Does a Release Signed by an Employee Preclude Whistleblowing?

If you have signed a release, your ability to collect a reward from a tip may be limited.  It depends on multiple factors, including the law that governs the whistleblower program, the language of the contract and its timing in relation to the discovery of fraud.  It also depends on the knowledge of the government regarding the misconduct.  We can help you determine the impact of your release on your case if you contact us.

Congress has chosen to create some laws governing the enforceability of employment agreements. In the Dodd-Frank Act, the law specifically prohibits waiver of the rights and remedies of the whistleblower provisions. The False Claims Act, unfortunately, is silent on the validity of waivers by agreement.

However, because of the strong public policy in favor of uncovering fraud expressed in the False Claims Act, some agreements will not stop a qui tam suit. The Supreme Court considers it well established that “a promise is unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.” Town of Newton v. Rumery, 480 U.S. 386, (1987).  There are also times when the scope of the release language does not include a whistleblower claim. A careful examination of the language by an attorney can provide you greater insight into whether it will be rendered invalid.

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Here are a few of the questions we are frequently asked about this area of the law:

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Courts have recognized the importance of encouraging private parties to settle litigation without the use of the judicial system.

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Waivers are generally enforced where the government is already aware of the fraud. When it is unaware of the allegations, the public policy interest favors rendering the contract invalid. This quick summary of the case law has been developed in several judicial decisions dealing with prefiling releases signed by employees prior to informing the government about corporate misconduct.  In United States ex rel. Green v. Northrop Corp, 59 F.3d 953, 962-69 (9th Cir. 1995), the Ninth Circuit invalidated a release on public policy grounds because the government was otherwise unaware of the fraud. The government only learned of the misconduct and conducted an investigation because the qui tam complaint was filed. The court concluded that the False Claims Act would be seriously impaired if private suits were discouraged by the enforcement of releases entered into without the government’s consent or knowledge. The government’s lack of knowledge of the fraud was “critical” to determining that the release was invalid.  Following that decision, several other Courts of Appeal have applied the test from Green but found that the agreement was enforceable. In these cases, the government has been aware of the conduct raised by the whistleblower.

In United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir. 1997), the relator signed a settlement agreement from a state court action involving allegations of wrongful termination against his employer. Prior to the filing of the state court complaint, he had informed the Nuclear Regulatory Commission about his concerns and filed a complaint with the Department of Labor regarding his employer’s termination for reporting safety issues in the nuclear power industry. The Ninth Circuit held that the release was enforceable because public policy did not favor invalidating it when the government had investigated the information prior to the release’s signing.

In United States ex rel. Radcliffe v. Purdue Pharma et al., No. 09-1202, 600 F.3d 319 (4th Cir. 2010), the Fourth Circuit also concluded that public policy did not invalidate the release because the government had knowledge of the fraud.  In this case, the relator contacted the government to determine whether there was interest in pursuing a claim but did not reveal the particulars during the discussions. The government was independently investigating the relator’s employer and already had in its possession a document suggesting the claims which would be brought forth by relator.  During the course of the government’s investigation and prior to the filing of a qui tam lawsuit, Radcliffe accepted a severance package offered as part of a workforce reduction. He received a benefits package including more than $40,000 in salary payments that he would not have received if he did not sign the release.  In considering whether the release barred the relator’s lawsuit under the False Claims Act, the Fourth Circuit Court of Appeals initially dismissed the argument that the Attorney General needed to consent to the release. It then examined the question of whether the False Claims Act was covered by the language of the release, determining that Radcliffe did have “an interest in the lawsuit” prior to the filing of the complaint which could be waived.  Finally, the court examined whether an overriding public policy interest warranted declaring the agreement unenforceable. It concluded that the public interest does not warrant invalidating a pre-filing release between private parties when the government is aware of the claims prior to the filing of the suit. It therefore upheld the lower court’s decision to dismiss the complaint.

The decision concurred with the result of the Tenth Circuit in United States ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1171 (10th Cir. 2009). In Ritchie, while enforcing the signed release, the Court of Appeals rejected the contention that the government did not have a full understanding of the facts when the release was signed by the relator. The disclosures were sufficient to satisfy the public interest in uncovering fraud because the “federal government had ample opportunity to uncover and prosecute any fraud that had taken place.” Id. at 1170.  A form of this argument was also made and rejected in Radcliffe. The government there had not completed its investigation prior to the signing of the release.

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Because the Dodd-Frank Act specifically prohibits the waiver of the rights and remedies of the whistleblower provisions, it makes it unlikely that the agreement is valid.  However, corporate attorneys are clever and will attempt to use any ambiguity in the law in their favor, so it still needs to be reviewed by an attorney to account for the nuances of the specific agreement.

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Because of the cost to defend against lawsuits, employers frequently ask departing employees to sign a release waiving some or all claims against the company. The release is generally packaged as part of a severance or separation agreement to provide additional compensation to the employee in order to protect the company against potential lawsuits. If there has been prior litigation between you and your employer, the settlement agreement may also contain a waiver that could be relevant.

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