Court Skirts FCA Issue of Past Whistleblower Terminated By Current Employer

conference room with microphones

A disappointing decision came out of the Southern District of Ohio last week regarding the scope of retaliation protections for a whistleblower under Section 3730(h) of the False Claims Act. In Kem v. Bering Straights Information Technology, Case No. 2:14-cv-263, 2014 WL 544842 (S.D. Ohio October 22, 2014), the Court denied protection from retaliation to a past whistleblower at his new place of employment.

The facts set forth in the opinion are relatively straight forward. The plaintiff’s job responsibilities included making sure that the company was not violating the False Claims Act. After an internal meeting revealed that the business was going to be inspected by the U.S. Department of Defense’s Defense Supply Center, the plaintiff volunteered to help prepare for the audit. He revealed to his supervisor that he previously blew the whistle on over charging at another defense contractor. The company revoked his security clearance and terminated his employment due to his lack of security clearance.

The decision examined whether the plaintiff engaged in protected activity when he volunteered to assist with the audit. According to the Court, the answer is no. His expressed desire to prevent fraud was not sufficient to receive protection under the False Claims Act.

However, the Court dismisses the § 3730(h) claim without examining the important issue of whether he is protected at his current employer for engaging in protected activity in the past. It questioned only whether his present activity was “in furtherance of” the False Claims Act. Apparently, the plaintiff did not argue that the protected activity happened at the previous employer. In footnote 2, the Court explicitly notes the absence of these arguments and refused to make the arguments for the plaintiff.

Nevertheless, the question of adverse employment actions by future employers is an important one to whistleblowers and one that will be litigated more in the future. If employees are unprotected against termination by employers who discover they were a whistleblower in the past, it will have a chilling effect on the number of people willing to come forward and report fraud.

After a quick search of the case law, I didn’t find any opinions expressing an issue on this subject. Are there any out there? Limiting a whistleblower to a remedy for retaliation against the company that he or she blew the whistle against seems like an unnecessarily restrictive reading of the text that is counter to the spirit of the False Claims Act.

The text of § 3730(h) contains no explicit requirement of a temporal connection between the protected activity and the discrimination. The text provides for compensation when an employee has been “discriminated against in the terms and conditions of employment because of lawful acts done by the employee … in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.” 31 U.S.C. § 3730(h)(1). It does not specify when the employee had to act in furtherance of the False Claims Act.

There appear to be several arguments a corporation could make against applying the section broadly to include activity of the type raised by these facts. A corporation could argue that the section is concerned with “retaliatory actions” and the employer does not have retaliatory intent when they were not the subject of their employee’s report. Or they could argue that the last reference to an “employee” in connection with action “in furtherance of” the False Claims Act justifies a requirement that the protected activity happen while at the company.

Neither seems particularly satisfying given the broad purpose of the False Claims Act and the subsection. Congress prohibited adverse employment actions by employers to protect and encourage whistleblowing. To allow corporations to terminate employees based on their belief an individual is more likely to report fraud to the U.S. Government could create a witch hunt for potential whistleblowers inside businesses. When the corporation’s basis is previous protected activity, the employee should be protected by the law.

As I was about to hit publish on this article, I figured I would take a look at the other major whistleblower programs to see whether they provided for protection from future adverse actions. The IRS still doesn’t protect its informants from retaliation, so there was no need to look there.

The Dodd-Frank Act appears to have the most favorable language for SEC whistleblowers. It allows “no employer” to discriminate against “a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower ….” 15 U.S.C. § 78u-6(h)(1)(A). Neither Dodd-Frank nor the SEC Rules define a whistleblower to be an employee, so this seems to be the most promising.

The Sarbanes-Oxley Act has already been under the microscope of the Supreme Court once for its interpretation of the term “employee” in the context of its retaliation protections. The term received a broad reading in Lawson v. FMR to allow employees of third-parties to bring a claim for protection when their employer has business ties to the company reported for misconduct. However, the text of the statute does not go so far as to say whether an employment applicant (potential employee) is considered an employee under the law.

We are going to keep an eye out for additional decisions in this area. If you are aware of any, please send them our way.