Although New York has had an employment-related whistleblower statute for decades, many employers may not have been aware of it. That is because the statute itself – N.Y. Labor Law section 740 – has been fairly limited in its scope and application. Indeed, it has only protected employees who disclose employer activity that violates laws relating to public health and safety or to health care fraud. Disclosures of other unlawful activities have not been protected by section 740.

That will no longer be the case, however, starting next year. Late last month, New York Governor Kathy Hochul signed a bill that will amend and effectively overhaul section 740. The amended law, which is scheduled to take effect on January 26, 2022, drastically expands the breadth and scope of section 740 by making it significantly easier for New York workers to bring a claim, lengthening the statute of limitations, and imposing a notice requirement on employers.

Overview of key updates to section 740

  • Independent contractors can bring claims too: As a starting point, under the amended law, not only will current and former employees be able to assert legal claims against the employer, but so too will independent contractors.
  • Broad expansion of protected activity: Perhaps the most noteworthy aspect of the amendment is how it expands the types of employee activities that are protected under section 740 of the Labor Law.

Previously, section 740 was a narrow statute that primarily barred employers from taking retaliatory action against employees only where the employee had disclosed or threatened to disclose to a supervisor or public body, or had objected to or refused to participate in “an activity, policy or practice of the employer that is in violation of law, rule or regulation which violation creates and presents a substantial and specific danger to the public health or safety, or which constitutes health care fraud.” The prior version of the law thus required that an actual legal violation have occurred – i.e., an employee’s reasonable belief that a violation had occurred was insufficient – and was intended to curb only activities that posed a substantial and specific danger to public health or safety or that constituted health care fraud.

The amended statute, however, broadly expands this scope of protected activity. Specifically, the law now bars employers from taking retaliatory action where the employee discloses or threatens to disclose to a supervisor or public body, or objects to or refuses to participate in “an activity that the employee reasonably believes is in violation of law, rule or regulation or that the employee reasonably believes poses a substantial and specific danger to the public health or safety.” The new definition, therefore, essentially protects, and bars employers from retaliating against, workers who report any actual, or reasonably perceived by the employee, violation of any law, rule, regulation, executive order, or judicial or administrative decision, ruling, or order at all, regarding of its subject matter. To say that this is a dramatic expansion of Section 740 would be an understatement.

  • Broadened definition of retaliatory action: Section 740 has always barred employers from taking retaliatory action against employees who engage in activity that is protected by the statute. Under the prior iteration of section 740, “retaliatory action” was defined to include only the discharge, suspension, or demotion of an employee, or other adverse employment action. Under the revised statute, however, the definition of “retaliatory action” has been expanded. It now includes any actual or threatened (i) adverse employment actions, (ii) actions that would adversely impact the individual’s current or future employment, or (iii) reporting of the suspected citizenship or immigration status of an employee or their family or household members.
  • Lengthened statute of limitations: To date, section 740 has provided for a one-year statute of limitations for whistleblower claims. As amended, the statute of limitations for filing a retaliation claim will be increased to two years.
  • Additional forms of relief: Previously, section 740 provided that a plaintiff-employee could seek injunctive relief, reinstatement to the same or an equivalent position, reinstatement of full fringe benefits and seniority rights, compensation for lost payments and benefits, and attorney’s fees. Under the revised statute, a prevailing plaintiff may now also be entitled to recover front pay, punitive damages, and a civil penalty of up to $10,000. The amended law also makes clear that parties to a section 740 claim are entitled to a jury trial (though this portion of the law may well be preempted by the Federal Arbitration Act).
  • Notice requirement: The prior iteration of section 740 contained no notice requirement. The amended statute, however, requires that all Empire State employers post a notice of employee whistleblower protections, rights, and obligations in an easily accessible, well-lighted place that is often frequented by employees and applicants. (Section 741 of the N.Y. Labor Law, which pertains to the health care industry, was also amended to include a notice requirement, but otherwise, it remains substantively unchanged.)

Employer recommendations

Employers should immediately train their human resources personnel and supervisors about this new law and update any relevant policies (including but not limited to whistleblower policies, retaliation policies, and complaint procedure policies). They should ensure that a notice of employee whistleblower protections, rights, and obligations is posted by January 26, 2022.

If you have any questions or concerns about these changes or how they affect your company, members of Reed Smith’s experienced Labor and Employment Group are ready to speak with you.