Minnesota Supreme Court Confirms Narrow Confines of Whistleblower Protections

08/06/2009 / Julia H. Halbach

A case recently decided by the Minnesota Supreme Court confirms the narrow scope of protection under Minnesota’s Whistleblower Statute, Minn. Stat. § 181.932. In Kratzer v. Welsh Companies, LLC, No. A06-2284 (Minn. 2009), the court concluded that employees are not protected under the Whistleblower Statute unless they report a violation of an actual statute or rule, as opposed to what they believe is a violation of a statute or rule. In making this decision, the court confirmed its previous decisions that a report regarding a violation of a suspected law that is not actually such a violation does not constitute protected conduct under the statute.


Background:


Minnesota’s Whistleblower Statute provides an exception to the general principle that employment in Minnesota is “at will,” and can be terminated by the employer or employee at any time, for any reason. The statute prohibits an employer from discharging, disciplining, or otherwise penalizing an employee who reports a violation or suspected violation of a state or federal statute or rule. The statute also protects employees who refuse to engage in conduct that they have an objective basis to believe is illegal, as long as the employee tells the employer that their refusal is due to the belief that the action is illegal. The Whistleblower Statute has been interpreted narrowly by Minnesota courts over the years, thus limiting the exceptions to the “at will” employment rule.


Facts of this case:


Wayne Kratzer, the plaintiff in this case, was employed by Welsh Companies, a commercial real estate broker and property management company. Kratzer was involved in a deal brokered by Welsh to buy a building from John Hancock, another commercial real estate company. A subsidiary of Welsh, WelshInvest, ultimately purchased the building from John Hancock. One of Kratzer’s colleagues at Welsh, Pete Rand, represented both John Hancock (as the seller) and WelshInvest (as the buyer) in the deal.


Welsh communicated this dual agency relationship to John Hancock at the outset, but did not disclose the details of Rand’s compensation, including the fact that Rand received an additional commission by convincing John Hancock to lower its selling price. When WelshInvest sought to sell the property two years later, Kratzer approached both Rand and Welsh’s CEO and expressed his concerns about the fact that Welsh had not disclosed the details of Rand’s representation to John Hancock.


Shortly after these meetings, Kratzer’s employment with Welsh was terminated. Kratzer sued Welsh under the Minnesota Whistleblower Statute, claiming that he was terminated for reporting what he perceived to be a violation of Minnesota real estate rules.


The Decisions of the Courts:


The District Court dismissed Kratzer’s claims, concluding that he had not reported a violation of a state or federal statute or rule. The Court of Appeals reversed the District Court and decided that Welsh’s conduct had indeed violated state regulations regarding representations that must be made in dual agency real estate transactions.


The Minnesota Supreme Court reversed the Court of Appeals and determined that Kratzer had not reported the violation of an actual state or federal statute or rule. The Court reiterated that an employee need not identify the specific statute or rule that he believes has been violated, but the report must at least implicate an actual statute or rule. The Court construed the rule that was the subject of Kratzer’s “report” narrowly, and limited its review to the Whistleblower Statute’s plain language (rather than looking to the underlying common law basis of the Whistleblower Statute).


Finally, the Supreme Court reiterated that the Whistleblower Statute’s language regarding “suspected violation” will protect an employee who misunderstands the facts of the situation they are reporting, but whose report involves a violation of an actual statute or rule. In contrast, the Whistleblower Statute does not protect an employee who reports what they believe to be a violation of a statute or rule, if there is no actual statute or rule implicated by the report.


What this case means for employers:


The Supreme Court’s decision reiterates the narrow scope of the Whistleblower Statute, an exception to the general rule of “employment at will.” This case also confirms that a report by an employee must implicate a violation of an actual statute or rule, and if an employee is mistaken about the statute or rule, he or she will not be protected under the Whistleblower Statute.


However, employers should take all reports of violations seriously and fully investigate them. The fact that an employee has not specifically identified a statute or rule that he or she believes was violated is irrelevant – any report that could implicate a statute or rule is protected. Finally, employers should use caution when disciplining or discharging employees who have recently made protected reports.


The attorneys in Larkin Hoffman’s Labor & Employment Group have substantial experience in investigating reported violations of statutes and rules, and in defending employers against whistleblower claims. We are able to assist with any issues relating to this case, or any other labor or employment questions your company might have.