The U.S. Supreme Court has declined to settle a split among federal appeal courts on whether former employees are covered by whistleblower anti-retaliation protections contained in the False Claims Act (FCA). United States ex rel. David Felten v. William Beaumont Hosp., 993 F.3d 428 (6th Cir. 2021), cert. denied, No. 21-443 (U.S. Jan. 24, 2022).

Sixth Circuit Decision

In March 2021, the U.S. Court of Appeals for the Sixth Circuit ruled on the case of David Felten. Felten sued William Beaumont Hospital in 2010 for allegedly paying kickbacks to doctors for referrals. Felten later amended the lawsuit to claim the hospital retaliated against him by preventing him from getting another job after he was terminated. The Sixth Circuit vacated a ruling from the U.S. District Court for the Eastern District of Michigan and held the federal False Claims Act’s anti-retaliation provision protects former employees alleging post-termination retaliation. See United States ex rel. Felten v. William Beaumont Hosp., No. 20-1002, 2021 U.S. App. LEXIS 9387 (6th Cir. Mar. 31, 2021).

The Sixth Circuit reasoned that the purpose of the statute is to encourage the reporting of fraud and facilitate the government’s ability to stymie crime by protecting those who report it. It stated, “If employers can simply threaten, harass and discriminate against employees without repercussion as long as they fire them first, potential whistleblowers could be dissuaded from reporting fraud against the government.”

Sixth Circuit and Tenth Circuit Split

The Sixth Circuit’s March 2021 decision created a split with the Tenth Circuit, which has held the FCA does not shield former employees from retaliation. In Potts v. Center for Excellence in Higher Education, Inc., 908 F.3d 610 (10th Cir. 2018), the plaintiff, a campus director at an educational organization, allegedly resigned from the organization because she thought the organization had deceived its accreditor to maintain its accreditation. She entered into an agreement with the organization, however, providing that she would not disparage or file complaints against the organization in the future. When she nevertheless reported the organization to its accreditor, the organization sued her for breach of contract. Plaintiff, in turn, filed suit, alleging that the organization retaliated against her in violation of the FCA. The organization moved to dismiss plaintiff’s FCA lawsuit, which the district court granted.

The Tenth Circuit affirmed the dismissal of the plaintiff’s FCA claim. It stated, “We conclude that the False Claims Act’s anti-retaliation provision unambiguously excludes relief for retaliatory acts occurring after the employee has left employment.”

Potential Resolution from Congress?

In July 2021, a bipartisan group of senators introduced the False Claims Amendments Act of 2021 (S.2428). The proposed amendment would clarify that the FCA’s existing anti-retaliation provision applies in the post-employment retaliation context. Examples of post-employment retaliation might include blacklisting a whistleblower or bringing a retaliatory lawsuit against the whistleblower to pressure the whistleblower to drop the qui tam FCA suit.

In October, the Senate Judiciary Committee voted to send the bill to the full Senate for consideration. In November, the bill was moved to the full Senate, but it remains unclear if the bill will receive a vote on the Senate floor.

What Employers Should Do Now?

Since the U.S. Supreme Court has currently declined to resolve the Circuit split, employers should remain cautious that negative statements about a former employee may potentially give rise to potential liability under the FCA (outside of the Tenth Circuit). As a result, employers should train managers 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.