False Claims Act Prohibited Retaliation

When Congress included an anti-retaliation provision in the False Claims Act, it sought to “halt companies and individuals from using the threat of economic retaliation to silence whistleblowers, as well as assure those who may be considering exposing fraud that they are legally protected from retaliatory acts.”  The text of the statute bars an employer from discharging, demoting, suspending, threatening, harassing, or in any other or in any other manner discriminating against a whistleblower in the terms and conditions of employment, but it does not specifically identify constructive discharge as a form of prohibited retaliation.

A recent Sixth Circuit decision in Smith v. LHC Group, Inc., 2018 WL 1136072 (March 2, 2018) clarifies that constructive discharge is also a form of prohibited retaliation under the whistleblower protection provision of the False Claims Act.

Smith’s False Claims Act Retaliation Claim

Smith worked for LHC Group, Inc. (LHC) as Director of Nursing.  Her job duties included assigning nurses to LHC patients and issuing invoices to those patients’ insurers. These duties required her to rely on paperwork submissions for reimbursements that her coworkers provided.

Smith discovered that several of these submissions were fraudulently altered, resulting in fraudulent bills and inadequate staffing.  For example, when LHC could not accommodate a patient’s medical needs, LHC employees allegedly admitted the patient regardless and changed the doctor’s orders to match the availability of their clinical staff.  And in other instances, LHC employees allegedly admitted patients without the proper documentation from a medical doctor.

As Director of Nursing, Smith was required to allocate clinical staff to new patients and fill out reimbursement paperwork.  She felt that filling out fraudulent reimbursement requests would facilitate fraud and violate her duties as a registered nurse.

Smith raised concerns to management, and LHC failed to take any action to address her concerns.  Smith resigned to avoid being implicated in what she perceived to be an illegal and unethical scheme and because she could not in good conscience remain an employee.  She sued LHC under the whistleblower protection provision of the False Claims Act alleging that she was forced to resign because of the substantial risk that she would lose her nursing license and subject herself to the risk of criminal prosecution.

False Claims Act Anti-Retaliation Law Prohibits Constructive Discharge

The district court dismissed Smith’s constructive discharge claim because she did not allege that LHC perpetrated the alleged fraud with the specific intention of forcing her to resign.  The Sixth Circuit reversed, holding that a jury could find that LHC allowed the fraud to fester with the intent that Smith quit, i.e., a reasonable employer would have foreseen the professional-licensing and criminal-prosecution risks to Smith and would have foreseen Smith’s quitting as a consequence of its decision to not act:

If the employee is left to think she may be charged with fraud by the government if she remains as Director of Nursing, a jury may find that her employer’s fraudulent behavior is imposing on her fear that would cause a reasonable employee to resign. The jury may find that the employer’s alleged fraudulent behavior plus the employee’s moral conscience and reasonable fear of being accused of participating in the employer’s fraud is enough to justify quitting. Whether we call her resignation a “constructive discharge,” “harassment” or a form of discrimination, the employee should be made “whole.”

Implications for False Claims Act Whistleblowers

Similar to Smith’s predicament, many whistleblowers find that senior management ignores their concerns, and they are faced with the difficult choice of resigning or continuing to participate in illegal activity that could expose them to prosecution or jeopardize their professional license.  The Sixth Circuit’s decision in Smith recognizes that an employer that places an employee in this untenable position has created conditions sufficiently unbearable to constitute a constructive discharge, regardless of whether the employer specifically intended for the employee to resign.  Thus, ignoring a whistleblower’s disclosures is not merely a passive act, but instead an affirmative choice that can give rise to a retaliation claim.