Under the qui tam provisions of the civil False Claims Act, citizens are offered substantial financial incentives to bring suit against government contractors for alleged fraud. These claimants, who “stand in the shoes of the government” in pursuing their claims, are often insiders, especially current and former employees, of the contractor. While it is critical that organizations not take actions in retaliation against whistleblowers, it is also important to consider the circumstances that tend to breed whistle-blowing activity, and create a compliance culture that encourages open discussion and addresses employees’ concerns in a respectful and thorough manner.
The Lucrative Qui Tam Lawsuit
There are many types of whistleblowers, but none has a greater potential for a highly lucrative recovery than a “relator” under the False Claims Act. Under specialized provisions, a private citizen initiates a claim against the alleged false claimant on behalf of the government. If the government decides to intervene in the lawsuit, it will assume primary responsibility for prosecuting the case, though the relator will often remain involved. If the government declines to intervene, which it most often will, the relator will be permitted to continue in his or her action against the contractor. Relators receive a portion of any eventual recovery through judgment or settlement: 15–25 percent if the government intervenes; 25–30 percent if the government declines.
Damages under the False Claims Act, currently set at three times the government’s damages because of the fraud, plus between $5,500 and $11,000 per false claim, can and do add up quickly. According to the nonprofit Taxpayers Against Fraud Education Fund, the government has collected more than $12 billion under the False Claims Act since 1986, including $2.1 billion in fiscal year 2003 alone. In April 2009, NetApp, Inc. paid $128 million to settle a qui tam suit. The relator in that case, a former employee, received $19.2 million for his role. While individual recoveries are rarely as lucrative, it is the potential for such a payout that incentivizes many relators to come forward. In addition, recent legislative changes to the False Claims Act (see Federal Forecaster, Vol. V, No. 2) have made it even easier to bring and maintain qui tam lawsuits.
Is There a ‘Typical’ Relator?
False Claims Act relators vary from case to case and sources for qui tam suits are numerous. For example, subcontractors and consultants have brought qui tam suits based on their exclusive information regarding alleged fraud. In another example, both OfficeMax, Inc. and Office Depot, Inc. paid multimillion-dollar settlements in qui tam actions brought by their competitor, Safina Office Products. However, the majority of qui tam cases are brought by employees of contractors. This makes sense—after all, an organization’s employees are most likely to have the type of insider information that typically serves as the basis for a qui tam lawsuit.
So, who is the average relator? The stereotype is often of the disgruntled former employee—many contractors would insist that a relator merely had a score to settle with the company. However, as discussed further below, a relator may continue to work for a contractor after bringing a qui tam suit, and the company is prohibited from retaliating against him or her. One important common thread seen in many False Claims Act suits is that the relator previously tried to raise his or her compliance concerns internally and felt that upper management and/or his or her superiors were unreceptive to, or actively suppressive of, those concerns. Rarely is it the case that a relator discovered potential fraud and said nothing until filing suit. Much more often, the relator was seen internally as an alarmist, raising problems that no one considered serious at the time. Particularly where the alleged fraud is of a systemic nature, the complaints in qui tam suits often spell out in detail the relator’s claimed numerous attempts to have the issue addressed internally, allegedly to no avail.
A relator also has to have a position that allows him or her access to the type of insider information that may provide the basis for a qui tam suit. While relators emerge from all parts of an organization, from very senior management to the lowest level, many relators are part of “middle management”—employees who are senior enough to learn about violations, but too junior to prevent or correct them on their own. Relators also often have job functions relating to compliance, or at least job responsibility that requires them to understand the complicated laws and regulations that apply to government contractors.
It is that combination of circumstances—knowledge, access, and un-redressed concerns—that will often be found in a qui tam lawsuit.
The Prohibition on Retaliation
It is very important to note that, where an organization has identified a relator or potential relator under the False Claims Act, it is prohibited by statute from retaliating against that person. A relator may not be terminated, suspended, demoted, or otherwise harassed because he or she brought a qui tam suit. An employer’s violation of this prohibition gives rise to a private right of action by the relator against the employer. In a successful retaliation claim, the employee may be entitled to reinstatement of employment, two times any back pay owed (plus interest), and other damages such as attorney’s fees.
Addressing Compliance Concerns Internally
While there is no fool-proof way to avoid qui tam suits, prudent contractors have learned that one of the best ways to mitigate the risk of whistle-blowing is to provide employees with open lines of communication for compliance concerns. While the lure of lucrative recoveries under the False Claims Act will continue to draw relators, employees who feel that their concerns are taken seriously and reviewed in a thorough manner may be less likely to seek outside outlets for their grievances. The following are just a few ways that employers can provide internal mechanisms to handle compliance concerns:
- Employee compliance training sessions, followed by a question-and-answer nnsession in which employees are encouraged to share their concerns
- A hotline for reporting potentially fraudulent activity
- A policy that encourages employees to seek the assistance of an ombudsman nnor senior manager where their direct supervisor has disregarded their compliance concerns
- A policy that every credible employee compliance concern will be reviewed in nna thorough manner by an investigator, who will report his or her findings to the company’s audit committee and/or legal department
These measures are also important with respect to the new Mandatory Disclosure Rule (see Federal Forecaster, Vol. IV, No. 3), which requires that contractors maintain internal systems to prevent and detect fraud, and make disclosures to the government where there is “credible evidence” of False Claims Act violations. With regard to both the Mandatory Disclosure Rule and the False Claims Act, if a contractor cultivates a culture of sweeping employees’ concerns under the rug, it may well face serious liability in the long run.