If you think that a generally worded arbitration or mediation clause in your employment contracts covers whistleblower retaliation claims, think again.

In a new case, United States ex rel. Matt Paige and James Gammon v. BAE Systems Technology Solutions & Services, Inc., the United States Court of Appeals for the Sixth Circuit held that plaintiffs’ claims of negative employment action taken in retaliation for their complaints that BAE violated the federal False Claims Act (31 U.S.C. section 3729 et seq.) were outside the scope of  a general, and frankly expansive, arbitration clause.

Plaintiffs were a retired Army major and an illustrator who worked for BAE systems in Warren, Michigan.  They signed nearly identical employment contracts allowing for termination with or without cause.  In a federal whistleblower suit filed under seal, they claimed that BAE fraudulently falsified time sheets on government cost-plus contracts, and accessed proprietary information from government employees in violation of sealed bid requirements.  They claimed  that when they raised the issues with management, they were demoted, transferred, placed on leave, given lesser duties, harassed, and eventually terminated

The “terms and conditions” section of their contracts mentioned termination, job duties, salary, confidentiality, work product, and a non-competition clause.  It provided that “any dispute arising from this Agreement, which cannot be resolved through normal practices and procedures of the Company, shall be resolved through a mediation/arbitration approach.”

Even though federal courts resolve any doubts about arbitrability in favor of arbitration, the Sixth Circuit found that under the plain language of the agreement, the plaintiffs’ False Claims Act retaliation claims were not included (ironically, the underlying fraud claims were dismissed before the appeal for failure to state a claim).

First, according to the court, a retaliation claim is “purely statutory and exists independent of the Agreement.” The plaintiffs could have filed a False Claims Act complaint even if they had not been employees. (But they could not have made a retaliation claim, something the court overlooked).  Second, the employment agreement “nowhere refers to the FCA, retaliation or statutory claims.”  The court concluded that “because the terms of the employment agreement do not contemplate an FCA retaliation claim,” the case was “beyond the scope” of the arbitration provision.

The lesson?  Check your employment contracts; this one may be an easy fix. The alternative, federal whistleblower litigation, is long, expensive and fraught with peril.  It can result in triple damages, penalties, onerous compliance monitoring and, in some cases, criminal prosecution.