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February 13, 2014

Shielding Companies Against Whistleblower Suits

By Michelle Peirce

Health care providers, public companies, and other heavily-regulated industries can guard against costly whistleblower, or “qui tam,” actions by shoring up employees’ confidentiality and non-disclosure agreements. These industries increasingly face whistleblower lawsuits as both state and federal laws expand incentives for employees or former employees to bring private actions alleging wrongdoing to seek large rewards, or to seek redress after being terminated. In Massachusetts, for example, the litigation group at Donoghue Barrett & Singal, P.C. has seen a notable increase in claims against health care providers under the Massachusetts Healthcare Whistleblower statute, Mass. Gen. L. ch. 149 § 187.

Well-drafted and updated agreements with employees can help to lessen this risk. By requiring employees to sign confidentiality and non-disclosure agreements, employers can discourage these claims and lay the ground work for counterclaims if confidential information is wrongly disclosed as part of the employee’s lawsuit.

Federal Case Law Supporting Employers

A ruling in federal court out of the Northern District of Illinois illustrates the benefits of careful attention to these internal documents. (United States ex rel. Wildhirt v. AARS Forever, Inc. and THH Acquisition LLC I, 2013 Westlaw 5304092 (N.D. Ill. Sept. 19, 2013)) There, two former employees sued their former employer (and its successor), a provider of home health care services and DME to Veterans Administration patients in three states. The terminated employees, respiratory therapists, sued under the federal False Claims Act and state law claiming that the employer was breaching numerous performance requirements under the VA contract and violating Medicare and Medicaid regulations, rendering all or nearly all of the claims sent to the federal and state governments “false.”

The employer counterclaimed, alleging, among other things, that the former employees had violated their written agreements (1) not to disclose confidential/proprietary information, (2) not to disclose HIPAA-protected information, and (3) to notify the employer during their employment of any alleged wrongdoing so that the employer would have had an opportunity to investigate and remedy the alleged wrongdoing. With respect to this third provision, it is noteworthy that the employees had signed “Confidential Acknowledgement of No Known Suspect Practices” statements, attesting that they were not aware of any untoward practices and that the “company cannot be responsible for suspect business practices that it would otherwise be unaware of if not made specifically aware of them by staff.” (Id. at *3) The employer also sought indemnification for defending against the employees’ claims, under those same provisions.

The former employees moved to dismiss these counterclaims, arguing that allowing these counterclaims would thwart “public policy” by discouraging private suits drawing attention to health care and other types of fraud.

But the court made clear that these employment agreements can be enforced, even in a whistleblower or retaliation suit. That is the case as long as the employer’s claims are “independent” — meaning, (1) the employees’ claims turn out to be untrue, or (2) the breach is distinct from the FCA claims alleged by the employees.

The Take-Away

Well-crafted employment agreements and a strong compliance plan are not a "silver bullet," but they will make employees think twice before using confidential documents to sue their employers. In addition to this deterrent effect, confidentiality and other agreements can give employers powerful weapons if employees wrongly use protected information against the employer.