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FCA Whistleblower Retaliation Ruling Raises Stakes for Employers

April 20, 2021, 8:00 AM

Employers and employees in industries that contract with the federal government should take note of a recent federal appellate court decision: Employers can be held responsible under the False Claims Act (FCA) for post-employment retaliatory actions against former employees who blew the whistle on alleged fraud by the company.

On March 31, the Sixth Circuit held in United States ex rel. Felten v. William Beaumont Hospital that the FCA’s protection extends to employees who suffer post-employment retaliation.

The decision conflicts, however, with rulings by most district courts and the one other appellate court to have addressed this issue. They have held that the FCA applies only to retaliation during employment. Because of the conflict between two appeals courts on this issue, the question might be ripe for determination by the U.S. Supreme Court.

About the False Claims Act

The FCA provides a means for whistleblowers to report fraud by filing a qui tam lawsuit and potentially to receive an award from proceeds recovered by the government.

The FCA also includes a provision that affords an employee, contractor, or agent remedies if they are “discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against in the terms and conditions of employment” for efforts to stop violations of the act.

The question before the Sixth Circuit was whether that provision applies to events that occur after employment has ended. The court’s decision that it does has major implications, because retaliation against whistleblowers—whether they report internally or to a government agency—often occurs after an employee quits or is terminated, and can take many forms, including harassment, denial of benefits, or retaliatory lawsuits.

The Beaumont Hospital Case

The whistleblower in the Beaumont Hospital case, who is a neurologist, alleged that he experienced blacklisting in retaliation for reporting fraud by the Detroit hospital. In his complaint against the hospital, he contends that after the hospital terminated his employment, it maligned him, jeopardizing his applications to almost 40 academic institutions and future employment in his field.

In holding that the FCA prohibits post-employment retaliation, the Sixth Circuit first concluded that the text of the FCA does not clearly indicate whether the act’s anti-retaliation provision applies to retaliation suffered after leaving the job.

Despite that ambiguity, the court said, the FCA’s use of the word “employee” contains no temporal limitation, and the framework and purpose of the statute supported interpreting the act to apply to former employees when retaliation is inflicted post-employment.

The court also found that the phrase “terms and conditions of employment” does not limit the applicable time period. Terms and conditions of employment, such as severance payments or confidentiality agreements, can persist after a job ends.

The more specific types of retaliation listed, such as “threatened” or “harassed” can also occur post-employment and are not clearly controlled by the provision’s general catchall phrase, “any other manner discriminated against in the terms and conditions of employment.”

The court also said that several of the FCA’s remedies for retaliation could apply to post-employment retaliation. Notably, the court followed guidance from the Supreme Court’s consideration of a similar question in the context of Title VII, which prohibits employment discrimination based on race, sex, and other categories and which the court held covers former employees.

The Sixth Circuit disagreed with the Tenth Circuit, the only other court of appeals to have considered the issue. The Tenth Circuit did not consider the text of the FCA to be ambiguous or the context of the act as a whole to support protecting whistleblowers from post-employment retaliation. One judge who dissented from the Sixth Circuit’s majority opinion agreed with the Tenth Circuit.

But as the Sixth Circuit’s decision points out, it does not make sense that the anti-retaliation protections of the FCA should cease when an employee leaves his or her job. In fact, if protection ceases upon termination and employers can threaten or harass whistleblowers as long as they fire them first, that could dissuade employees from reporting fraud against the government, which runs counter to the purpose of the FCA.

Post-Termination Conduct Could Create Liability

The Sixth Circuit did not resolve whether the blacklisting that the whistleblower alleged he suffered constituted “discrimination in the terms and conditions of employment.” The court sent the case back to the trial court, which will have to answer that question.

The decision highlights for employers that post-termination retaliatory conduct could expose them to liability under the FCA. An employer might be required to provide, for example, reinstatement, two times back pay, and other recompense to a former employee if retaliation occurred.

Employees, on the other hand, now have strong authority to point to when they seek compensation for retaliation by their former employers. The availability of remedies under the FCA for whistleblowers who experience post-employment retaliation is far from certain, however. The matter may only be fully resolved if either the Supreme Court or Congress takes action.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owner

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Author Information

Claire M. Sylvia is a partner at Phillips & Cohen LLP, which represents whistleblowers in qui tam lawsuits as well as claims with other government protection and reward programs. She is author of the treatise, “The False Claims Act: Fraud Against the Government.”

Emily Stabile is an associate with Phillips & Cohen LLP.

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