The state of New York has greatly expanded the scope of its whistleblower law—New York Labor Law §740—and the protections afforded to whistleblowers. Make no mistake, this amendment, which took effect on Jan. 26, 2022, is a true game changer.

Signed into law in October 2021 by Gov. Kathy Hochul, the amendment is likely to result in an unprecedented increase in whistleblower retaliation cases being filed in the New York courts, especially given the pandemic and its widespread and multifaceted effects on the workplace.

As the legislative history makes clear, this expansion of §740 came after a five-year study of the law by the New York State Law Revision Commission that identified “numerous defects” in the law:

This bill addresses these numerous defects in the current Whistleblower statutes. It implements certain recommendations made by New York State Law Revision Commission following a five-year study of the law, and enacts, for all employees, protections similar to those extended by Labor Law §741 to healthcare workers during the 2002 legislative session. New York State should encourage, not discourage, employees who wish to report violations of law by their employers. Although the “Whistleblower Law” enacted in 1984 was a good first step, experience over the past 25 years has shown that the law is simply inadequate.By making the necessary reforms to strengthen the law, this bill will act as a deterrent to employers who might otherwise engage in illegal activity, will protect the public from such wrongdoing, and will ensure that the honest and law-abiding employees who have the courage to reveal illegal activities are protected against retaliation by their employers.
(A05696 Memo—NY State Assembly Memorandum in Support of Legislation (emphasis added)).

Arguably, amended New York Labor Law §740 (new §740) is now the broadest and most powerful whistleblower protection law in the United States.

What Changes Were Made to §740?

(1) The definition of “Employee” has been expanded to clearly include “former employees” and “natural persons employed as independent contractors.” §740(1)(a). Other state whistleblower laws, including New Jersey’s Conscientious Employee Protection Act (CEPA), do not specifically include independent contractors in the protected class, leaving their potential inclusion instead to the interpretation of the courts. The New York Legislature has spared the New York courts from having to determine whether the protections should be extended to independent contractors—they clearly do.

Furthermore, since “former employees” are included in the protected class, employers can be sued by former employees under new §740 if the employers “threaten, penalize, or in any other manner discriminate against any… former employee exercising his or her rights under this section.” §740(1)(e). Under new §740(1)(e), such illegal retaliatory action would include “actions or threats to take such actions that would adversely impact a former employee’s current or future employment.” So even if an employer secures a general release of claims from an employee upon termination of employment, the former employee could still sue the former employer under new §740 if it takes any action against that former employee in the future—for example, attempting to blacklist the person from similar jobs in the employer’s industry.

(2) The definition of “law, rule or regulation” has been expanded to include executive orders and “any judicial or administrative decision, ruling or order.” §740(1)(c). Thus, if an employee complains that his or her employer is violating either an executive order (and there certainly have been many of those lately) or an administrative or court decision, ruling or order, that employee would now clearly be protected under new §740. This does, however, leave open the question of whether an arbitration decision, ruling or order would be included under this revised definition.

(3) The definition of “retaliatory action” has been greatly expanded from “discharge, suspension or demotion” to “discharge, threaten, penalize, or in any other manner discriminate against any employees or former employees exercising his or her rights under this section including (i) adverse employment actions or threats to take such adverse employment actions against an employee in the terms of conditions of employment including but not limited to discharge, suspension, or demotion; (ii) actions or threats to take such actions that would adversely impact a former employee’s current or future employment; or (iii) threatening to contact or contacting US immigration authorities or otherwise reporting or threatening to report an employee’s [or family or household member’s] suspected citizenship or immigration status …” §740(1)(e).

(4) Under the new §740, the scope of the law has been greatly expanded with respect to the circumstances in which an employee or former employee becomes “protected.” Prior to this amendment, §740 protected only an employee who (a) “discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer that is in violation of law, rule or regulation which violation creates and presents a substantial and specific danger to the public health or safety, or which constitutes health care fraud;” (b) “provides information to, or testifies before, any public body conducting an investigation, hearing or inquiry into any such violation …;” or (c) “objects to, or refuses to participate in any such [violative] activity, policy or practice …” (emphasis added).

Under new §740(2)(a), the law is expanded to encompass any type of violation of law, rule or regulation. In addition, under new §740(2)(a), the “activity, policy or practice” does not need to actually violate a law, rule or regulation. Rather, as long as the employee or former employee “reasonably believes” that the “activity, policy or practice” is in violation of a law, rule or regulation or “poses a substantial and specific danger to the public health or safety,” he or she will be protected as a whistleblower under the law.

New §740’s frequent use of the phrase “employee reasonably believes” will no doubt result in motion practice (motions to dismiss and for summary judgment) and trial proof focusing on whether the plaintiff had the requisite “reasonable belief” at the time the disclosure (or threat to disclose) was made. New York, however, is not the first state to use this “reasonably believes,” or a similar, standard. See CEPA, N.J.S.A. 34:19-3 (2007); Ohio Rev. Code Ann. §4113.52 (2001); Rhode Island Whistleblowers’ Protection Act, R.I. Gen. Laws Ann. §28-50-3 (1995); Cal. Lab. Code §1102.5 (1984); N.H. Rev. Stat. Ann. §275-E (1988); Maine Whistleblowers’ Protection Act, Me. Rev. Stat. Title 26, §831 (1983). As a result, New York courts, at least initially, may look to the decisions of the courts in those other states for guidance on interpreting this standard.

Furthermore, unlike other state whistleblower statutes, including Ohio’s statute and New Jersey’s CEPA in certain circumstances, new §740 does not require an employee to present a written complaint to a supervisor or superior who can prevent recurrence of the conduct. Rather, under new §740, the employee is protected as long as he or she “discloses, or threatens to disclose to a supervisor or to a public body …” Although the statute’s protections will not apply to an employee who makes a disclosure to a public body unless he or she has “made a good faith effort to notify his/her employer by bringing the activity, policy or practice to the attention of a supervisor of the employer and has afforded such employer a reasonable opportunity to correct such activity, policy or practice,” “[s]uch employer notification shall not be required where: (a) there is an imminent and serious danger to the public health or safety; (b) the employee reasonably believes that reporting to the supervisor would result in a destruction of evidence or other concealment of the activity, policy or practice; (c) such activity, policy or practice could reasonably be expected to lead to endangering the welfare of a minor; (d) the employee reasonably believes that reporting to the supervisor would result in physical harm to the employee or any other person; or (e) the employee reasonably believes that the supervisor is already aware of the activity, policy or practice and will not correct such activity, policy or practice.” §740(3).

(5) The statute of limitations for claims under §740 has been changed from one year to two years after the alleged retaliatory action was taken. §740(4)(a).

(6) New §740 now clearly provides the parties with a right to a jury trial. §740(4)(b).

(7) In terms of the relief afforded under new §740, the statute now provides for a former employee to recover front pay in lieu of reinstatement (§740(5)(b)) and for the payment of punitive damages “if the violation was willful, malicious or wanton.” §740(5)(g).

(8) Finally, an employer publication requirement has been added and requires every employer to “inform employees of their protections, rights and obligations under this section, by posting a notice thereof. Such notice shall be posted conspicuously in easily accessible and well-lighted places customarily frequented by employees and applicants for employment.” §740(8). With more and more employers permitting significant portions of the workforce to work remotely, employers may need to do more to satisfy this “publication” requirement than simply posting a physical copy of a notice in the employer’s lunch room or other common area (especially if those areas are no longer “customarily frequented by employees”).

Limiting Potential Exposure Under New §740

What can employers do now to protect against potential claims under new §740?

It is often said that “the best defense is a good offense.” When it comes to new §740, there are a number of affirmative steps employers can take to avoid and/or limit their exposure to potential claims.

First, employers should review and consider revising their whistleblower policies to ensure they are consistent with the amended law.

Second, employers should train their supervisors and leadership regarding what to do when an employee discloses or threatens to disclose allegedly illegal conduct.

Third, employers should consider creating a whistleblower response team to both receive and promptly investigate internal allegations of illegal conduct.

Fourth, at the time an employer first considers terminating the working relationship with an employee or independent contractor, it should consider whether the employee or independent contractor is arguably a protected whistleblower under new §740. If so, it would be prudent to consult with experienced counsel before any action is taken against the worker. To succeed on a claim under §740, the employee must show that retaliatory action was taken against him or her because of his or her protected activity. Thus, employers will want to ensure that they have solid documentation to support any action taken against a worker with a history of disclosing or threatening to disclose allegedly illegal conduct.

Finally, with respect to any release agreements entered into with workers, employers should ensure that the release language includes a specific reference to §740.

Conclusion

As New York courts begin to adjudicate claims under new §740, it is likely that the case law that has developed under other states’ whistleblower protection laws—including to address what constitutes a “reasonable belief” and whether alleged whistleblowing conduct implicates an “activity, policy or practice of the employer” (as opposed to a mere disagreement between an employee and a supervisor or co-worker)—will be instructive.

However, if our prediction is correct—that cases will be filed under new §740 at a historically frantic pace—there will soon be ample New York case law to rely upon. The real question is: will your company be ready when this whistle blows?

Reprinted with permission from the February 4 issue of The New York Law Journal. (c) 2022 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.