Severance Agreements and Waiving Your Rights to Bring Suit Under The False Claims Act

by | November 27, 2017 | Whistleblower Law

When presenting an employee with a severance agreement, employers typically insist on very broad releases, waiving any claims the employee may bring against the company. Many employers interpret this broad release language to include whistleblower lawsuits under the False Claims Act. Some severance agreements will even explicitly bar an employee from recovering financially from a False Claims Act suit. But don’t such provisions run counter to the purpose of the False Claims Act – encouraging whistleblowers to come forward on behalf of the government? A growing number of courts around the country agree that, in certain circumstances, severance agreements waiving False Claims Act claims are invalid.

The Ninth Circuit in U.S. ex rel Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995), was one of the earliest courts to address this question. In Green, a former employee of a federal contractor filed a qui tam case alleging that the contractor engaged in double billing. Prior to filing the qui tam suit, in the course of resolving claims related to his termination, the employee signed a settlement agreement. Pursuant to the settlement agreement, the employee agreed to release “any and all claims … rights to payment … actions and causes of action of every nature, under any theory under the law.” Id. at 956. The employer moved for summary judgment in the qui tam action, claiming that the settlement agreement barred the employee from bringing any suit against the contractor, including under the False Claims Act. The district court ruled in favor of the employer, but the Ninth Circuit overruled the decision. Acknowledging that there was no statutory authority on the issue, the Ninth Circuit fashioned a “government knowledge” test. The Green court held that, when the government is unaware of the allegations prior to the filing of the qui tam suit, such a waiver of an employee’s claims is unenforceable. The court reasoned that the public interest of encouraging whistleblowers to provide information which the government would not otherwise have was only implicated if the government was not already aware of the claims. In other words, as long as the government does not already know about the qui tam allegations, the employee can bring a False Claims Act suit, despite any waivers in his severance agreement.

The Second, Fourth, and Tenth Circuits subsequently adopted the “government knowledge” test when deciding similar cases. See U.S. ex rel Ladas v. Exelis, Inc., 824 F.3d 16, 24-35 (2d Cir. 2016); U.S. ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319, 330-31 (4th Cir. 2010); U.S. ex rel Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1170-71 (10th Cir. 2009). Just this summer, the Eastern District of Kentucky became the latest court to address the waivability of False Claims Act claims in U.S. ex rel Dillon v. St. Elizabeth Medical Ctr., 2017 WL 3000662 (E.D. Ky. July 13, 2017). In Dillon, the employee signed a severance agreement in which she “waive[d] her right to receive any monetary relief from any action brought by her or on behalf of her pursuant to the False Claims Act.” Id. at *1. The Dillon court denied the employer’s Motion to Dismiss. Affirming the “government knowledge” test, the court reasoned that, at such an early stage of the proceedings, the court could not ascertain whether the government already had knowledge of the qui tam claims at the time that Dillon executed the severance agreement.

Thus, the takeaway for employees is that, unless the government already has knowledge of your qui tam claims, you will likely be able to bring a False Claims Act suit, even if you have signed a severance agreement releasing all claims against your employer.