reason for the adverse action.
Best Practices in Light of the Rebuttable Presumption
If all of this “presumption” and “assumption” and “evidentiary burden” talk is scary to you, don’t worry. The best way to make sure you never have to hear about how “there is a rebuttable presumption of retaliation if an employee suffers an adverse action within ninety days of engaging in protected activity” is to make sure that your organization adheres to its obligations under the Labor Code and refrains from engaging in behavior that could form the basis for a retaliation claim.
It’s also important to note that in 2020, the Legislature amended section 1102.5 to add subsection (j), which allows prevailing employees (not employers) to recover attorneys’ fees. This one-way attorneys’ fees provision makes it even more important for employers to prevent retaliation claims in the first place, as the cost of defending such a claim (even if the employer prevails) can be significant.
Here are some best practices to make that happen:
If you have further questions or believe that you need help addressing this issue, please check with your trusted legal counsel.