Employers Gain Greater Protection Against Allegations Of Whistleblower Retaliation

June 2006

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In a case of potentially large importance to employers, the U.S. Supreme Court limited the circumstances under which whistleblowers can receive protection against retaliation. In the controversial 5-4 decision, the Supreme Court reversed the Ninth Circuit that indicated the employee had protections from employer retaliation as a whistleblower.

In Garcetti vs. Ceballos, no. 04-473, Richard Ceballos was an assistant prosecutor for Los Angeles County. Ceballos suggested that a criminal case he was handling be dropped because a search warrant used in the case had been obtained illegally. Ceballos concluded that the search warrant was illegal because it was obtained using a declaration from a deputy sheriff that contained unexplained inconsistencies and lies. In response to raising these issues, Ceballos contends he was retaliated against by receiving an undesired transfer farther from his home and "demoted and denied a promotion for trying to expose the lie."

The Court ruled that First Amendment protection does not occur when performing one' job responsibilities. Since Ceballos's job responsibilities included advising his superiors as to how to proceed with a case, Ceballos was not afforded First Amendment protection; consequently, he could be disciplined for actions with which his employer did not agree. In his role as an employee-whistleblower, Ceballos is NOT protected from employer retaliation because he is carrying out normal job duties.

Whistleblower protection is only valid when the employee is speaking out as a citizen, not as an employee. According to the ruling:

"When public employees make statements pursuant to their official duties, the employees are not speaking as citizens for First Amendment purposes, and the Constitution does not insulate their communications from employer discipline.… When an employee speaks as a citizen addressing a matter of public concern, the First Amendment requires a delicate balancing of the competing interests surrounding the speech and its consequences. When, however, the employee is simply performing his or her job duties, there is no warrant for a similar degree of scrutiny."
"We hold that when public employees make statements pursuant to their official duties, the employees are not speaking as citizens for First Amendment purposes, and the Constitution does not insulate their communications from employer discipline…. Ceballos' proposed contrary rule, adopted by the Court of Appeals, would commit state and federal courts to a new, permanent, and intrusive role, mandating judicial oversight of communications between and among government employees and their superiors in the course of official business."

The opinion specifically noted that, had Ceballos called a press conference and gone public with the information, he would have been protected because he would have been acting like a citizen. Of course, if the whistleblower is a public citizen, then no employment protection is needed, and the information being reported would not even be in the possession of the would-be whistleblower.

The decision focuses on the First Amendment, rather than other laws. Although the majority decision noted the existence of state and federal whistleblower protection laws, the opinion does not reconcile the instant ruling with such laws.

Although the case was decided in the context of a government employer, the principles should apply to private employers. This is not meant to imply that the decision for public employers makes sense - just that the same rationale would appear to work.

The Ceballos Decision Raises Practical Challenges for Employee Whistleblowers.

When reporting on accounting, auditing and internal controls, whistleblowers are protected under Sarbanes-Oxley from retaliation. Similar protection against employment retaliation exists under most state laws.

But how does this work under the current Supreme Court case? Assume an accountant's job is to keep accurate records so that proper financial statements can be provided to the Securities and Exchange Commission, lenders, and other stakeholders. The accountant notices that fraudulent accounting is occurring, which falls within his job responsibilities. The fraudulent accounting is discussed with superiors, who tell the complainant to just keep quiet and not cause a fuss. The accountant is then fired because he wanted the accounting to be accurate, and protested when malfeasance occurred.

Under the rationale proposed by the current Supreme Court decision, the employee loses in every situation:

1. If, instead of discussing the problems internally, the hypothetical employee calls a press conference (as the Supreme Court suggests). The employee is now acting like a "citizen", and so receives employment protections for the whistle blowing. However, the employee has implied, if not explicit, duties to keep his employer's information confidential. Thus, the employee gets fired anyhow for failing to do his job by reporting the wrongdoing internally. Because he makes public proclamations, the employer appropriately fires the employee for not fulfilling his job duties and fulfilling an appropriate duty of confidentiality.

2. If the employee reports the issues internally, as is required by the employee's job duties, then the Supreme Court says that the employee is just doing his job, and does not get protection for the whistle blowing communication.

The solution likely involves reporting the complaint as an anonymous whistleblower, as is specifically allowed under Sarbanes-Oxley Section 301(4). Insisting that the complaint be anonymous will cause additional work for those investigating the complaint, but this may be the only way of avoiding retaliation for seeking that the malfeasance be fixed.

Dissent Opinions Raise Valid Concerns.

Justices David Souter, Ruth Bader Ginsberg, Stephen Bryer and John Paul Stevens dissented. In his dissent, Justice Stevens exposes the fallacy of the majority's decision:

"The notion that there is a categorical difference between speaking as a citizen and speaking in the course of one's employment is quite wrong.…[I]t is senseless to let constitutional protection for exactly the same words hinge on whether they fall within a job description. Moreover, it seems perverse to fashion a new rule that provides employees with an incentive to voice their concerns publicly before talking frankly to their superiors."

The case was one of three cases that was reargued after Justice Sandra Day O'Connor left the Court on January 31. Presumably, the reason is that O'Connor left a 4-4 tie on the undecided case, allowing Alito to cast the deciding vote.

Fulcrum Inquiry is a forensic accounting firm. We investigate allegations of accounting wrongdoing, and provide turn-key, SOX-compliant whistleblower reporting solutions.