FCA Retaliation Claim Not Subject to Employment Agreement Arbitration Clause, According to Sixth Circuit

Relators alleging a retaliation claim under the False Claims Act scored a big win in the recent Sixth Circuit decision United States ex rel. Paige v. BAE Systems Technology Solutions & Services, Inc., 2014 U.S. App. LEXIS 9676 (6th Cir. May 22, 2014), which held that a False Claims Act retaliation claim was not subject to an employment agreement’s arbitration clause.

Relators in that case alleged that the defendant employer retaliated against them for cooperating with the government and filing a whistleblower case. Relators alleged that throughout their employment they complained to management about fraud, but, despite their complaints, the perpetrators of the unlawful conduct were left in place and their attempts to correct the problems were rebuffed. Ultimately, one of the relators was forced to quit due to the retaliation and the other was laid off. The district court dismissed the retaliation claim in favor of arbitration due to a clause in relators’ employment agreements.

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Relators had signed employment agreements with the defendant employer generally setting out the “terms and conditions” of their employment, including job duties and salary, and the agreement contained a provision stating that any dispute arising from the agreement would be resolved through arbitration. The question on appeal was whether the employees’ retaliation claim fell within the arbitration clause, and the Sixth Circuit found that it did not. It noted that the language of the clause demonstrated that it only applied to disputes arising from the employment agreement itself. Thus, the clause did not cover the retaliation claim. The retaliation claim was purely statutory and existed independently of the agreement. While the defendant argued that to succeed on their claim the relators must establish that they were retaliated against in the terms and conditions of their employment, the court noted that the False Claims Act is not limited to instances where employers breach an employment agreement addressing the “terms and conditions” of employment. Relators did not allege that the agreement was violated, but, instead, that they were retaliated against due to their statutorily-protected conduct. Moreover, the agreement did not refer to the False Claims Act, retaliation, or statutory claims.

While this is a victory for relators, the decision was based on the specific language of the arbitration clause, and the outcome could have been different had the clause been more broadly drafted. All employees should carefully consider employment agreements—with counsel—to ensure that their right to bring retaliation claims in court are protected.

Reetupama (Reena) Dutta is a senior associate in the Business Litigation Practice at Hodgson Russ LLP. You can reach her at rdutta@hodgsonruss.com.

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