A critical element in any claim for retaliation under the False Claims Act is an adverse employment action. Most commonly, FCA retaliation claims rest on an employee’s involuntary termination due to lawful actions taken by the employee in reporting or opposing the submission of false claims to the government. In certain cases, an employee can sue even if he or she resigned from the job due to a “constructive discharge.” Determining whether an employer actually fired its employee is often clear. But, in claims of constructive discharge, the plaintiff must prove that a reasonable person in his or her shoes would have felt compelled to resign.

In one recent decision, the U.S. Court of Appeals for the Sixth Circuit addressed the nature of an employer’s intention in such cases. The lower court had concluded that the plaintiff’s retaliation claim could not proceed because the employer did not commit fraud with the specific intention of forcing the employee’s resignation.

The Court of Appeals rejected that proposition. Although the court said that an employer’s conscious specific intention was a consideration, it is not the only way to determine if an employer constructively discharged the plaintiff.

In Smith v. LHC Group, Inc.^[1] the plaintiff served as a Director of Nursing and was required to oversee patient orders and complete paperwork necessary for Medicare and Medicaid reimbursements. She believed she was personally exposed to government investigation and prosecution because other employees allegedly admitted patients without proper clinical assessments and documentation and because those employees improperly changed physicians’ orders to reflect that the proper staffing was on hand to support the care. She said that management ignored her complaints about these issues and that she resigned rather than “turn[] a blind eye” to the supposed fraud.

The court held that a jury should decide whether a reasonable person in the plaintiff’s shoes would have felt compelled to resign. The Court of Appeals further explained that, while an employer must intend that its actions cause the employee’s resignation, that intent is ultimately an “objective” consideration. In other words, the employee’s resignation need only be “a reasonably foreseeable consequence of the employer’s actions.”

PRACTICAL TAKEAWAYS

The Sixth Circuit’s recent decision reinforces the notion that an employer’s intent is still a necessary factor in determining whether a constructive discharge FCA retaliation claim can proceed. However, it clarifies that “intent” does not necessarily contemplate a conscious specific intention to cause the employee’s resignation.

If you have questions about False Claims Act retaliation claims or the decision in the case discussed above, please contact Jon Rabin at mailto:jrabin@hallrender.com or (248) 457-7835 or your regular Hall Render attorney.

Releases of FCA claims my only be effective in very limited circumstances, the Second Circuit Court of Appeals ruled in a decision this week. In US ex rel. Ladas v. Exelis, Inc, et al., the court ruled that a pre-filing release is unenforceable as a matter of public policy – the encouragement of qui tam suits to uncover fraud against the government – unless the government is informed of the fraud allegations prior to its signing. This is an extension of the Fourth Circuit Court of Appeals’ decision in US ex rel. Radcliffe v. Purdue Pharma L.P. and fully accepts the Ninth Circuit Court of Appeals’ decisions in US ex rel. Green v. Northrop Corp. and US ex rel. Hall v. Teledyne Wah Chang Albany.

In Ladas, the defendant was awarded a contract to provide the government with devices and component parts that met particular specifications and to notify the government of any changes that could cause deviation from those specifications. The defendant changed the way certain components were made. It did not advise the government of the changes for several years, falsely stated the changes were recent and falsely advised that the changes did not have the potential to affect any of the specifications.

After the notice went out, Ladas’ employment was terminated, and he signed a release that included “any rights or claims [he] may have under … federal … laws.” The release also stated it was to be construed “ in the broadest sense possible.”

Ladas soon filed a qui tam action against his former employer. When it was unsealed, after the government elected not to intervene, the defendants moved to dismiss the complaint based upon the release. The trial court granted the motion, finding that the notification to the government was sufficient to put it on notice of the changes that formed the basis for Ladas’ action, and therefore the release was not violative of public policy.

The trial court’s decision was based upon the decisions noted above, Radcliffe, Green and Hall. Those decisions, together, stand for the proposition that a release of qui tam claims is not contrary to public policy if, prior to the release being signed, the government is advised of the allegedly fraudulent conduct and has the opportunity to fully investigate it.

The Second Circuit Court of Appeals accepted the reasoning, but rejected the trial court’s factual findings. While it was true that the defendants had put the government on notice of the changes, it had not put the government on notice of the fraudulent conduct. Instead, it had misled the government about the timing of the changes and, most importantly, had falsely assured the government that the changes were inconsequential and had no potential to affect whether the components still complied with the contract specifications. A partial disclosure, the court ruled, was insufficient to notify the government, and therefore any subsequent release would be contrary to public policy.

While this case underscores the challenges to drafting a release of qui tam filing rights where the whistle has not already been blown, it does not preclude other kinds of releases consistent with the underlying public policies at issue. For example, if an employee has also raised other claims, such as discrimination allegations, those could be resolved in a settlement. However, such a release requires careful drafting to avoid the settlement agreement being construed as an attempt to prevent protected disclosures to the government. For example, the agreement should have a clause allowing any void provisions to be struck without compromising the enforcement of the remaining provisions and language making it clear the agreement is not intended to prohibit protected reports to the government.

Health Care Takeaway

With the high risk created by False Claims Act lawsuits, health care providers have an interest in getting broad releases from former employees. Based upon these cases, though, such releases can only be effective if they follow a complete disclosure of potential fraud allegations that might form the basis for a whistleblower action. Where there is known FCA risk concurrent with the termination or resignation of a potential whistleblower, the provider should consult with health care counsel for advice on compliance, disclosure and the drafting of the broadest possible effective release.

If you have any questions, please contact David B. Honig at dhonig@hallrender.com or (317) 977-1447 or your regular Hall Render attorney.

Assisting with this post was Sevilla P. Rhoads (srhoads@hallrender.com or  (206) 795-6876) in our Seattle office.