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  • Writer's pictureAaron M. Griffin

Probing New York’s Reframed Role and Protections for Whistleblowers

On the eve of All Hallows’ Eve 2021, New York altered the State’s principal labor law and sprinkled assorted tricks and treats into New Yorkers’ employer-employee relationships. The New York State Legislature amended its bedrock labor statute to recalibrate statutory protections afforded whistleblowers and would-be whistleblowers in an act that took effect earlier this year.

The newly minted Labor Law § 740 redefines the legal landscape for employers and employees in the context of whistleblowers and potential whistleblowers. The amendment incorporates some crucial changes that employers, employees, and former employees alike must know to protect their rights and interests every day and/or during the trials of litigation.

Navigating the New Normal: Advice for Employer & Employee

New Labor Law § 740 may have employers finding the taste in their mouths resembling that of New Coke. The strategic and market effects of Labor Law § 740 precipitate employers’ proactivity in fostering attentive, compliant, open, and structured work environments for fear of consequence.

These are conditions that employers can manage. The new Labor Law § 740 all but requires this proactive approach when the statute removes previous statutory prerequisites to which New York’s employers grew accustomed and incorporates subjective standards.

The vintaged Labor Law § 740 provided that its protections attached only if “the employee has brought the activity, policy or practice in violation of law, rule or regulation to the attention of a supervisor of the employer and has afforded such employer a reasonable opportunity to correct such activity, policy or practice.” Labor Law § 740. Effectively gone is that requirement.

Now, any “employee [who] reasonably believes that the supervisor is already aware of the activity, policy or practice and will not correct such activity, policy, or practice” immediately may disclose to the appropriate administrative, governmental, or regulatory body the consummated, planned, or threatened activity, policy, or practice in violation of applicable standards. An employee now need not afford his employer an opportunity to address potential violations of administrative, governmental, or regulatory provisions internally before contacting overseeing authority.

An employee’s reasonable belief alone provides sufficient excuse from an employee’s duty to rely upon an employer’s internal processes to address a potential whistleblower’s concerns.

The fresh Labor Law § 740 also bestows on independent contractors the honorific of inclusion in the eligible class of whistleblower. No longer is a whistleblower’s status as an independent contractor a defense to alleged retaliation against that whistleblower for his or her whistleblowing.

New carve-outs and clarifications expand protections to areas and conduct most assumed already covered. Confirmed is the reality that an employer neither should threaten nor should engage in retaliation against a former whistleblowing employee through efforts to interfere with the former employee’s subsequent employment. Codified is the expectation that an employer’s leveraging the immigration status of an employee, a former employee, or any of his or her family members for the employer’s advantage either to retaliate against or chill whistleblowing is strictly forbidden.

The nexus of the changes in new Labor Law § 740 and proper responses of employers and employees is simple in this new normal. Employers must streamline and reconsecrate their internal reporting procedures as bulwarks against conduct in violation of applicable statutes and regulations and unnecessary regulatory interventions from employees seeking administrative and governmental oversight as a first resort. Employees may choose to rely upon only internal processes of employers whom they trust and otherwise may request public intervention.

Efficient navigation of the employer-employee dynamic now compels employers to do more than the statutorily minimum posting of “notices [of employee’s rights under Labor Law § 740] …conspicuously in easily accessible and well-lighted places customarily frequented by employees and applicants for employment.” Labor Law § 740. Employers must do this and more.

Employers must ensure that their processes for employees’ reporting of potential conduct in violation of applicable statutes and regulations are clear, understandable, transparent, and responsive. Proper recording of compliance and all efforts to ensure compliance with all applicable statutory and regulatory authority will become a paramount best practice for proactive employers.

All internal processes for addressing employees’ concerns about potential or threatened violations of applicable standards should involve independent decision makers insulated from roles that directly affect a potential whistleblower’s employment status. The likelihood of provable or feared retaliation will diminish in direct proportion with a reduction in the potential for retaliation. This serves the employer’s goal of encouraging internal resolution, presents the employer with firmer ground in the event of oversight or litigation, and instills confidence in the process among employees.

Employers now function in this space without governmental intervention to the extent that employees allow. Employers must impress upon their employees that the employers are adept at addressing the employees’ concerns and committed to compliance.

Meanwhile, employees now enjoy the right to utilize only those internal processes that they believe will be effective and not expose them to the risk of retaliation.

Battlefield Redefined: If Things Go Bad

The lowering of thresholds, broadening of standards, and elimination of affirmative defenses to allegations of retaliation against whistleblowers and potential whistleblowers widens the thresholds to litigation and shifts economic realities of litigation. The new Labor Law § 740 catalyzes additional litigation and increases the value of expected settlement payments.

A whistleblower enjoyed a right to demand five classes of traditional relief if he or she proved that he or she suffered retaliation under the older vintage of Labor Law § 740. An employee can receive relief in one or more classes of prescribed relief. The new Labor Law § 740 adds two additional subsections of potential relief in allowing the imposition of a civil penalty up to $10,000.00 and an award of punitive damages if an employer’s violation was willful, malicious, or wanton.

The ever-alluring prospect of punitive damages for whistleblowers or potential whistleblowers will drive litigation costs. Employers will entrench confidence in recognizing the heavy burden of establishing willful, malicious, or wanton violations that an employee must bear at trial. Employees will demand higher settlement payments for claims whose potential value only increases with quixotic tilting for potentially boundless punitive damages.

The end result will be either increased costs litigating through trial or increased settlement figures.

New York extended the statute of limitations for claims of alleged retaliation against whistleblowers or potential whistleblowers from one year to two years commensurate with the extension of protection to former employees in new Labor Law § 740. These additional 52 weeks add another year’s worth of potential claimants for employers and permit employees another 365 days to determine whether they have suffered from retaliatory conduct.

The most consequential change in the amended statute is the removal of two key affirmative defenses. First, the new Labor Law § 740 entitles independent contractors to carry the mantle of whistleblower or potential whistleblower to assert claims of retaliation when status as an independent contractor previously vitiated an individual’s basis to assert claims as a whistleblower.

Second, an employer’s proving that no underlying violation of an applicable statute or regulation occurred presented a defense to a whistleblower’s or potential whistleblower’s allegation of his or her employer’s retaliation for disclosing such a violation under the old Labor Law § 740. The reasoning was simple: An employer could not punish a whistleblower or potential whistleblower for reporting a violation that never occurred. The equation differs now.

The new Labor Law § 740 reframes blowing whistles as a civic responsibility permitted greater latitude. No whistleblower or potential whistleblower will suffer consequences for reporting the employee’s perceived violations of applicable standards to administrative, governmental, and regulatory bodies as a surveillance means of keeping his or her employer honest and accountable to the appropriate authorities under the new scheme.

Employees now may act more freely to report or raise borderline or questionable conduct of their employers that reasonably may be in violation of applicable standards. A whistleblower or potential whistleblower may assert claims that he or she has suffered retaliation for an actual or threatened exercise of his or her rights to report violations of statutory and regulatory authority to the proper administrative, governmental, or regulatory body even if no violation occurred. A claimant simply must have held a reasonable belief that such a violation occurred or would occur.

The new Labor Law § 740 thaws any previous chilling in New York’s guidelines for whistleblower’s reporting to administrative, governmental, and regulatory bodies. A good-faith belief that a violation has occurred or will occur now will defeat an employer’s defense that retaliation cannot occur absent a violation.

An employer’s best defense in this context will be a direct assault on the reasonability of the employee’s belief. There are defensive opportunities for employers and cause for restraint for employees based upon their level of sophistication and familiarity with the standards of which they now must allege that they held a good-faith belief that a violation occurred. However, the standard of reasonability is a permissive one that favors the would-be whistleblowing employee.

The new Labor Law § 740 inflates the economics of litigation regarding whistleblowers. Employers’ creation and maintenance of proper procedures will reduce the need for employers and employees alike to risk the uncertainties of litigation and ensure New York’s desired compliance. Proactivity of employers is crucial as the best prophylactic against litigation costs.

If you have any questions regarding this article, please contact the Underberg & Kessler attorney who regularly handles your legal matters or Aaron M. Griffin, the author of this piece, here, or at (585) 258-2810.

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