October 27, 2020

Volume X, Number 301

Advertisement

October 27, 2020

Subscribe to Latest Legal News and Analysis

October 26, 2020

Subscribe to Latest Legal News and Analysis

Is A Breach Of Fiduciary Duty A Violation Of State Law?

California Labor Code Section 1102.5 protects employees from certain retaliatory acts by their employers.  Subdivision (b) of the statute provides:

"An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for disclosing information, or because the employer believes that the employee disclosed or may disclose information, to a government or law enforcement agency, to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance, or for providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee’s job duties."

In a recent unpublished decision, the California Court of Appeal addressed an argument that a violation of fiduciary duty constitutes a violation of law for purposes of Section 1102.5(b).  The case was brought by a terminated employee (Jeffrey Wacha) against his former employer (Make-A-Wish Foundation of Orange County).  Mr. Wacha alleged that the Foundation's Chief Executive Officer terminated him because he planned to report a budgetary shortfall.  Mr. Wacha alleged that the CEO's delay in reporting the shortfall to the Foundation's Board of Directors constituted a breach of fiduciary duty under the Corporations Code which in turn constituted a violation of state law for purposes of Section 1102.5 of the Labor Code.

The Court of Appeal in an unpublished decision did not buy Mr. Wacha's argument:

"We observe that it is not clear that the cited Corporations Code section prescribes fiduciary duties for corporate officers—to whom it does not refer—or that it creates a statutory duty of fiduciary care for such officers to their corporation, resulting in the Labor Code applying to "disclos[ures of] a violation of [the] state . . . statute." (Lab. Code, § 1102.5, subd. (b).)  In essence, Wacha asserts that every fiduciary duty violation by a corporate officer constitutes a violation of state law—a broad proposition indeed for a statute that is silent on the subject."

Wacha v. Make-A-Wish Foundation of Orange Cty., 2020 Cal. App. Unpub. LEXIS 5884.  Because the Foundation is a nonprofit corporation, the decision addressed Section 5231 of the Corporations Code which is the analogue to Section 309, applicable to for-profit corporations.

I was pleased to see that the Court recognized that Section 5231 does not expressly apply to officers, a point that I have previously noted.  See Can Officers Contract For The Business Judgment Rule? See also these posts regarding Section 1102.5: Court Allows Whistleblower Case To Proceed Even Without Access To Tax ReturnsCourt Extends California Whistleblower Protection To Third Party ViolationsDoes Whistleblower Protection Extend To Disclosures To Your Mom Or The Press?Can A Whistleblower Disclose What Has Already Been Reported?Court Rules Directors Are Agents.

Because Wacha was not certified for publication, California Rules of Court 8.1115 prohibits courts and parties from citing or relying on it, except as set forth in the rule.  

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 262
Advertisement

TRENDING LEGAL ANALYSIS

Advertisement
Advertisement

About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
Advertisement
Advertisement