New York Significantly Expands Whistleblower Protections Under Section 740 of the Labor Law

New York has enacted legislation significantly expanding whistleblower protections under Section 740 of the New York Labor Law. The amendments eliminate many of the narrow purposes originally established for Section 740, and will now provide employees, former employees, and independent contractors a wider range of claims to pursue against companies. The amended law goes into effect on January 26, 2022.

Summary of Amendments to Whistleblower Law

Expands Scope of Protected Activity

The amended law will prohibit an employer from taking a retaliatory action against an employee who discloses or threatens to disclose to a supervisor or public body an activity, policy, or practice of the employer that:

• (i) The employee reasonably believes is in violation of any law, rule, or regulation; or
• (ii) The employee reasonably believes poses a substantial and specific danger to the public health or safety.

The law does not define the meaning of "reasonably believes." However, when analyzing similar language under New York's whistleblower law for public employees, at least one New York court has examined whether an employee has shown a "good faith, reasonable basis" for their belief that a violation has occurred.

The amended law's legislative history states that the current law provides an employee protection only if they disclose to a supervisor or public body an unlawful activity, policy, or practice of the employer that creates and presents a substantial danger to the public health or safety, or that which constitutes health care fraud. Thus, an employee reporting any myriad of illegal activities that do not directly affect public health or safety (e.g., sexual harassment claims or tax evasion claims) may be at risk for being retaliated against by their employer.

In addition, courts have held that for private employees, Section 740 requires proof of an actual violation of law in order to sustain a cause of action. These restrictions create a discrepancy with how private employees are treated in comparison to public employees, who are protected from disclosure of actions in violation of any federal, state, or local law, rule, or regulation where there is a "reasonable" belief of such action. The amended law seeks to correct this discrepancy.

Expands Definition of "Employee"

The definition of "employee" will include former employees, without any explicit limitation in time, and independent contractors. The amended law's legislative history states that by including former employees, whistleblowers will be protected from continued harm by former employers in their current or future employment prospects, such as attempted blacklisting from their industry.

Expands Definition of "Law, Rule, or Regulation"

The definition of "law, rule, or regulation" will include executive orders, as well as judicial or administrative decisions.

Expands Definition of "Public Body"

The definition of "public body" will include the executive branch departments of federal, state, and local governments.

Expands Definition of "Retaliatory Action"

The definition of "retaliatory action" will include actions or threats to take actions that would discriminate against an employee or former employee or adversely impact a former employee's current or future employment; and contacting or threatening to contact immigration authorities. Previously, Section 740 narrowly defined "retaliatory personnel action" as "the discharge, suspension or demotion of an employee in the terms and conditions of employment."

Protects Acts Whether or Not Within the Scope of Job Duties

The amended law will provide protection to employees whether or not they are acting within the scope of their job duties. Given that some courts have applied a "job duties exception" to certain whistleblower statutes, ruling that employees who make disclosures as part of their job duties are not protected, the amended law explicitly protects employees who act within their job duties.

Examples of employees whose job duties and responsibilities require them to engage in the type of activity that whistleblower statutes seek to encourage are compliance officers, internal auditors, in-house counsel, and certain employees in the medical field.

Creates Exceptions to the Employer Notification and Cure Requirements

The current law requires that employees notify their employer of violations to provide an opportunity for the employer to correct the alleged violation before the employee makes a disclosure to a public body. The amended law requires that only a "good faith effort" be made to notify the employer and creates five exceptions to the notification and cure requirements.

Specifically, employer notifications are not required where:

• 1. There is an imminent and serious danger to the public health or safety;
• 2. 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;
• 3. Such activity, policy, or practice could reasonably be expected to lead to endangering the welfare of a minor;
• 4. The employee reasonably believes that reporting to the supervisor would result in physical harm to the employee or any other person; or
• 5. 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.

Extends the Statute of Limitations

The amended law extends the statute of limitation from one year to two years.

Provides Right to Jury Trial

The amended law provides that in any action brought under the whistleblower law, the parties will be entitled to a jury trial; whereas Section 740 claims are currently bench trials. There is nothing in the law that expressly prohibits employers from entering into arbitration agreements with employees waiving an employee's right to a jury trial.

Expands Available Relief

The amended law permits courts to order the relief of front pay, a civil penalty, and—if the violation was willful, malicious, or wanton—the payment of punitive damages. Previously, relief was limited to an injunction, reinstatement, compensation for lost wages and benefits, and/or costs and attorney's fees.

Requires Employer Posting of Notice

The amended law requires employers to post a notice informing employees of their protections, rights, and obligations under the law. The notice must be posted conspicuously in easily accessible and well-lighted places customarily frequented by employees and applicants for employment.

The amended law also updates Section 741 of the New York Labor Law, the State's healthcare whistleblower law, by also requiring employers to post informing employees of their protections, rights, and obligations under the law.

Employer Action Items

In advance of the January 26, 2022, effective date, employers should:

Prepare to Comply With the Amended Law's Posting Requirement

The notice must be posted conspicuously in easily accessible and well-lighted places customarily frequented by employees and applicants for employment. The New York State Department of Labor is expected to issue a model notice for employers to use before the effective date.

Update Internal Procedures for Responding to Complaints

Internal policies and procedures for investigating and responding to complaints should be able to adequately address the wide array of activities that employees will be able to complain about. If policies and procedures for investigating and responding to complaints are not already in place, employers should develop and adopt them.

Specifically, employers should be prepared to handle a broad range and high volume of complaints given the potential surge of complaints after the effective date. For larger employers, an employee hotline or similar platform may prove useful in ensuring all complaints are reviewed and addressed.

Train Supervisors on Expanding Protections

Employers should also train their supervisors on the expanded protections available under the amended law, including how to respond to reports of violations and reduce the risk of retaliation, what constitutes protected activity, and what constitutes an adverse or retaliatory action.

Specifically, supervisors should be aware that former employees and independent contractors will also be protected by the State's whistleblower law and that adverse actions include threats of taking adverse action, adversely affecting a former employee's current or future employment, and contacting or threatening to contact immigration authorities.

DWT attorneys are available to provide advice and counsel to employers in New York to ensure compliance with the amendments.