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Employee Efforts to Stop Employer FCA Violation is Protected Activity Even When No Distinct Possibility of FCA Litigation, says Fourth Circuit

The Fourth Circuit recently held, in an unpublished opinion, that the anti-retaliation or “whistleblower” provisions of the False Claims Act (“FCA”) protect an individual’s efforts to stop a contractor from violating the FCA, even when there is no “distinct possibility” of litigation.  This “distinct possibility” standard was adopted prior to 2009 when the whistleblower provision protected employee activity that was in furtherance of an FCA action, “including investigation for, initiation of, testimony for, or assistance” in an FCA action.  Under that version of the whistleblower provision, courts had held that a retaliation suit under the FCA would only pass muster if “an employee engages in protected activity when litigation is a distinct possibility, when the conduct reasonably could lead to a viable FCA action, or when . . . litigation is a reasonable possibility.”  Amendments to the FCA in 2009 and 2010, however, broadened coverage of the whistleblower provision, creating two prongs of protected activity: (1) “lawful acts done by the employee . . . in furtherance of an action under [the FCA]”; and (2) “other efforts to stop 1 or more violations” of the FCA.  31 U.S.C. § 3730(h).  In this case, Carlson v. Dyncorp Int’l LLC, the Fourth Circuit held that the “distinct possibility” standard does not apply to the second prong of the whistleblower provision, as that prong was intended to be broader than the first prong. This case may open the door to broader liability for contractors who take adverse employment actions against employees who attempt to stop or prevent conduct that the employee reasonably believes to be in violation of the FCA.  Notably, in Carlson, the Fourth Circuit nevertheless affirmed the district court’s dismissal of plaintiff’s retaliation lawsuit because the plaintiff was alleging that his contractor-employer was under-billing the government and he could not reasonably believe that that practice would lead to a violation of the FCA. 

Plaintiff Scott Carlson was previously employed by the defendant where he supervised six employees who worked on several of the defendant’s government contracts. Carlson alleged that during his employment, in late 2012, the defendant bid lower-than-average indirect costs on a new contract with the U.S. Agency for International Development (“USAID”), and that thereafter, the defendant began “altering billing procedures” on its then-existing USAID contracts.  For example, in an effort to lower the size of the overhead pool on one contract, Carlson alleged, the defendant eliminated Carlson’s team’s access to the overhead work billing code in the timekeeping system, and instructed the team to bill overhead activity to a code from a previous project.  Carlson asserted that he constantly raised concerns about these cost reporting practices with management over the course of several months, but the defendant did not address his concerns.  In April 2013, after the defendant delivered a completed bid for the new contract with USAID, the defendant terminated Carlson’s employment.  While the defendant claimed the termination was due to restructuring, Carlson sued the defendant, asserting that his termination was in retaliation for his attempts to stop an FCA violation.  Citing the “distinct possibility standard,” the district court dismissed Carlson’s case because “there was no reasonable possibility his efforts could lead to a viable FCA action.”

On appeal, the Fourth Circuit held that the distinct possibility standard cannot apply to the second prong of the whistleblower provision. It explained that, “[w]hile the first prong refers to activity associated with an action under the FCA, the second prong specifically encompasses ‘other efforts’” and is “explicitly untethered from any such action.”  The court found that in establishing this second prong, Congress “decided to create an entirely new, and clearly broader, category of protected activity within the FCA.”  Thus, the distinct possibility standard “is no longer the (only) standard for identifying protected activity” under the FCA.

Carlson’s claim remained unsuccessful, however, because it was based on an accusation that the defendant under-billed the government. Ultimately, Carlson did not “articulate [any] mechanism by which failing to charge certain overhead expenses could later result in the government being fraudulently over billed,” thus he could not have had an objectively reasonable belief that the defendant was going to violate the FCA.

Despite the failed claim in Carlson, contractors should understand that more and more courts are viewing individuals’ attempts to stop or prevent what they believe to be potential FCA violations as protected whistleblower activity even when no actions have been taken to commence an FCA investigation or lawsuit.  Thus, taking adverse employment actions against individuals for such activity could result in liability under § 3730(h).  Successful plaintiffs in such cases are entitled to “all relief necessary to make that [individual] whole,” including possibly “reinstatement with the same seniority status that employee . . . would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees.”  31 U.S.C. § 3730(h).

© 2019 Covington & Burling LLP

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About this Author

Alan Pemberton, Covington, Litigation attorney
Senior Counsel

Alan Pemberton has practiced in the government contracts area since 1982, and chaired or co-chaired Covington’s government contracts practice from 2000 to 2016. His practice includes the full range of government contracts matters, including bid protest and other procurement litigation before GAO, agency boards, and federal and state courts and ADR tribunals. He advises large and small contractors and grantees about the full range of government proposal, performance, compliance, regulatory, suspension and debarment, transactional and legislative issues. He also directs...

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Brandon Myers, Covington, Commercial Litigation Attorney
Associate

Brandon Myers represents clients in a broad array of high-stakes litigation matters, with particular emphases on advertising disputes, product liability and consumer protection actions.

He also counsels and represents clients in a wide range of employment law matters, in addition to maintaining an active pro bono practice.

202-662-5132