On April 17, 2024, the Oregon Court of Appeals recognized a government employee’s whistleblower claim under state law against a city that employed him under an intergovernmental agreement with another city.¹ Setting precedent, the Oregon Court of Appeals held that retaliatory animus may be imputed between joint employers under a “cat's paw” theory of liability regardless of whether the alleged biased individual was subordinate to the co-employer’s decisionmaker or employed by the same entity.² The decision has far-reaching implications for joint employers such as those using staffing arrangements, contingent workers and work-sharing agreements in Oregon.

Background

In McClusky v. City of North Bend, litigation arose under Oregon’s whistleblower statute³ from the City of North Bend’s administrative involvement in the employment and termination of the plaintiff, the Technology Systems Manager for the Coos County Library Service District (CCLSD).

The plaintiff was hired under the terms of an intergovernmental agreement between the cities of North Bend and Coos Bay. Under the agreement, Coos Bay reimbursed North Bend for 100 percent of the costs for the plaintiff’s salary, benefits, and office overhead. The plaintiff worked out of the North Bend public library. To manage CCLSD services, Coos Bay employed a CCLSD Extended Services Office Director (ESO Director). North Bend managers and human resources representatives worked with CCLSD employees, including the ESO Director, to evaluate and supervise the plaintiff.

During his employment, the plaintiff raised concerns about the ESO Director’s plans to migrate CCLD’s network to a cloud-based service instead of an in-house email server. Specifically, the plaintiff stated that the ESO Director was “bypassing…the laws of the district” by failing to seek approval from CCLSD Advisory Board before migrating to a cloud-based network.⁴ The ESO Director, North Bend’s Library Director, North Bend’s HR Manager and other employees were present at the meeting when the plaintiff raised his concerns. After the meeting, the ESO Director asked the plaintiff to deliver IT information to an outside contractor hired to perform work on CCLSD systems. The plaintiff objected, citing data privacy concerns and his belief that the ESO Director needed approval from the CCLSD Advisory Board before disclosing IT information to an outside contractor. The ESO Director and North Bend’s HR Manager together called the plaintiff and told him that if he did not deliver the IT information, he would face disciplinary action.

Although the plaintiff complied, he eventually received a Notice of Potential Termination signed by the North Bend City Administrator, North Bend HR Manager, and ESO Director. After the plaintiff delivered a written response to the notice, the ESO Director recommended that North Bend terminate the plaintiff. North Bend ultimately terminated the plaintiff’s employment, citing insubordination and unprofessional conduct as well as strained work relationships. The plaintiff filed suit against North Bend alleging various employment claims, including a whistleblower retaliation claim arising from his reported concerns about the ESO Director allegedly violating district law.

Court of Appeals Decision⁵

The trial court granted North Bend summary judgment dismissing the plaintiff’s claims on various grounds. With respect to the whistleblower claim, the trial court applied the federal common-law agency test adopted by the Ninth Circuit in EEOC v. Global Horizons, Inc.⁶ and found that CCLSD and North Bend were both the plaintiff’s joint employers but that:

North Bend should not be held liable for any unlawful acts by CCLSD because “North Bend did not know and should not have known about any such unlawful act” and because an imputed motive or “cat’s paw” theory did not apply, given that the allegedly biased employee ([the ESO Director employed by Coos Bay]) was not subordinate to the decision maker ([North Bend’s City Administrator]) or employed by the same entity.⁷

On appeal, the plaintiff argued that the trial court erred because North Bend could be liable for the ESO Director’s alleged bias under several theories including that North Bend knew or should have known of the alleged bias and failed to take corrective action, and that the ESO Director’s alleged bias may be imputed to North Bend under the “cat’s paw” doctrine.

The Oregon Court of Appeals ruled that there was sufficient evidence to raise a genuine issue of fact as to both issues and—for the first time—held that the cat’s paw applies “when a supervisor for a joint employer is the allegedly biased employee, so long as the plaintiff produces evidence that the allegedly biased employee held influence over the adverse employment decision.”

In expanding the cat’s paw doctrine to joint employers, the Oregon Court of Appeals relied on a recent Oregon Supreme Court decision that explained a “practical” approach to applying the cat’s paw theory is needed given “a workplace reality” that “[t]he employment setting often consists of multiple layers of networks and relationships; organizational models often do not reflect a simple vertical chain of command; and bias can enter the decision-making process through formal or less formal channels.”⁸ The Oregon Court of Appeals also cited a recent decision where it expanded the cat’s paw doctrine to a situation where a coworker, rather than a supervisor, was the alleged biased employee.⁹

In McClusky, the undisputed evidence that the ESO Director acted in part as the plaintiff’s supervisor in connection with the North Bend employees and “held influence over plaintiff’s other supervisor and ultimate decision-maker, [North Bend’s City Administrator], in his decision to terminate plaintiff” was sufficient to establish a genuine issue of fact on both issues. The Oregon Court of Appeals wrote that the ESO Director’s day-to-day supervision of the plaintiff, discussing the plaintiff’s termination with North Bend, and making the initial decision with North Bend to terminate the plaintiff indicated her influence. The Oregon Court of Appeals emphasized that the ESO Director had edited a work improvement plan prepared by North Bend noting that the plaintiff “has a tendency to incorrectly assume the worst about his colleagues, which often leads him to improperly accuse them of wrongdoing,” and “[a]s a result, many of his professional relationships have become strained.” In remanding the case, the Oregon Court of Appeals suggested that North Bend could have taken corrective action “by not including” the ESO Director “in the decision to terminate” the plaintiff.

Takeaways for Employers

McClusky indicates that Oregon businesses relying on staffing arrangements, contingent workers, and work sharing agreements should keep these points in mind:

• Contract terms have a real impact on issues of joint employment and potential liability for unlawful employment practices. Carefully structured agreements with proper terms addressing the authority for supervision, direction, and control may limit exposure to legal claims by employees and those claiming to be employees.

• Avoiding or limiting outside influence on personnel decisions such as hiring, discipline, and termination can limit exposure to employment claims by insulating decision-makers from another employee’s or joint employer’s alleged bias or retaliatory animus.