Can an employer be held liable under the False Claims Act (“FCA”) for retaliation if it takes some adverse action against a former employee? Until recently, only one federal appellate court had addressed the issue, holding that the FCA does not cover post-employment retaliation.[1] However, on April 1, 2021, the Sixth Circuit reached the opposite conclusion in United States ex rel. Felten v. William Beaumont Hospital, creating a circuit split and different rules for employers in different jurisdictions.

Background

In 2010, David Felten filed an action on behalf of the United States and the State of Michigan against his employer, William Beaumont Hospital, alleging that it had violated the FCA and a comparable Michigan law by paying physicians for referrals of Medicare, Medicaid, and TRICARE patients. Felten also asserted a retaliation claim against Beaumont based on actions it had allegedly taken against him because he “insist[ed] on compliance with the law.” The United States and Michigan took over the prosecution of their claims and settled them against Beaumont, leaving only Felten’s claims for retaliation and attorneys’ fees and costs before the court.

While those claims were pending, Beaumont terminated Felten’s employment. According to Felten, Beaumont then “intentionally maligned [him] . . . in retaliation for his reports of its unlawful conduct.” As a result, Felten claimed he was “unable to obtain a comparable position in academic medicine.” Based on the actions Beaumont allegedly took toward Felten after his termination, Felten filed a claim under the FCA’s anti-retaliation provision.

In response, Beaumont moved to dismiss Felten’s post-employment retaliation claim. The trial court granted that motion, “holding that the FCA’s anti-retaliation provision does not extend to retaliation against former employees.” It reasoned that 31 U.S.C. § 3730(h)(1)’s reference to “in the terms and conditions of employment” “mean[t] that the provision’s coverage encompasses only conduct occurring during the course of a plaintiff’s employment.”

Decision

In a split decision, the Sixth Circuit reversed the lower court’s dismissal of Felten’s claim. The court recognized that the main issue was the “temporal meaning of the word ‘employee’ and the prohibited employer conduct in the anti-retaliation provision.” It began the analysis by reviewing the text of the FCA’s anti-retaliation provision to determine if “the language at issue has a plain and unambiguous meaning with regard to the particular dispute in the case,” which if so, would end the inquiry, and if not, would require a review of the “broader context” of the statute and statutory purpose. The relevant statutory language provides:

(1) In general.–Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.

(2) Relief.–Relief under paragraph (1) shall include reinstatement with the same seniority status that employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees. An action under this subsection may be brought in the appropriate district court of the United States for the relief provided in this subsection.

Based on this language, the court found three reasons why extending the statute’s protections to former employees was “the more accurate reading,” versus limiting them to current employees:

  • The statute refers to “[a]ny employee[s],” not just “current employees.” Additionally, the “in the terms and conditions of employment” qualifier that the lower court relied on does not imply a temporal limitation, since “many terms and conditions of employment . . . can persist after an employee’s termination,” such as restrictive covenants and severance pay.
  • The FCA does not define “employee,” and dictionaries do not limit the definition of “employee” to “current employee.”
  • The remedial scheme of the FCA is expansive and ostensibly provides former employees with relief in the form of reinstatement, “special damages,” and potentially other remedies.

Despite these textual clues suggesting that § 3730(h)(1) could be read to extend to former employees, the Sixth Circuit found that the statute’s use of “employee” was ambiguous. To resolve that ambiguity, the court looked to the purposes of the FCA. “The FCA is designed to ‘discourage fraud against the government.’” Its anti-retaliation provision promotes that end by encouraging employees to report fraud by “‘protect[ing] persons who assist [in its] discovery and prosecution.’” “If employers can simply threaten, harass, and discriminate against employees without repercussion as long as they fire them first,” the court reasoned, “potential whistleblowers could be dissuaded from reporting fraud against the government.” For that reason, the Sixth Circuit held “that the anti-retaliation provision of the FCA may be invoked by a former employee for post-termination retaliation by a former employer.”

What Employers Should Do Now

Although Beaumont is binding precedent only in the Sixth Circuit, it is a useful reminder to employers throughout the United States that negative statements about a former employee may potentially give rise to costly litigation and potential liability under various theories, such as whistleblower retaliation under the FCA (in the Sixth Circuit and potentially in any state outside of the Tenth Circuit), retaliation under Title VII of the Civil Rights Act, defamation, and intentional interference with prospective business relationships. As a result, employers should train managers (up to and including executives) and human resources professionals on proper communications about a former employee’s performance and separation, and should consult with counsel about the content of such communications in high-risk situations.

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[1] Potts v. Center for Excellence in Higher Education, Inc. (10th Cir 2018).