The Southern District of California recently issued a favorable ruling for employers under both the False Claims Act and California’s retaliatory discharge provision codified at California Labor Code section 1102.5. The court not only rejected the relator’s claims, but it also resolved all issues in the employer’s favor on summary judgment.

Relator Darryn Kelly was a former employee of Serco, Incorporated. Serco contracted with the U.S. Navy Space and Naval Warfare Systems Command (SPAWAR), which was a contractor of the Department of Homeland Security (DHS) on a large wireless communications project. About three weeks before his employment was terminated, Kelly informed the DHS that Serco had been engaging in what he believed to be fraudulent time tracking measures. According to Kelly, the company haphazardly collected time entries, fraudulently reallocated time in the budget using various task codes, and failed to track time in an automated system as required by government regulations. Kelly believed these practices violated ANSI 748, which is a set of guidelines that applies to certain government contractors. Shortly after raising these concerns, Kelly was laid off due to downsizing in his department. He brought claims under the False Claims Act, as well as California’s retaliatory discharge provision, arguing that Serco had submitted false claims and records to the government, and that the company had retaliated against him for raising these concerns.

The court granted summary judgment in favor of Serco on all claims. It noted that under the False Claims Act, liability attaches to a claim for payment, not to any underlying fraudulent activity or the government’s wrongful payment. The court noted that the act does not impose liability for mere violations of the law or regulations, but instead for falsely certifying compliance in return for obtaining a government benefit. In this case, Serco submitted its claims for payment in the form of public vouchers. The court found that Kelly could not show that these vouchers contained any false or inaccurate information. He argued that the vouchers falsely represented compliance with ANSI 748, but the court also rejected this argument, noting that no regulation required that payment of the vouchers be conditioned on compliance with ANSI 748. The court similarly rejected Kelly’s argument that Serco submitted false and unreliable time records to the government, because there were no inaccuracies in the actual payment vouchers. Once again, the court reiterated that liability attaches to false statements in the claim for government benefits, not to other underlying fraudulent activity.

The court also granted summary judgment on the retaliatory discharge claim brought under California Labor Code section 1102.5. Under section 1102.5(b), Kelly argued that Serco retaliated against him after it found out that he reported allegedly improper activity to the DHS. The court rejected this argument. It noted that if an employee’s supervisors lack knowledge that the employee reported any activity to the government, there cannot be a causal link between the termination decision and the whistleblowing. In this case, the court found that Kelly could not show Serco was aware of any whistleblowing activity, as both of his supervisors testified that they did not know about the whistleblowing. It rejected the 1102.5(b) claim on this ground alone, although it also noted that Serco had a legitimate non-retaliatory reason for terminating Kelly (a layoff), and there was no evidence that this reason was pretextual.

Key Takeaways

The case is important for two reasons. First, the order makes clear that a violation of the False Claims Act must be premised on a false claim for payment or benefits. It is not sufficient to plead underlying fraudulent or illegal activity if the claim for government benefits does not itself contain false representations. Employers should carefully inspect any claims under the False Claims Act to see if a relator has actually satisfied this required element of the claim.

Second, the order establishes that an employer can successfully defend a retaliatory discharge claim if it can show it did not have knowledge of the underlying whistleblowing. For example, if an employee reports allegedly unlawful activity to the government, but does not alert his or her supervisors who make the adverse employment decision, the employer can assert this lack of knowledge as a defense to a retaliation claim. The policy behind this rule is clear: an employer cannot have retaliated against an employee for activity about which it did not have knowledge.  Additionally, employers should carefully document the legitimate, non-retaliatory reasons for its actions, such as performance issues and business reasons for layoffs. Legitimate, non-retaliatory reasons for termination are always a strong defense to a retaliatory discharge claim.