A California appellate court recently confirmed in Satyadi v. West Contra Costa Healthcare District that employees need not exhaust administrative remedies before pursuing most state Labor Code claims, even those accruing prior to the enactment of Labor Code § 244(a), which expressly states there is no administrative exhaustion requirement.  The decision brings clarity to an area of law noted for its split of authority. 

The plaintiff in this case was the clinical laboratory director for a medical center.  Beginning soon after she was hired in 2010, and continuing through March 2012, the plaintiff made complaints to the medical center's executive staff about numerous operations practices she believed violated federal and state laws, including the alleged disposal of dangerous chemicals in an unsafe manner, failure to timely report positive blood cultures to the emergency department, inadequate maintenance and testing of important equipment, and insufficient monitoring of methicillin-resistant staphylococcus aureus bacteria (MSRA).  The plaintiff alleged she refused to engage in these practices.  In March 2012, she was placed on administrative leave pending an investigation into allegations made against her by other employees.  On June 26, 2012, following the investigation, the plaintiff's employment was terminated. 

Two months later, the plaintiff filed a complaint against the medical center, its parent company, and two employees in the Contra Costa County Superior Court.  After the defendants were initially successful in challenging her lawsuit, the plaintiff filed an amended complaint, alleging she was retaliated against for disclosing violations of federal and state law to governing agencies and for her refusal to participate in unlawful activities.  Her retaliation claim was brought pursuant to Labor Code section 1102.5(b) and (c). 

The defendants again challenged her lawsuit on technical grounds, arguing that the plaintiff failed to exhaust her administrative remedies under Labor Code section 98.7, which states that “[a]ny person who believes that he or she has been discharged or otherwise discriminated against in violation of any law under the jurisdiction of the Labor Commission may file a complaint with the division within six months after the occurrence of the violation.”  The trial court found the exhaustion requirement to be mandatory, ultimately entering judgment in favor of the defendants. 

After judgment was entered, and while the plaintiff’s appeal was pending, the California Legislature enacted two amendments to the Labor Code affecting her claims.  First, the Legislature added Labor Code § 244(a), providing that “[a]n individual is not required to exhaust administrative remedies or procedures in order to bring a civil action under any provision of this code, unless that section under which the action is brought expressly requires exhaustion of an administrative remedy.”  Second, the Legislature amended Labor Code § 98.7(g) to read “[i]n the enforcement of this section, there is no requirement that an individual exhaust administrative remedies or procedures.” 

The critical issue for the appellate court was whether these two amendments applied retroactively to the plaintiff's claims – which admittedly existed prior to the Legislature’s amendments.  The appellate court first noted that there is a presumption against the retroactive application of new laws.  However, because the Legislature’s amendments “merely clarified existing law,” the appellate court concluded there was no need to consider the question of retroactivity because the laws had not changed in the first place.  In reaching this conclusion, the appellate court examined the federal and state decisions addressing the issue of administrative exhaustion, ultimately concluding that the California Supreme Court’s decision in Campbell v. Regents of the University of California (2005) 35 Cal.4th 311 “provided no direct support for the view that seeking relief from the Labor Commission was a prerequisite to filing a whistleblower action in court.”  The appellate court acknowledged that while some federal decisions had found an exhaustion requirement, those decisions were based on the erroneous conclusion that Campbell had found that exhaustion was required.  As Campbell was “silent” on the issue, the appellate court found the federal decisions requiring exhaustion to be unpersuasive.  Therefore, even prior to the Legislature’s 2013 amendments to sections 98.7 and 244, there had been no exhaustion requirement to bringing a whistleblower retaliation claim.  Accordingly, the appellate court reversed the entry of judgment and allowed the plaintiff's claims to proceed. 

This decision may bring a degree of clarity to a previously unsettled issue.  Although the Legislature has since amended sections 98.7 and 244 to reject the requirement of administrative exhaustion, Satyadi holds that there never was a requirement for administrative exhaustion for claims brought under Labor Code section 1102.5 in the first place.  Thus, any claims that may have been subject to a failure to exhaust defense may now be viable.  Further, Satyadi is a reminder that laws which are silent as to retroactive application may nevertheless apply retroactively if the court finds the legislation to merely clarify existing law. 

As a practical matter for California employers, this case means that potential whistleblowers – which are becoming increasingly common in the healthcare industry – have fewer hurdles to clear.