California Courts Split on Exhausting Whistleblower Claims Under Labor Code

California Courts Split on Exhausting Whistleblower Claims Under Labor Code

This week, California’s Third Appellate District issued a decision dealing with whistleblower-retaliation claims under Labor Code that begs for a judicial or legislative response. In MacDonald v. State of California, Case No.C069646, the court held that an employee must exhaust the administrative remedy set forth in section 98.7 before filing suit in superior court for retaliatory discharge in violation of Labor Code sections 1102.5 and 6310. The court recognized that its decision directly and deliberately conflicts with the Second Appellate District’s decision in Lloyd v. County of Los Angeles (2009) 172 Cal. App. 4th 320, which holds that no such requirement exists.

Labor Code section 98.7 provides a statutory scheme that allows any person to file a complaint with the Labor Commissioner if that person “believes that he or she has been discharged or otherwise discriminated against in violation of any law under the jurisdiction of the Labor Commissioner.” The plain language of the code is discretionary, allowing that an aggrieved employee “may file a complaint” within six months of the alleged adverse action.

Over the years, federal district courts have taken conflicting positions on whether an employee who has been a victim of whistleblower retaliation under section 1102.5 must first file a complaint with the Labor Commissioner under section 98.7. See MacDonald, Slip op. 6, n.4. But federal courts can only speak persuasively regarding the requirements of California Law.

Some employees and their counsel have treated the complaint process as permissive, and for good reason. In 2007, the DLSE issued an opinion letter advising that: “The DLSE’s position is that the wiser course is not to require exhaustion of Labor Code section 98.7 procedures prior to raising a statutory claim in a civil action.” Later, in Lloyd v. County of Los Angeles (2009) 172 Cal. App. 4th 320, the Second Appellate District held that “[t]here is no requirement that a plaintiff pursue the Labor Code administrative procedure prior to pursuing a statutory cause of action” for retaliation; rather, section 98.7 “merely provides the employee with an additional remedy, which the employee may choose to pursue.”

According to the court in MacDonald, the Second Appellate District got it wrong in Lloyd (and by extension, so did the DLSE in its 2007 opinion letter), by failing to consider Campbell v. Regents of University of California (2005) 25 Cal.4th 311. The Third Appellate District held:

The rule of exhaustion of administrative remedies is well established in California jurisprudence. “In brief, the rule is that where an administrative remedy is provided by statute, relief must be sought from the administrative body and this remedy exhausted before the courts will act.” (Campbell, supra, 35 Cal.4th at p. 321, quoting Abelleira [v. District Court of Appeal (1941)] 17 Cal.2d [280], 292). This is so even where the administrative remedy is couched in permissive, as opposed to mandatory, language. (See Williams v. Housing Authority of Los Angeles (2004) 121 Cal.App.4th 708, 734.) Here, an administrative remedy is provided in section 98.7. Thus, in accordance with Campbell, we conclude that plaintiff was required to exhaust that remedy prior to pursuing the underlying action.

Slip op. at 6.

With conflicting decisions in the Third and Second Appellate Divisions, cautious employees and counsel will take care to file a complaint with the Labor Commissioner before they consider filing section 1102.5 or 6310 claims in court. The DLSE can expect to process an increased volume of retaliation complaints going forward.

The Supreme Court or the State Legislature would be wise to speak decisively on the issue of exhaustion raised by MacDonald and Lloyd, as well as related issues arising from the conflict, so as to provide clarity for employees, lower courts, and the DLSE.

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