The Court of Appeals cracks open the small door to more whistleblower claims under the New York Labor Law.

• Author: Sherno, Trida

1. INTRODUCTION

   Private sector employees who report actual or suspected violations of law--or "whistleblowers"--are now entitled to strengthened and expanded legal protections in many jurisdictions. Congress passed significant legislation that protects various types of whistleblowers, including anti-retaliation provisions of the Sarbanes-Oxley Act* 1 and the Dodd-Frank Act. (2) Many states, including California and New Jersey, enacted comprehensive whistleblower laws to protect employees. (3) New York is not among these jurisdictions.

   Although New York was one of the first states to adopt a whistleblower protection statute in the early 1980s, which was groundbreaking at the time, it has been slow to update the law. In 1984, New York enacted section 740 of the New York Labor Law, which protects private employees who disclose or threaten to disclose "an activity, policy or practice of the employer that is in violation of law, rule or regulation." (4) The statute is limited to whistleblowing activities related to "a substantial and specific danger to the public health or safety" or health care fraud. (5) White-collar crimes are not "placed on the same plane as threats to public health or safety." (6) As a result, New York's whistleblower statute is inapplicable in most cases.

   Both the New York legislature and courts have largely resisted efforts by policy makers and litigants to expand the scope of section 740 of the New York Labor Law. (7) However, most recently, the Court of Appeals considered the whistleblower statute in Webb-Weber v. Community Action for Human Services, Inc. (8) In that case, the court specifically overruled longstanding appellate division precedent by holding that an employee filing a retaliation claim under section 740 is not required to plead the specific law, rule, or regulation that was allegedly violated by the employer. (9) The court's decision, although narrow, lowers the pleading burden making it easier for some employee whistleblowers to state a cause of action and withstand an employer's motion to dismiss. (10)

   This article will explain the development of private sector whistleblower protections in New York. Part II will provide a brief overview of the New York whistleblower statute and its history. Part III will describe the statutory language and scope of section 740. Part IV will discuss the Court of Appeals decision in Webb-Weber v. Community Action for Human Services, Inc. Finally, Part V will discuss recent legislative efforts to extend further whistleblower and anti-retaliation protections to employees in New York.

2. THE ORIGINS OF NEW YORK'S WHISTLEBLOWER STATUTE

   New York's whistleblower statute was enacted in 1984 following the New York Court of Appeals' important and widely cited decision in Murphy v. American Home Products Corp. (11) In that case, the court reaffirmed the common law doctrine of "at-will" employment, which has been closely adhered to in New York since 1895.12 The "at-will" employment doctrine is the simple presumption that absent statutory or contractual restrictions, the employment relationship may be terminated at any time and for any reason by either an employer or an employee. (13) Whistleblower and other forms of anti-retaliation statutes are primary examples of statutory restrictions on the at-will doctrine.

   In Murphy, plaintiff, Joseph Murphy, was employed as assistant treasurer by defendant, American Home Products, before his employment was terminated. (14) Murphy was in many ways a classic whistleblower. Murphy, an at-will employee, claimed that he was fired from his twenty-year employment with American Home Products for his disclosure of "accounting improprieties" to senior management and because of his age. (15) Murphy alleged that he uncovered accounting manipulations of at least $50 million resulting in inflated bonuses to management and that the company retaliated against him for his refusal to engage in the purported fraud. (16) He further alleged that he was fired in a humiliating manner once he disclosed the issues to the defendant's officers and directors. (17)

   Despite the allegedly egregious circumstances surrounding Murphy's discharge, the Court of Appeals determined that Murphy failed to state a claim under New York law. (18) The court noted: "[U]nder New York law as it now stands, absent a constitutionally impermissible purpose, a statutory proscription, or an express limitation in the individual contract of employment, an employer's right at any time to terminate an employment at will remains unimpaired." (19) The court also stated that the creation of a cause of action involving "wrongful" or "abusive" termination "is best left to the Legislature." (20) The court acknowledged in a footnote that various forms of whistleblower legislation were proposed in the New York Senate and Assembly beginning in 1981, but were not passed. (21)

   Indeed, the New York legislature began exploring whistleblower legislation in the early 1980s in response to increased media attention on whistleblowers and public safety "catastrophes." (22) The New York legislature considered a similar statute that was enacted in Michigan in 1981 in response to incidents in the state involving the "catastrophic accidental poisoning of [livestock]" and "a chemical plant in the state that was venting toxic vapors into the atmosphere." (23) In both cases, employees were aware of the matters and were forced to make the difficult choice between blowing the whistle and keeping their jobs. (24) The legislature noted that similar incidents had occurred in New York. (25)

   Not surprisingly, the primary opponents to legislative efforts to adopt whistleblower measures were business groups such as the New York Chamber of Commerce and Industry. (26) That group in particular believed the legislation "would open employers to false and malicious accusations" and "actually invites disgruntled employees to seek redress in the news media." (27) On the other hand, labor unions and employee advocacy groups widely supported the legislation. (28)

   It was in this context that section 740 was signed into law on August 1, 1984, as a compromise after three successive efforts to pass a whistleblower protection statute failed to gain support in 1981, 1982 and 1983.29 The bill's Senate sponsor, James J. Lack, was quoted in the New York Times stating that "he believed the bill would be 'the broadest whistle-blower measure in the country.'" (30)

   Yet, even policy makers and key government officials and supporters of the law acknowledged the legislation's shortcomings. Many of the labor unions and other proponents of the law noted its deficiencies when expressing their support. (31) The Assembly Memorandum in Support of the bill acknowledged: "The bill is narrow in scope. It limits an employer's discretion only when the law is being broken or the public health or safety is endangered." (32) The Attorney General of New York stated that although the bill did not protect all whistleblower employees, it was "a critical first step." (33) The Attorney General further urged that the "defect in the bill be cured by future legislation." (34)

   Although the New York State legislature has tried on numerous occasions, it has not implemented a cure in the thirty years since section 740 was enacted...