An Employer May be Held Liable for Whistleblower Retaliation When an Employee Reports Concerns about Compliance with Tax Laws

On January 23, 2019, the First Appellate District held that an employer may be liable for whistleblower retaliation when an employee reports concerns about compliance with tax laws.  Siri v. Sutter Home Winery, Inc., 1st Appellate Dist. Case No. A141335 (filed Jan. 23, 2019).  Plaintiff Says Siri, an accountant for Defendant Sutter Home Winery, Inc. doing business as Trinchero Family Estates (TFE), believed her employer was failing to comply with certain California sales and use tax laws.  She consulted with the California State Board of Equalization, who confirmed some of Ms. Siri’s suspicions.  Ms. Siri informed her direct supervisor, top management, and the company’s general counsel that TFE was not paying and had not paid use taxes it owed.  TFE authorized some payments, but declined to let Ms. Siri pay for others.

After lodging her complaints, Ms. Siri alleged that TFE retaliated against her by singling her out and scrutinizing her work; stripping her of some of her duties; giving an office promised to Ms. Siri to someone else; treating her as a pariah; and ultimately, terminating her employment.  Ms. Siri sued TFE for wrongfully terminating her in violation of California Labor Code section 1102.5 and public policy.

In the course of discovery, Ms. Siri attempted to obtain TFE’s tax documents that she hoped would support her claims.  However, the trial court found that these documents were privileged and did not order TFE to produce them.

TFE then moved for summary judgment on the grounds that Ms. Siri’s causes of action failed for two reasons.  First, Ms. Siri claimed that she had to rely on TFE’s tax returns to establish her claims.  However, the court did not order TFE to produce them, so Ms. Siri did not have these documents.  Second, TFE argued that Ms. Siri relied on information she gleaned while preparing TFE’s tax returns.  Disclosing this privileged and confidential information would be a violation of the California Revenue and Taxation Code.

Ms. Siri responded by stating that her claim did not rely on privileged tax information, but rather on her communications with TFE’s management and the Board of Equalization.  The trial court disagreed with Ms. Siri.  It granted TFE’s motion for summary judgment on the grounds that Ms. Siri could not have asserted her claims without violating the taxpayer privilege.

On appeal, the First Appellate District reversed the trial court’s judgment.  The appellate court found that the taxpayer privilege does not preclude an employee from speaking up if the employer files incorrect or fraudulent returns.  Ms. Siri could bring a claim for wrongful termination as long as she reasonably believed that TFE was violating the law.  Further, the appellate court found that Ms. Siri could prove the elements of her causes of action without violating the taxpayer privilege.  The First Appellate District further noted that the Revenue and Taxation Code could not be interpreted to prohibit an employee from telling an employer that it is violating a tax law.  Nor could that code be read to bar a plaintiff from bringing a wrongful termination claim.  The appellate court found that Ms. Siri was entitled to prove her claim without disclosing any privileged information.

If you feel your employer has retaliated against or wrongfully terminated you, please feel free to call Hunter Pyle Law for a free consultation at (510)-444-4400 or inquire@hunterpylelaw.com.