The 6th U.S. Circuit Court of Appeals ruled on Wednesday, March 31 that the False Claims Act protects not just current employees from retaliation, but also former employees. The divided decision has huge implications for the scope of protection from retaliation under the False Claims Act, and may set the stage for further landmark decisions about the legality of blacklisting whistleblowers.
Whistleblower David Felton first brought a qui tam lawsuit against William Beaumont Hospital in 2010, alleging a large-scale kickback scheme that the hospital ended up paying $84.5 million in 2018 to settle. Felton wasn’t the only whistleblower to sue the hospital at that time; three other whistleblowers from William Beaumont Hospital also filed qui tam lawsuits, alleging similar violations of the False Claims Act. The lawsuits claimed that the hospital offered physicians above market value compensation and provided them with free or sub-cost office space and employees as an incentive for the physicians to refer more patients to William Beaumont Hospital. The cost of these illicitly referred patients would then be billed to the government under federal medical programs like Medicare, an alleged violation of the False Claims Act.
Unlike his whistleblower peers, Felton amended his lawsuit to claim that the hospital retaliated against him by blacklisting him, which prevented him from getting another job after he was fired. This claim was contentious because it only involved actions that William Beaumont Hospital took after Felton was terminated, and did not deal with retaliation during his time working for them. When his lawsuit went to U.S. District Judge Stephen Murphy of Detroit, his claim was rejected. The judge ruled that the False Claims Act’s strong anti-retaliation statutes did not cover former employees. However, Felton was allowed to appeal to the decision.
Wednesday’s decision from the 6th U.S. Circuit Court of Appeals may be a game-changer for whistleblowers who seek protection from retaliation, even after they are fired. While it may seem like the worst that can happen to a whistleblower is that they lose their job out of retaliation for blowing the whistle, unfortunately it isn’t. Many whistleblowers in highly trained and professional fields like the medical industry struggle to ever find jobs in their field again after making a disclosure. This practice of making sure that a whistleblower never works in their chosen field again is called blacklisting. Whistleblowers have struggled to find protection from this unethical practice under the False Claims Act, but have been largely unsuccessful until now. Although this decision does not guarantee Felton protection and remuneration for the blacklisting he suffered, it does open the door for another court to give him those things in a future decision.
The key aspect that the decision hinged on was the definition of the word “employee.” Writing for the majority of the court, Circuit Judge John Bush wrote that the word employee has “no temporal qualifier,” thus including former employees in the larger definition of the word. This expansion of the definition has the potential to include countless other whistleblowers who were previously excluded from the category of “employee” simply because they had already been fired. This brings up an interesting question: If all a company has to do to guarantee denial of False Claims Act protection from retaliation from a whistleblower is quickly fire them, why wouldn’t they?
In his majority opinion, Judge Bush summed up the importance of closing of this retaliatory loophole. “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.” This decision is a great victory for False Claims Act whistleblowers, and the federal government’s anti-fraud program in general. It reasserts the spirit of the law and rejects a loophole that corporations have been using to squash whistleblower retaliation claims for years.
As the subject of blacklisting was not explicitly discussed in the lower court’s decision, the 6th U.S. Circuit Court of Appeals has remanded the lower district court to reexamine blacklisting in this case. A reconsideration of blacklisting might result in a precedent that includes blacklisting as a form of retaliation covered under the False Claims Act.