False Claims Act Whistleblowers Unprotected While Job Applicants, According to Sixth Circuit

Applicant completing a job application with a small wooden block in the foreground with the word - recruitment

Whistleblowers are not protected from discrimination by § 3730(h) of the False Claims Act when applying for future jobs, according to a Sixth Circuit decision in Gary Vander Boegh v. EnergySolutions, Inc., Case No. 14-5047, ___ F.3d ___ (6th Cir. Nov. 18, 2014) last week.

The plaintiff worked as a landfill manager first for the U.S. Department of Energy and, after management of the landfill was contracted out by the DOE, for the subcontractor in charge of waste management services including the landfill. While employed by the subcontractor, he reported environmental violations and engaged in other protected activity. When management of the landfill was awarded to a new contractor, the plaintiff applied for the position at the new subcontractor but another candidate was selected.

He brought a lawsuit under a number of laws, including 31 U.S.C. § 3730(h), the section of the False Claims Act protectiong whistleblowers from retaliation. Section 3730(h) authorizes back pay, reasonable attorneys’ fees and other compensation when “any employee, contractor, or agent … is … discharged … because of lawful acts done … in furtherance of an action” under the False Claims Act.

This section of the law was expanded to include contractors or agents by Congress in the Fraud Enforcement and Recovery Act of 2009. When Congress did so, it also removed the language “by his or her employer” from the section. Originally, the False Claims Act provided for “[a]ny employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of his employment by his or her employer because of [a protected activity] shall be entitled to all relief necessary to make the employee whole.”

The removal of the language about employers could suggest a Congressional intent to broaden this section beyond employees but it has so far not been interpreted that way. Instead, in United States v. Kiewit Pac. Co., No. 12-CV-02698-JST, 2014 WL 1997151, — F. Supp. 2d — (N.D. Cal. May 14, 2014), the court concluded that Congress did not express an intent to broaden the notion of retaliation when it removed “by his or her employer.” Facing a different issue, the Court concluded that removing the employer language did not open § 3730(h) up to authorize a retaliation lawsuit by an entity. It believed the congressional intent behind the amendment was simply to include certain individuals who were not technically employees within the scope of the protections. Several other courts have come to similar conclusions when addressing the question of whether retaliation lawsuits against individual employees are appropriate following the amendment.

The Sixth Circuit opinion is the second to recently tackle the question of employment protections for whistleblowers after having moved on from their employer. In late October, the Southern District of Ohio denied protection to a False Claims Act whistleblower who reported on a previous employer in Kem v. Bering Straights Information Technology, Case No. 2:14-cv-263, 2014 WL 544842 (S.D. Ohio October 22, 2014). According to the complaint, the plaintiff was terminated after revealing his previous experience as a whistleblower to his supervisor. The court dismissed the case because the statement by the plaintiff was not protected activity under the law but implied that the result may have been different if the plaintiff’s attorney had argued that the protected activity happened at his previous employer. For further discussion, view our blog post discussing Kem.

As corporate fraud and legal violations lead more employees to become whistleblowers, the problem of delayed retaliation will only get worse. It is an area that needs to be remedied by either the Courts or Congress. If individuals will be freely discriminated at in the hiring process by corporations afraid the applicant will blow the whistle on them too, then it could chill whistleblowing under the False Claims Act by individuals concerned about their future employment prospects.

Earlier this year, the Supreme Court interpreted the definition of employee in the Sarbanes-Oxley Act whistleblower provisions in Lawson v. FMR. It concluded that 18 U.S.C. § 1514A protects employees of privately held contractors and subcontractors reporting on a public company. Analyzing the problem that Congress was attempting to address when passing SOX, the Supreme Court concluded that accountants and lawyers were such an integral part of the solution that they could not have been excluded.

Looking at SOX with respect to job applicants, it looks like the law has similar language to the False Claims Act. SOX prescribes that “[n]o [covered] company … may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment …”

If this interpretation is more widely adopted, it could lead leave whistleblowers open to discrimination in the hiring process for the rest of their life. This is shortsighted, especially when the names of relators become public when the False Claims Act lawsuit is unsealed. If the courts continue in this interpretation, Congress should step in immediately to correct it.

Fortunately, the Dodd-Frank Act has different language. It prohibits employers from discriminating against a whistleblower in the terms and conditions of employment. 15 U.S.C. §78u-6(h)(1)(A). There is no mention of the term employee in either the retaliation provision or the SEC definition of a whistleblower at 17 C.F.R. § 240.21F-2(b)(1). Given the difference in language, SEC whistleblowers should not face the same problem from statutory interpretation of the retaliation section.