Third Circuit Confirms 2010 Statutory Expansion of Anti-Retaliation Whistleblower Protections

In a recent case, the US Court of Appeals for the Third Circuit confirmed that the anti-retaliation provision of the False Claims Act (FCA) prohibits employers from retaliating against employees who undertake lawful efforts to “stop” a violation of the FCA, even if there is not a “distinct possibility” of an actual FCA lawsuit being filed, and clarified how the 2010 amendments to the FCA’s retaliation provision 31 USC § 3730(h) should be applied.

In US ex rel. Ascolese v. Shoemaker Constr. Co., No. 21-2899, 2022 WL 17335121 (3d Cir. Nov. 30, 2022), the Third Circuit also joined with other courts to have considered this issue, [1] and departed from its own prior precedent that suggested the “distinct possibility” standard would remain in place for all types of “protected conduct.” [2]

FCA PRECLUDES RETALIATION AGAINST WHISTLEBLOWING EMPLOYEES AND SUBCONTRACTORS

The FCA, an anti-fraud statute that was first enacted in the Civil War era, creates civil liability for the submission of false claims for payment or the use of false statements in order to get claims paid by the federal government. [3] The FCA imposes steep monetary consequences for violations, including treble damages and civil penalties of up to tens of thousands of dollars per false claim. [4] The FCA also contains a qui tam provision, which allows whistleblowers with knowledge of an alleged fraud to commence civil actions in the name of the government and share in a portion of any resultant damages award or settlement. [5]

As part of sweeping amendments to the FCA in 1986, Congress added a federal cause of action for employees who are discriminated against by their employers for engaging in certain protected activity. From 1986 to 2009, the FCA’s anti-retaliation provision only protected employees from being retaliated against for conduct “in furtherance of an [FCA] action.” [6] Interpreting this language, the Third, Fourth, Seventh, and Eleventh Circuits all held that Section 3730(h) could only apply if there was a “distinct possibility” of a viable FCA lawsuit being filed as a result of the whistleblower’s actions. [7]

2009 AND 2010 AMENDMENTS EXPANDED THE SCOPE OF PROTECTED WHISTLEBLOWING ACTIVITY

In a pair of amendments in 2009 and 2010, Congress expanded the conduct protected from retaliation to include efforts to “stop” a violation of the FCA, even if not specifically undertaken “in furtherance of an [FCA] action.” [8] Assessing the impact of this language, the Fourth Circuit held that it was no longer necessary for there to be a “distinct possibility” of a qui tam action being filed in order for the anti-retaliation protections to apply. [9]

In contrast to the Fourth Circuit, in 2017, the Third Circuit suggested—in a case brought under the post-amendment statute but alleging retaliation only under the FCA litigation prong of protected conduct—that it would hew to the “distinct possibility” standard, affirming a decision that held a whistleblower needed to prove his employer was “on notice of the ‘distinct possibility’ of False Claims Act litigation” in order for any Section 3730(h) protections to apply. [10]

In Ascolese, the Third Circuit revisited that decision, and clarified its holding. [11] The Third Circuit emphasized that “neither our holding in Petras nor the plain text of the amended whistleblower provisions” requires there to be a “distinct possibility” of FCA litigation for the anti-retaliation provisions to apply where the employee’s actions were undertaken to “stop” a violation of the FCA. [12]

While the Seventh and Eleventh Circuits have yet to revisit their own application of the “distinct possibility” standard, the Eleventh Circuit repeatedly has noted the potential impact of the 2009 and 2010 amendments in dicta. [13]

DECISION APPLIES THE AMENDED FCA STATUTORY LANGUAGE, BUT DOES NOT CREATE NEW OR UNLIMITED PROTECTIONS

FCA Section 3730(h) prohibits an “employee, contractor, or agent” from being “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment” for lawful actions undertaken to stop a violation of the FCA. [14] With the decision in Ascolese, the Third Circuit makes clear that these protections apply even if there is not a “distinct possibility” of a viable FCA qui tam action being filed.

However, the Third Circuit’s decision does not alter the other requirements necessary to prove a claim for retaliation under either this prong or the FCA litigation prong of “protected conduct,” including that the conduct was lawful, that the conduct has a nexus to the FCA, that the employer was on notice of the protected conduct, and that the employment discrimination was motivated by the employee’s engaging in the conduct. [15]

For example, Ascolese reaffirms the Third Circuit’s prior holdings [16] that a heightened burden applies where an employee is a “compliance employee” whose job responsibilities already include investigating potential regulatory violations, such that the employee must have gone above and beyond their normal duties in order for the FCA’s anti-retaliation protections to apply. [17]

KEY TAKEAWAY

Employers should continue to exercise care when responding to complaints about potential fraudulent conduct raised by an employee or subcontractor, especially when the alleged conduct implicates government funds or claims to the government.