Court Rejects “Duty Speech”/“Fraud Alert” Exception to False Claims Act Whistleblower Protection
Wednesday, January 24, 2018
whistle, gavel, whistleblower

False Claims Act (FCA) whistleblowers have enabled the federal government to recover nearly $30 billion, and in 2017 alone, qui tam cases filed by whistleblowers generated $898 million in recoveries.  Blowing the whistle on fraud, however, can be perilous and many whistleblowers suffer retaliation, including blacklisting.  To encourage whistleblowers to come forward, Congress included a strong anti-retaliation provision in the False Claims Act.

Unfortunately, some courts have added loopholes to the FCA’s whistleblower protection law that leave whistleblowers with little or no protection.  One of those loopholes is the “duty speech” or “fraud alert” exception, which imposes a heightened notice burden on employees whose job duties entail reporting fraud (e.g., compliance personnel).  In other words, an FCA retaliation plaintiff whose ordinary job responsibilities entail reporting fraud must prove that he took actions exceeding the scope of his job duties for the purpose of establishing notice of his protected whistleblowing. This loophole contravenes the plain meaning of the statute and is contrary to Congressional intent.  If Congress sought to deny or reduce protection for a class of employees, it could have included such an exception in the statute.

Last week, a New York district judge soundly rejected an employer’s attempt to impose a “fraud alert” exception to the FCA whistleblower protection law.  The opinion in Malanga v. New York University, No. 14cv9681 (S.D.N.Y. 2018) offers compelling reasons to abandon this doctrine.

  1. The 2009 amendment to the FCA expanded the FCA’s scope of protected activity to encompass efforts to stop 1 or more violations of the FCA.  “By expanding the scope of protected activity, Congress made clear that protections under the FCA are designed to cover steps “taken to remedy . . . misconduct through methods such as internal reporting to a supervisor or company compliance department.”  155 Cong. Rec. E1295-03, E 1300 (daily ed. June 3, 2009).  “Given that the current version of [the FCA as amended] no longer limits protected activity to actions in furtherance of potential FCA actions, [the] requirement that employees involved in investigating potential fraud must make clear their intentions of bringing or assisting in an FCA action is no longer required by the statutory text. Jones-McNamara v. Holzer Health Sys., 630 F. App’x 394, 409 n.6 (6th Cir. 2015).  Indeed, one court has held that ‘[s]ince a plaintiff now engages in protected conduct whenever he engages in an effort to stop an FCA violation, the act of internal reporting itself suffices as both the effort to stop the FCA violation and the notice to the employer.’ Manfield v. Alutiig Int’l Solutions, Inc., 851 F. Supp. 2d 196, 204 (D. Me. 2012) . . . Thus, a fraud-alert employee does not have to offer any more evidence of notice than a non-fraud alert employee so long as the jury is convinced that the employer was aware of the protected activity.”
  2. “[H]olding fraud-alert employees to a higher notice standard would essentially impose a hardship on a class of plaintiffs who were subject to retaliation simply because they were doing their job—alerting their employers of a fraud and attempting to prevent an FCA violation.”

To ensure that a fraud alert employee will be protected under the FCA, it is prudent to provide clear notice of the protected whistleblowing.  But even absent such notice, the “duty speech” or “fraud alert” exception should not be used to deny protections to employees who risk their jobs and careers to oppose fraud.