WHISTLE-BLOWING

Simply reporting a wrong does not give you rights

Every once in a while, a case comes along that reminds us there is still a place for honesty and integrity in the world. In the following case, the terminated employee sued, claiming she was a whistleblower. At the key moment in the case, however, her candid response to a critical inquiry was refreshing and affirming, even though it brought her entire case crashing down.

Employee speaks up

Naomi Chial was employed as a retail sales manager in the Twin Cities area for Sprint, a telecommunications company whose business includes the sale of mobile telephones and service contracts. Her compensation included commissions earned through the sale of a monthly recurring charge (MRC) on each new cell phone plan sold to a customer. The commission was a one-time payment at the time of the sale, and it didn't renew with each successive monthly charge. For example, if she sold a plan with a $50 MRC, she got a commission for that transaction alone, not for every $50 payment the customer paid over the life of the plan.

For a while, Sprint ran a promotion known as "add a phone." Under the program, customers could add a phone to their existing plan for less than they would pay if buying a new separate plan. The existing customer remained the primary account holder, and the commission for the added line was based on the MRC charged for the new line, not the original MRC on the primary account. Again, as an example, if an additional phone were added to a plan for $10 a month, the commission would be paid on that single transaction.

In spring 2004, Chial and several store managers participated in a conference call regarding Sprint's compensation plan. Jeff Lively, another retail sales manager, had an idea for increasing managers' compensation. He suggested recording the addition of a new line to an existing account as the sale of a new primary account. In doing so, the person getting the new phone would be treated as the primary account holder, so the commission would be paid on the higher initial MRC instead of the reduced MRC applicable to the added line. Even better, the customer would be unaffected by this alternate method of recording the transaction.

Chial spoke up, commenting that Lively's plan was unethical and constituted commissions fraud. She told him that neither she nor the sales representatives she supervised would participate in his scheme unless she received written approval from upper management.

Lively e-mailed Sprint's managers to explain his plan, which he noted would cover (among other things) situations in which a sales rep persuades a low- end plan holder to upgrade to a high-end plan by adding one or more phones to the new plan. According to Lively, that qualified as a legitimate sale of an original plan and should generate a higher commission. Lively copied Chial on the e-mail, and she responded by stating her belief that the practice would cause customer confusion and that his approach was deceptive. Employer agrees that employee is right

Chial contacted her supervisor, Michelle Dunn, to voice her concerns about the suggested commission plan. Dunn told Chial that she would look into it and asked Dennis Armstrong, the retail finance director at Sprint's headquarters, to investigate. After reviewing the matter, Armstrong concluded that the practice suggested by Lively would constitute commissions fraud, and he conveyed his findings to Chial. In October 2004, Sprint explicitly barred the practice and changed the compensation plan to eliminate any incentive to record sales in that manner.

In May 2004, about a month after she reported her concerns about the commissions scheme but before the practice was barred, Chial received on oral warning for poor performance from Dunn. Ironically, the reprimand highlighted her failure to meet company expectations in observing policies and procedures. In July, she received a written warning for her continued failure to meet objectives.

The warnings prompted Chial to take a leave of absence for work-related stress from July through October. Shortly after her return in November, she received a final warning for the same behavior, followed by her termination in January 2005.

Chial sued Sprint under Minnesota's statutory and common-law whistle-blowing laws, among other things. Sprint asked the court to dismiss the whistle- blowing claims, and the court complied. Chial appealed the dismissal to the Eighth U.S. Circuit Court of Appeals, which hears cases originating in Minnesota.

The Minnesota Whistleblower Act provides that an employee cannot be fired for having reported in good faith "a violation or suspected violation of any federal or state law or rule adopted pursuant to law to an employer or to any governmental body or law enforcement official." To prevail on a whistleblower claim, the employee must show that (1) her conduct was statutorily protected, (2) an adverse employment action was directed at her, and (3) a causal connection exists between the protected conduct and the adverse action.

'Wrong' doesn't necessarily mean 'illegal'

The appeals judges zeroed in on the need for a "good-faith" report. To constitute good faith, the report of the challenged practice must be made "for the purpose of exposing an illegality." It's not good enough that the employee simply complains about something that later turns out to be illegal. That would promote the sort of after-the-fact rationalizing of behavior that the law wasn't intended to protect. Instead, courts must determine whether the reporting employee subjectively believed at the time of the report that the conduct in question was unlawful and that the report was made for the precise purpose of calling attention to illegal behavior.

The court cautioned that the distinction can be a difficult one because it isn't easy to determine someone's subjective intent after the fact. In this case, however, Chial made the task much easier by her candid responses to questions from Sprint's attorneys regarding her concerns about Lively's proposal. In fact, when asked directly at a deposition whether she believed the proposal was illegal when she complained about it, she responded that she didn't. On the basis of that admission, the appeals court concluded that Chial couldn't prove the required good-faith element of her claim and therefore was not a protected whistleblower.

Chial contended that the standard was unfair and that she "would have to be a lawyer and understand a technical definition of illegal to qualify as a whistle blower." But the court disagreed, noting that the employee need only believe the reported conduct is against the law at the time of the report. The Minnesota statute didn't require Chial to identify the specific law she believed was broken or to engage in sophisticated legal analysis. She simply had to believe the proposal was illegal, even if her belief was incorrect. Since she left no doubt that she didn't actually believe the challenged commission practice was illegal when she objected to it, her argument failed.

Chial kept fighting, claiming that her purpose in making the report was to "do the right thing" and "call attention" to the wrongdoers. She reminded the judges that she called the proposed pay practice "commissions fraud." In her opinion, those statements should be sufficient to prove that she believed the practice was illegal despite what she said in her testimony.

But the court found that it wasn't enough amp;#8213; reporting conduct for purposes other than exposing an illegality simply doesn't meet the test of "good faith" under Minnesota law. Using words such as "wrong," "unethical," and "fraud" to describe the conduct involved was insufficient for Chial to overcome her own admission that she didn't believe the practice was illegal. Since she couldn't prove that she was a protected whistleblower, there was no need for the court to decide whether her termination was retaliation for her report of wrongdoing.

The judges also dismissed Chial's common-law claim for wrongful discharge in violation of public policy. To succeed on that claim, she had to show that she was fired for "refusing to participate in an activity that the employee, in good faith, believes violates any state or federal law or rule or regulation adopted pursuant to law." For the same reasons that her statutory claim failed, her common-law claim also had to be kicked out. Chial simply couldn't show that when she refused to go along with the new commissions proposal, she did so in the belief that the practice was illegal. In the absence of that belief, there can be no common-law whistleblower claim. Naomi Chial v. Sprint/United Management Company , No. 08-2012 (8th Circuit, 6/24/09).

Lesson learned

Employees often cast themselves as whistleblowers because they have complained about one thing or another. A true whistle-blowing situation involves a good-faith belief that the law has been violated and a report made on that basis. If there is no good-faith report, the employee may just be whistling in the dark.

Copyright 2009 M. Lee Smith Publishers LLC

MINNESOTA EMPLOYMENT LAW LETTER does not attempt to offer solutions to individual legal problems, but rather, to provide information about recent developments in Minnesota employment law. Individuals having questions about specific legal issues should consult with the attorney of their choice.