Naomi Chial worked as a retail sales manager for Sprint when she complained to her boss that a fellow sales manager’s method of reporting sales amounted to “commissions fraud.” One month later, a supervisor warned Chial that her performance was slipping. Eight months and three written warnings later, the company fired her.

The final blow came June 24 from the 8th Circuit, which upheld the dismissal of Chial’s retaliatory discharge suit against Sprint/United Management Co. in a judgment that strictly interprets whistleblower protections in Minnesota.

Minnesota’s Whistleblower Act prohibits employers from discharging an employee because he or she reports, in good faith, “a violation or suspected violation of any federal or state law or rule adopted pursuant to law.”

But the 8th Circuit’s ruling stresses that in order to qualify as a protected whistleblower in the eyes of the law, an employee must have a good faith belief, at the precise time she blows the whistle, that she is reporting a violation or suspected violation of a law or regulation.

“For employers the takeaway really is that the Minnesota whistleblower statute is fairly narrow in its protections,” notes Mary Krakow, chair of the labor and employment law group at Fredrikson & Byron.

Law Gutted

Chial traced her discharge to a March or April 2004 conference call about Sprint’s “add-a-phone” promotion, which allowed customers to add a new phone to their existing plans for a lower price than buying a separate plan for the second phone. What rankled Chial was a colleague’s recommendation that sales people could boost their commissions if they recorded the second phone as a new primary account.

Chial objected that this was commissions fraud on Sprint, and would also confuse customers about their bills. She said she wouldn’t permit her staff to do this without written authorization from upper management. She then informed her supervisor, who asked the retail finance director at Sprint’s headquarters to investigate. Sprint ultimately barred the practice except in certain circumstances.

Meanwhile, Chial’s status at Sprint quickly went downhill. About one month after raising the red flag, she was stunned to get a verbal warning for poor performance. Sprint discharged her in January 2005 following three written warnings.

A federal judge threw out Chial’s retaliatory discharge case in 2008, despite his finding that she had reported “a violation or suspected violation of the law,” namely theft.

In front of the 8th Circuit, Chial’s lawyer Jill Clark, a solo practitioner, argued the whistleblower law would be “gutted” if a “stellar employee” could be terminated for exposing illegal practices in an era of corporate malfeasance. “Ms. Chial did not benefit from doing this–she right away started to feel the crunch and she eventually paid with her job,” Clark argued.

That struck a chord with at least one of the judges, who remarked during the hearing, “One would think that a company like Sprint would reward an employee like that, rather than fire her. … Maybe we should take a more liberal view towards plaintiffs’ complaints of this nature.”

Yet at the end of the day, the panel concluded that the whistleblower law doesn’t cover employees who report wrongdoing “for purposes other than exposing an illegality”–however well intentioned such employees might be.

Chial’s legal downfall was her fatal admission, under questioning by her own lawyer during her deposition, that at the time she complained to Sprint about the commissions issue she did not actually believe that the practice violated any state or federal law.

Chial testified that she believed the practice was “wrong, unethical and commissions fraud,” but evidence indicated that she “formed a belief that the practice was illegal at some point after she reported the practice,” the court ruled.

“Because she did not believe the practice was unlawful when she reported it, she could not have made the report for the purpose of exposing an illegality,” 8th Circuit Judges Roger Wollman, David Hansen and Kermit Bye held in affirming the district court.

Tread Carefully

John Thompson, a partner at Oberman Thompson & Segal, says this decision is in line with 8th Circuit jurisprudence that takes a narrow view of the state whistleblower law’s scope. “This is a rather restricted reading of a ‘report’, but that has been the consistent trend of 8th Circuit and Minnesota law,” Thompson says. “This is unlike other employment statutes intended to protect employees, which usually are construed liberally in favor of the employee.”

Nonetheless, employers are advised to tread carefully in situations where an employee has reported wrongdoing.

Sprint’s counsel Sandra Jezierski, a shareholder with Halleland Lewis Nilan & Johnson, recommends that after an employer carefully documents and investigates employee allegations, the company should at least inform the employee that the matter has been resolved, even if it can’t discuss details due to privacy or litigation concerns.

“I see a lot of litigation coming out of situations where … the employer never really circles back around with the employee. That creates a lot of hard feelings, which lead to litigation,” she says.

Krakow sees the Sprint case as a vivid reminder to employers that timing is a critical aspect of employee discipline.

“Employers need to discipline employees when appropriate, but that discipline should happen in a timely way and shouldn’t happen immediately after legally protected activity,” she advises. “The goal is not to wait until the timing makes the employer’s action look retaliatory.”