Whistle-Blowers May Sue Over Job Discipline, State Court Says

Whistle-blowers are not only protected by law from being fired but may sue their employers if they believe that they have been unfairly disciplined, a state Court of Appeal ruled Tuesday.

In the first ruling of its kind in California, the 4th District Court of Appeal in Santa Ana reinstated the claims of two Rockwell International Corp. employees who allege that they were suspended without pay after reporting fraudulent billing on federal contracts to investigators for the National Aeronautics and Space Administration.

Rockwell’s lawyers plan an appeal. They said the decision could have profound implications in the non-union workplace in California, raising the possibility of virtually every management decision on the terms and conditions of employment becoming subject to review by juries.

“We do not believe there is precedent, whether in California or any other state, for the result reached,” said attorney Robert S. Warren of the law firm of Gibson, Dunn and Crutcher, which represented Rockwell. “If there is, we haven’t found it, nor have our opponents--nor has the court.”

The opinion, written by Justice John K. Trotter Jr., reinstated the two Rockwell supervisors’ lawsuits, which a trial judge had thrown out of court in 1984. By law and under previous court rulings, employers may not terminate workers who refuse to engage in illegal activity, Trotter wrote.

“The same wrongful conduct is involved whether the retaliation inflicted is a six-month suspension without pay or a discharge,” the opinion said.

Reasoning that any employer wishing to retaliate against an employee could avoid a lawsuit by suspending rather than terminating him, Trotter wrote: “Accordingly, we hold that an employee can maintain a tort claim against his or her employer where disciplinary action has been taken against the employee in retaliation for the employee’s ‘whistle blowing’ activities, even though the ultimate sanction of discharge has not been imposed.”

Joe A. Garcia and Delfino E. Ariaz claimed that they told NASA investigators they had complied with orders from a supervisor to falsely bill work done on an Air Force satellite to a NASA space shuttle contract.

The satellite contract was for a fixed price, and the shuttle work was paid by NASA on a “cost-plus” basis, a complex formula that covered costs plus profit.

Each claimed that he was suspended without pay from a Rockwell facility in Seal Beach for six months in 1980, then offered a transfer to a non-supervisory position at another facility at lower pay.

Lawyers for the aerospace firm argued that the two were suspended not in retaliation but because they admitted to having personally engaged in false billing.

“There is no direct evidence either that Rockwell disciplined Garcia for cause because he mischarged or that Rockwell disciplined Garcia in retaliation for revealing the mischarging at Rockwell to NASA,” Trotter wrote in his opinion. “Both conclusions are, however, reasonable, albeit conflicting, inferences from the facts proved.”

The evidence should be presented to a jury, the court ruled.

In 1982, Rockwell paid more than $500,000 to the federal government to settle a suit in which it was accused of inflated billing. In the settlement with government auditors, Rockwell also agreed to tighten internal controls but admitted no misdeeds.

The settlement followed an 18-month federal grand jury investigation into inflated labor cost claims on space shuttle work. Federal prosecutors said they lacked sufficient evidence to prove criminal violations.

That settlement covered Rockwell facilities in Downey, Palmdale and Seal Beach.

Rockwell’s attorney scoffed at the characterization of Garcia and Ariaz as “whistle-blowers.”

“They were just two fellows who said, ‘We were told to mischarge, and we did some mischarging,’ ” Warren said. Subsequent company investigations failed to confirm the claims, Warren said.

“The company tried to do what was right, to show it didn’t condone mischarging. On the other hand, it’s very difficult talking about firing people when you don’t think they did it,” Warren said.

Warren said the decision could throw open courthouse doors in any of the “innumerable ways in which an employee may be dissatisfied by a management decision.”

California courts are considered to be in the forefront of a national trend toward greater protection for workers without written contracts, without unions and without statutory protections.

The blossoming of worker rights has led to decisions finding, for instance, that workers of long tenure with good records may not be fired without “just cause.”

In a series of cases beginning with a 1980 California Supreme Court decision, legal protections have been extended to employees through a doctrine involving a “covenant of good faith and fair dealing” that California courts read into almost every employment relationship. Breach of the covenant may result in a right to compensatory and punitive damages.

Decisions in the last six years have extended protection to workers far beyond the occasional case of an employer ordering a worker to engage in an illegal activity. The 1980 case that began the trend gave a worker who refused to engage in illegal price fixing the right to sue over being fired.

Concurring in the decision Tuesday were Justices Edward J. Wallin and Sheila P. Sonenshine.