The federal False Claims Act has been in effect since 1863, but employees have been using the act recently to recover large amounts of money from their employers, sometimes with the help of the federal government. Under this federal act, an employee may file suit against his or her employer for suspected fraud against the federal government. These lawsuits are called “qui tam” actions and the individual initiating the lawsuit is referred to as a “relator.”
The act permits an employee to receive from 15% to 30% of any monies collected by the government in settlement of the claim or as compensation for overcharges made by the employer to the government. The U.S. Department of Justice recovered more than $5.6 billion for qui tam plaintiffs under the False Claims Act in its 2021 fiscal year. The U.S. Attorney General’s office of the United States is authorized under the act to intervene on behalf of the government and then becomes primarily responsible for the prosecution of the case. However, even if the Attorney General intervenes, the employee is still entitled to recover a percentage of amounts received by the government in settlement or otherwise. Employers who do business with the federal government need to be aware that disgruntled employees have this additional option available to them.
The act also prohibits retaliation against an employee who has taken any lawful action in furtherance of bringing a claim under the act. A retaliation claim brought under this provision is not dependent on the outcome of the employee’s qui tam lawsuit.
False claims laws can impose serious penalties on employers who retaliate against employees or contractors for alleging, prosecuting or supporting whistleblower actions. Even if the employer is found to have done nothing illegal – to have made no false claims – an employer could still be liable for retaliating against an employee who made a good faith report of such a violation.
The Sarbanes-Oxley Act (SOX) applies generally to publicly traded companies and imposes a number of reporting and disclosure requirements that are designed to provide more transparency with respect to a company’s financial condition and strengthen corporate governance in the aftermath of Enron and its progeny.
Significantly, Section 806 of SOX prohibits a publicly traded company, as well as any officer, employee, contractor, subcontractor or agent or employee of the company (or of any private subsidiary or affiliate, if included on a consolidated financial report), from taking any adverse employment action or discriminating against an employee in the terms and conditions of employment because they “lawfully” provide information, cause information to be provided or otherwise assist in any investigation of conduct of the employer which the employee “reasonably believes” to constitute a violation of:
the federal criminal statutes prohibiting mail, wire, bank or securities fraud
any rule or regulation of the Securities and Exchange Commission (SEC)
any provision of federal law relating to fraud against shareholders.
Employees are protected from such retaliation under SOX if they provide such information or assistance to:
any federal regulatory or law enforcement agency
any member of Congress or any Congressional committee
any person with “supervisory authority” over the employee (or any other such person working for the employer who has authority to “investigate, discover or terminate misconduct”).
The U.S. Department of Labor delegated enforcement authority over the whistleblower provisions of SOX to the Occupational Safety and Health Administration (OSHA). The complaint, investigation and relief procedures as well as court review is beyond the scope of this book, however, an aggrieved employee must take action no later than 180 days after the date the alleged violation has occurred or after the date the employee became aware of the violation.
Section 1107 of SOX imposes criminal penalties, including possible imprisonment for up to 10 years, for retaliating against an employee for providing “truthful” information to a law enforcement officer relating to the commission or possible commission of any federal offense whether or not the offense is a violation of SOX. “Federal offense” is not defined anywhere in SOX or the federal criminal code. Although the term is usually used in reference to criminal violations, courts have used the term in both civil and criminal contexts.
A prevailing employee is entitled under SOX to “all relief necessary to make the employee whole,” specifically including reinstatement with seniority rights, back pay with interest and any “special damages” sustained “as a result of the discrimination,” to include litigation costs, expert witness fees and reasonable attorney fees. SOX specifically provides that nothing in it “shall be deemed to diminish the rights, privileges or remedies of any employee under Federal or State law or any collective bargaining agreement.” Thus, additional remedies beyond those provided for in SOX may be available under state law.
Unlike the False Claims Act, SOX does not allow an individual to bring a “qui tam” lawsuit or to recover a reward, even if the information provided by the employee is used successfully by the government. However, Dodd-Frank (the Wall Street Reform and Consumer Protection Act) amended SOX to create whistleblower protections for any employee providing the SEC with “original” information about and ongoing or imminent violation of securities law, participating in an SEC investigation or making required disclosures under SOX. A whistleblower under Dodd-Frank is protected from retaliation and may bring a cause of action for retaliatory discharge without first pursuing administrative remedies, as is required under SOX.
In addition, a Dodd-Frank whistleblower may recover 10-30% of any SEC penalties recovered as a result of the information provided (if the recovery exceeds a million dollars). The amount of the reward paid to the whistleblower is discretionary with the SEC, but this possibility is used as an incentive to encourage employees, including even compliance officers, to report wrongdoing to the SEC.
The SEC has awarded more than $1 billion to whistleblowers since the agency began its whistleblower program in 2011. In September 2021, the SEC awarded $114 million to a pair of whistleblowers.
An employer may be held liable under SOX even if the employee is incorrect in asserting that a violation of law has occurred, so long as the employee’s belief that a violation has occurred is reasonably held. Further, SOX protects any employee who brings such information to the attention of a supervisor or any other person within the company who has authority to remedy misconduct. Publicly traded employers will need to train managers and supervisors to ensure that they are aware that retaliation against employees who provide such protected information is unlawful.
Internal procedures should also be developed to ensure that protected information is properly reported to responsible officials of the company, including implementation of a Corporate Responsibility Policy as a part of the company’s overall efforts to ensure compliance with legal requirements, as well as to communicate to employees the company’s internal business ethics requirements.
On June 7, 2022, Governor Polis signed the Colorado False Claims Act (CFCA), the state-level equivalent of the federal False Claims Act. The CFCA expands the:
scope of false claims
protected entities to which false claims can be made
protections for whistleblowers raising concerns with false claims.
The CFCA expands the traditional definition of “claims” to create a right of action and significant penalties against any individual or business entity that:
knowingly presents a false or fraudulent claim for payment or approval
knowingly makes, uses or causes to be made or used a false record or statement material to a false or fraudulent claim
has possession, custody or control of property or money used, or to be used, by the state or a political subdivision and knowingly delivers, or causes to be delivered, less than all of the money or property
authorizes the making or delivery of a document certifying receipt of property used, or to be used, by the state or a political subdivision and, with the intent to defraud the state or political subdivision, makes or delivers the receipt without completely knowing that the information on the receipt is true
knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the state or a political subdivision who lawfully may not sell or pledge the property
knowingly makes, uses or causes to be made or used a false record or statement material to an obligation to pay or transmit money or property to the state or political subdivision, or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the state or political subdivision
knowingly makes, uses or causes to be made or used, a false record or statement material to a claim to unemployment insurance benefits when the person has wrongfully recovered unemployment insurance benefits from the state of more than $15,000 in a calendar year.
Such claims could include not only false or incomplete claims for payment, but also false statements incident to an obligation to pay the state or a political subdivision. The addition of “political subdivision” is particularly noteworthy, because it includes, by statute, counties, municipalities, special districts (including, water, fire and sanitation districts) and hospital authorities, among others.
The CFCA protects not only false claims or statements to these entities, but also to any “contractor, grantee, or other recipient” of funds from those entities, “if the money or property is to be spent or used on the state’s or political subdivision’s behalf or to advance a government program or interest … "
As a result, any person or company who submits a false or inaccurate statement or bill to a contractor of municipality, hospital authority, or other political subdivision could be liable. So, for example, if an x-ray technician submits a false bill to her employer, a laboratory test contractor of a Colorado hospital authority, they could be liable under the CFCA.
Penalties under the CFCA mirror the federal False Claims Act, which are currently not less than $11,803 and not more than $23,60 per violation. Because penalties are applicable to each false claim, complex or long-running transactions (such as those with monthly billing over a course of years) could result in penalties of hundreds of thousands or millions of dollars. An individual who brings a private right of action to enforce the CFCA is entitled to 25% to 30% of the recovery, as well as attorneys’ fees and costs.
The penalty is not the end of liability. Those liable under the CFCA are also liable for three times the amount of the damages sustained by the state or political subdivision, and the costs incurred for the investigation and prosecution of the false claim.
The CFCA’s anti-retaliation provisions protect individuals who:
conduct or assist in an investigation, testify, or file an action based on a “reasonable belief of a potential violation”
meet with retained counsel or the government about a matter filed or to be filed
provide the individual’s counsel or government “confidential information”
file an action under the CFCA.
The CFCA provides a private right of action for anyone “discharged, demoted, suspended, threatened, harassed, intimidated, sued, defamed, blacklisted, or in any other manner retaliated against.”6 A successful employee may seek:
twice the amount of back pay
interest on the back pay
any special damages
attorneys’ fees and costs.
The Criminal Antitrust Anti-Retaliation Act became law on December 23, 2020, and makes it unlawful for employers to take adverse action against employees covered by the act who provide information related to criminal antitrust violations to their employer or to the federal government. The act prohibits retaliation against individuals in participate in a federal investigation or a proceeding filed or about to be filed for criminal antitrust violations.
Covered individuals include:
an agent of the employer.
Retaliating against a covered individual for internally reporting antitrust violations, or reporting the same violations to law enforcement, could expose an employer to significant liability, including the aggrieved employee’s back pay, litigation costs, witness fees and attorney’s fees.
Colorado’s at-will employment doctrine is discussed in depth elsewhere in this manual. See Chapter 03: Recruiting and hiring. Although Colorado employers are generally allowed to terminate an employee for any reason or no reason at all, they are not allowed to terminate an employee for:
enforcing a statutory right
refusing to participate in illegal activity
whistleblowing about illegal activity.
Examples of employees exercising a statutory right include:
filing a workers’ compensation claim
filing an unemployment claim
carrying out duties as a mandatory reporter.
In all these examples, the employee has a legal right or duty to do something, so terminating the employee would compromise those right.
Employees engage in protected activity when they refuse to participate in a violation of law, whether it is a statute or a government agency’s administrative regulations. For example, courts have recognized a wrongful termination claim based on a daycare center employee refusing to work in an understaffed room and another employee’s refusal to commit perjury for the employer. Employees also engage in protected activity when they report illegal conduct internally (to supervisors or human resources professionals) or externally (to law enforcement or other government agencies.)
This exception to the at-will employment doctrine only applies when the employee’s complaint is based on a violation of law or government regulations. If an employer is found to have terminated an employee for exercising a statutory right, refusing to participate in illegal activity or whistleblowing, the employer may be liable to the employee for damages.
This type of wrongful discharge claim can be complicated, so you should seek advice from legal counsel before taking any action against an employee who complains about allegedly illegal activity.