Articles
Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

The Canary Sings Again: New Life for the Minnesota Whistleblower Act

The scope of Minnesota’s Whistleblower Act was restricted for many years by courts that narrowly interpreted “good faith” and declined to recognize reports of common law violations as protected activity. Recent legislation has expanded the scope of the act and clarified its purposes.

The Minnesota Whistleblower Act (hereinafter “MWA”), Minn. Stat. §§181.931–.932, formerly weakened by decades of case law, has been resuscitated. The legislature recently amended MWA, adding safeguards for both private and public sector employees. The amendments provide much-needed guidance for courts, employees, and employers. The changes clarify what constitutes protected “whistleblowing” activity under the MWA and the kinds of conduct that can be the subject of a whistleblower report. While the amendments have yet to attract much attention, they expand the scope of whistleblower protection in Minnesota and clarify the MWA’s purposes.

Courts’ Narrow Interpretation

The MWA prohibits employers from retaliating against employees who report, or refuse to engage in, illegal conduct. The reporting portion of the MWA, as originally adopted in 1987, prohibited an employer from “discharg[ing], disciplin[ing], threaten[ing], otherwise discriminat[ing] against, or penaliz[ing]” an employee because the employee, “in good faith, report[ed] a violation or suspected violation of any federal or state law or rule,” to the employer or a government official.1 In order to make out a prima facie case for whistleblower protection, an employee must prove: (1) conduct by the employee that is protected by the MWA, (2) an adverse employment action by the employer and (3) causation—a causal connection between the protected conduct and the adverse action.2 The original purposes of the MWA are self-evident: whistleblowing exposes misconduct that could endanger the public or affect public health, safety, morals and welfare;3 whistleblower laws encourage employees to come forward with reports of unlawful conduct and thereby dissuade employers from engaging in, or continuing to engage in, illegal behavior;4 and the MWA provides a remedy for employees who have been terminated or otherwise penalized for reasons that are unfair.5 On its face, the original language of the MWA displayed a legislative intent to cover a broad array of whistleblowing activity for purposes of deterring unlawful conduct and therefore protecting the public.6

However, courts have narrowly interpreted the statute.7 Courts have circumscribed the requirement of “good faith,” have ruled that reports of common-law violations do not fall within the act’s protection, and have confined employer liability to instances where employers have egregiously penalized employees. Some have reasoned that these narrow interpretations disregarded the plain language of the MWA8 and unnecessarily restricted whistleblower protection.9 The legislature has now mooted the debate, since the new amendments end these limitations and, by doing so, bring the focus back to the plain language of the MWA and its true purposes.

Defining “Good Faith”

The addition of a definition for “good faith” is perhaps the most important clarification of the MWA amendments. The MWA has always required that employees report unlawful conduct “in good faith.”10 The amendments to the MWA clarify that “good faith” means employees cannot “make statements or disclosures knowing that they are false or that they are in reckless disregard of the truth.”11 The new definition abrogates prior judicial interpretations developing narrow definitions of “good faith.”

Since the MWA did not previously contain a definition for “good faith,” courts developed their own interpretation, limiting the scope of the statute. The narrow interpretation of “good faith” began when courts held that whistleblowers had to prove they were “blowing the whistle” for “the purpose of exposing an illegality.”12 In part, the requirement that the report be made for the purpose of “exposing an illegality” developed out of a “public policy” exception to employment-at-will—a remnant of the common-law whistleblower claim.13 Although the Minnesota Supreme Court did away with the “public policy” element in the 2002 case of Anderson-Johanningmeier, noting that there was no basis for reading the requirement into the statute’s “good faith” language,14 courts continued to find that only reports made for “the purpose of exposing an illegality” by a “neutral” party would garner whistleblowing status.15

The constraints of this interpretation became clear in Kidwell v. Sybaritic, Inc.16 In that case, the plaintiff, an attorney serving as inhouse counsel for spa-equipment manufacturer Sybaritic, uncovered what he believed to be a plot to obstruct the discovery of emails that might hurt the company’s claim to certain patents in an intellectual property case. Despite believing that he likely would be fired for exposing the alleged plot, the plaintiff nevertheless felt it was his duty to alert the Sybaritic management team to the situation. He sent management an email entitled “Difficult Duty” outlining his concerns and threatening to “advise the appropriate authorities.” The plaintiff also copied his father—a retired businessman who had advised him on his ethical duty to report—on the email. Three weeks later, Sybaritic terminated the plaintiff’s employment.

At trial, a jury found that Sybaritic had violated the MWA and awarded Kidwell $197,000 in damages. However, the Minnesota Court of Appeals overturned the verdict, finding that “caselaw essentially presumes that when an employee performs the duties of his or her job, the employee acts not with the purpose of exposing an illegality but, rather, only with the purpose of promoting the employer’s interests.”17 Thus, the court of appeals found that “as a matter of law, Kidwell’s difficult-duty e-mail does not constitute protected conduct under the whistleblower act because he wrote and sent the difficult-duty e-mail in fulfillment of the duties of his position of employment.”18 The Minnesota Supreme Court affirmed the holding but established a slightly different rule, with a plurality finding that, although the MWA “d[id] not contain any limiting language that supports the blanket job duties exception the court of appeals crafted,” an employee’s job duties were relevant to the determination of “good faith” and whether the report was made “for the purpose of exposing an illegality.”19 The court applied the judicially constructed definition of good faith because “the legislature did not define ‘good faith’ in the whistleblower statute.”20 The court also seemed to resurrect something akin to the public policy requirement it had only recently abolished, citing pre-Anderson-Johanningmeier cases for the proposition that the MWA only “protects the conduct of a neutral party who blows the whistle for the protection of the general public or, at the least, some third person or persons in addition to the whistleblower.”21 The court determined that “[t]he legislature’s purpose in confining protection to ‘a neutral party’ is reflected in the requirement that the report must be made in ‘good faith.’”22

Kidwell was the first Minnesota Supreme Court case to find a plaintiff’s job description relevant to the “good faith” requirement. At least one critic has disapproved of the court’s decision in Kidwell, arguing that although the state’s highest court made it clear that the lower court erred in establishing a “blanket job duties exception,” the Minnesota Supreme Court was essentially doing just that, as its holding made it virtually impossible for anyone whose job requires compliance-monitoring to establish that a whistleblowing report was made for the purpose of exposing an illegality rather than fulfilling job duties.23 Critics might question why “good faith” requires going beyond one’s duty,
since one common definition of good faith is “faithfulness to one’s duty or obligation.”24 Regardless, there is general agreement that the Kidwell case opened up a host of unresolved questions, and its status as a plurality opinion, not binding law, only increased the uncertainty.25

The amendments to the MWA provide clear guidance on how to interpret the good faith requirement. The statute now defines “good faith” as “conduct that does not violate section 181.932, subdivision 3.”26 In other words, as long as a reporting employee does not “make statements or disclosures knowing that they are false or that they are in reckless disregard of the truth,” the employee makes his or her report “in good faith.” Since the court grounded its justification for the job-duties exception in the previously undefined good-faith requirement, the new definition effectively abrogates the holding of Kidwell. It should also weed out any remaining trace of the “public policy” requirement, which has continued to pop up in some form even after Anderson-Johanningmeier purportedly uprooted it.

The legislative history reveals that the legislature did not view the new definition as altering the MWA’s plain language. The legislators repeatedly and explicitly referred to the new definition as clarifying the existing law.27 While the Senate Judiciary Committee that added the definition knew that it might not be completely “neutral” in light of case law, no red flags were raised, signifying that the plain language of the definition comported with the committee’s understanding of what “good faith” meant.28 This is important, because when “the Legislature merely clarifies preexisting law, the amended statute applies to all future or pending litigation,” and thus many of the MWA amendments should have retroactive effect.29

Common Law Violations

The legislature also expanded whistleblower protection by extending the statute to cover reports of violations of the common law. This amendment has sweeping effects; many failed claims brought prior to the amendments would have succeeded under this new version of the MWA. Furthermore, the new amendment expands the impact of the statute to align with its purposes of protecting the public, deterring harmful employer misconduct, and preventing unfair retaliation.

Although the original language of the MWA covered employees who reported “violation[s] or suspected violation[s] of any federal or state law,”30 courts generally have presumed that the provision “any federal or state law” referred to statutory laws and did not incorporate the common law.31 For example, employees who have reported certain types of fraud, breach of fiduciary duties, breach of contract, or other conduct that has not been specifically prohibited by a statute or regulation have been vulnerable to retaliation; few if any whistleblowing claims grounded on reports of common law violations have succeeded in Minnesota.32 Thus, the MWA has failed to protect some “employee[s] who report[] or challenge[] an employer’s deceptive business practices.”33 Yet employees have sometimes mistakenly believed that their reports of common law violations constituted protected activity—and understandably so, since the plain language of the statute appeared to cover reports of misconduct violating any law.

Numerous claims have failed because whistleblowers were unable to prove that their employers’ conduct violated a statute or regulation. For example, in Obst v. Microtron, Inc., a manufacturer was supplying what appeared to be defective wiper-blade control parts to Ford Motor Company.34 The parts did not meet the testing standards Ford and Microtron had laid out in their plan governing Microtron’s obligations. While eventually Ford discovered the defects, Microtron allegedly failed to inform Ford that it had been deviating from the plan for more than a year. When an employee reported that he thought Microtron’s conduct violated the law, he was terminated. Although Microtron’s conduct arguably constituted fraud, a violation of its duty of good faith and fair dealing and, at the very least, a breach of its contract, the court held that the report “did not implicate a violation of law.”35

Similarly, in Kratzer v. Welsh Companies, LLC, a commercial real estate broker was assisting in the sale of a shopping center.36 A senior vice president at Welsh represented both the seller and prospective buyer of the property. When the buyer agreed to increase the senior vice president’s commission if he convinced his other client to drop the price, the senior executive did not disclose the commission arrangement to the seller and successfully negotiated the price of the property down significantly. The plaintiff informed Welsh’s president that he believed the vice president’s conduct violated the law; soon thereafter, the plaintiff’s employment was terminated, and he brought suit under the MWA. The court recognized that the senior vice president may have violated his fiduciary duty, but found that he had not actually violated the law, rejecting Kratzer’s argument that the court should incorporate the common law into its analysis of the regulation.37 Although lower courts had consistently rejected whistleblower claims based on reported violations of the common law, the supreme court left unresolved the issue of “whether an employer’s failure to perform a common law duty can support a whistleblower claim.”38

The recent amendments to the MWA make clear that the statute protects employees for reporting violations “of any federal or state law or common law or rule adopted pursuant to law.”39 This addition will safeguard employees who report certain types of fraud and violations of fiduciary duties, and more, and in doing so will provide additional protections for the public and better align the scope of the statute with a layperson’s reading of the plain language.

Additional Protections

Other amendments to the MWA add more protections for whistleblowers. By including reports of “planned violations” within the scope of protected activity, defining “report” and “penalize” and creating protections for state employees who provide information to government officials, the amendments fill in additional gaps in the law.

Reporting Planned Violations. The legislature has amended the scope of protected activity to include reports of not only “violation[s]” or “suspected violation[s],” but also “planned violation[s]” of the law.40 Previously, whistleblowers had to show that the facts they alleged, if proven, would have constituted an actual violation of the law.41 Thus, the previous version of the statute did not protect employees who reported a plot to violate the law in the future, if the plot was never implemented. For example, in Grundtner v. University of Minnesota, an architect at the University learned that one of its executives planned to negotiate with the low bidder on a project—an illegal procurement method.42 After the architect persistently objected to the plan, he was terminated. When he brought suit under the MWA, the court held that the facts alleged, if proven, could never constitute a violation of the law because the illegal negotiation never actually happened.43 Similarly, the District of Minnesota has held that “the statutory language [of the MWA] speaks to conduct which has already transpired … and the fact that an avenue of action has been contemplated by the employer and rejected insulates that conduct from the whistleblower proscriptions.”44

The new amendments make it clear that the statute extends to reports of legal violations that may occur in the future. However, the statute was carefully crafted not to go too far in this regard. While it was originally proposed that the statute be amended to cover reports of “anticipated violations,” the word “anticipated” was viewed as too subjective and vague.45 “Anticipated” was replaced with “planned” so that employees’ reports would have to involve facts that actually evidence a plan—i.e., mere conjecture or an inkling of a plan without any factual basis would not be enough.46

Defining “Report” and “Penalize.” The legislature also amended the MWA to include definitions for “report” and “penalize.” The new definitions, while perhaps not as transformative as the “good faith” definition, will expand the MWA to encompass several types of claims that have failed in the past. A “report” now means “a verbal, written, or electronic communication by an employee about an actual, suspected, or planned violation … whether committed by an employer or a third party.”47 “Penalize” now includes any “conduct that might dissuade a reasonable employee from making or supporting a report, including post-termination conduct by an employer or conduct by an employer for the benefit a third party.”48

In the past, some courts have held that an employee’s “report” had to be “official” or at least somewhat “formal” in nature to constitute protected whistleblowing activity.49 While recent opinions called into doubt any formality requirement for reporting, “[t]he contours of the formality requirement … remain[ed] cloudy.”50 The new amendments dispel any remaining ambiguity about what counts as a “report”—practically any type of communication could fall under the new definition.

In addition, the new definition of “penalize” broadens the scope of the adverse actions prohibited by the MWA. For example, courts typically have held that the adverse employment action element requires the employee to establish that “the employer’s conduct resulted in a material change in the terms or conditions of … employment”51—a standard that echoes the “adverse action” element of substantive antidiscrimination law. Furthermore, some courts have determined that the element is not met if the whistleblower was no longer working for the defendant employer when the retaliation took place.52 The new definition of “penalize” abrogates these holdings, expanding whistleblower protection to former as well as current employees and ensuring that any adverse action that would deter reasonable employees from blowing the whistle is illegal. The new definition also serves to better align the MWA—a retaliation statute—with the adverse action standard in the retaliation portions of civil rights law, which is not limited to employment-related retaliatory actions.53

Protections for State Employees. Finally, but importantly, the amendments add a completely new section to the MWA to encourage state employees to supply information to certain members of the government. The MWA now prohibits employers from penalizing “employees in the classified service of state government” because the employee:

communicates information that the employee, in good faith, believes to be truthful and accurate, and that relates to state services, including the financing of state services, to:

i. A legislator or the legislative auditor; or

ii. A constitutional officer.54

Unlike the rest of the MWA, this section of the statute does not require that there be any legal violation at all; it prohibits retaliation against state employees for providing information.

Conclusion

Recent amendments have breathed new life into the MWA. Employers can still reduce their exposure to liability by performing thorough, well-documented investigations of employee reports and implementing new training for management and human resources personnel. The outcome of many whistleblower claims will now hinge on the issue of causation, which is arguably where the focus should be. The additional definitions and expansions to the law speak directly to the prior case law and leave little room for ambiguity in the statute. Prior judicially developed limitations can no longer be squared with the MWA’s plain language, and the new amendments should align courts’ interpretation with the true purposes of the MWA.

David E. Schlesinger is an associate at Nichols Kaster, PLLP. He represents employees in individual cases and class and collective actions.  David is vice president of the Minnesota Chapter of the National Employment Lawyers Association.  He teaches Law in Practice at the University of Minnesota Law School.  

Steven Andrew Smith is a partner at Nichols Kaster, PLLP where he exclusively represents plaintiffs in a variety of cases including executive terminations, race, age and gender discrimination, and whistleblower claims.  Steve was named the recipient of the “2011 Distinguished Pro Bono Service Award” from the U.S.D.C. District of Minnesota.

Eleanor Frisch is a third-year student at the University of Minnesota Law School and a law clerk at Nichols Kaster, PLLP. She is a member of the Minnesota Law Review executive board and a legal writing instructor. After graduating, she has plans to complete a one-year federal appellate clerkship.

Notes

Leave a Reply

Articles by Issue

Articles by Subject