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New Jersey’s Senate last week approved legislation that would extend the Conscientious Employee Protection Act’s protections to those who blow the whistle on Enron-type corporate abuses. S-1886, which passed 27-9, would bar retaliation against employees who report deception or misrepresentation to shareholders, clients and retirees, among others — including fraudulent or criminal conduct the employee believes might defraud those individuals. The bill would also beef up remedies, making it mandatory for judges to order injunctive relief, reinstatement, compensatory damages and attorneys’fees and costs for CEPA violations, “where appropriate and to the fullest extent possible.” The bill would also amend the Punitive Damages Act, N.J.S.A. 2A:15-5.14, to clarify that its ceiling of $350,000 or five times the amount of compensatory damages does not apply to CEPA claims. It would add CEPA to the list of claims, including discrimination, bias crimes and child sexual abuse, which are already exempted from the cap. While punitive damages awards would remain discretionary, the bill may cause them to increase in size. Judges or juries deciding the amount would have to factor in not just the quantum of compensatory damages awarded but also damages caused to the employer’s shareholders, investors, clients, employees and retirees, among others, or to the public or a governmental entity harmed by the activities at issue. Civil penalties also would jump. Fines would increase from $1,000 to $10,000 for a first offense, and from $5,000 to $20,000 for each additional violation. Several labor unions supported the bill. Only one group, the school boards association, opposed it, says a sponsor, Sen. Stephen Sweeney, D-Salem, N.J. The association wanted to amend the bill to exclude the group but Sweeney declined. A companion Assembly bill, A-764, appears likely to pass, given that an almost identical measure passed by a 56-19 vote in the 2002-2003 legislative session. That bill stalled in the Senate Labor Committee, before Sweeney became chairman. If A-764 clears the Assembly, the final bill will land on the desk of Acting Gov. Richard Codey, D-Essex, N.J., who, as Senate majority leader, posted and voted for the bill. Assemblyman Neil Cohen, D-Union, N.J., a sponsor, ties the new language covering retirees and investors to Enron and other Wall Street scandals and hopes it will encourage people to go public with abuses. Sweeney adds, “You have to protect people who come forward to expose illegal acts.” The bill sends employees “a loud and clear message: you do the right thing and the courts will protect you.” Says Marlton lawyer Alan Schorr: “If the goal is to prevent companies from doing Enron-type corporate fraud, it’s important to specify that in black letter law so employees aren’t rolling the dice in predicting how courts are going to rule.” The chief impact will be to clarify that CEPA covers employee whistleblowing about internal fraud, says Schorr, who heads the legislation committee of the New Jersey affiliate of the National Employment Lawyers Association. Fellow plaintiffs’ lawyer Linda Wong agrees, saying the law would invalidate case law holding that CEPA does not apply to private disputes where employers defraud employees or investors. Schorr says S-1886 does not go far enough because it would not reach “arbitration agreements, restrictive covenants and other agreements that companies make employees sign these days that violate public policy, unless we prove there was misrepresentation in getting them to sign.” For instance, it would not change the result in Maw v. Advanced Clinical Communications, where the Supreme Court in May held CEPA inapplicable because there was no “clear mandate of public policy” implicated by the termination of an employee for refusing to sign a noncompete agreement. Plaintiffs’ and defense lawyers say it was already clear the punitive damages cap did not apply to CEPA. But they differ in their reactions to other aspects of the legislation. Wong, of Princeton’s Wong Fleming, sees no great gain in the mandatory-relief provision, pointing to the “where appropriate” language that preserves judges’ discretion. On the other hand, Patrick Stanton, who represents employers, says the change from “may” to “shall” must have been intended to enhance recovery. “I don’t understand why they’re trying to mandate all those damages,” says Stanton, of Morristown, N.J.’s Ogletree Deakins Nash Smoak & Stewart. He also questions whether the expansion of punitive damages, based on wider harms, will withstand constitutional scrutiny. In addition, he says, provisions expanding CEPA’s scope lack a materiality standard and would allow suits by employees of a public company who complain of minor expense padding.

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