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False Claims Act does not protect former employees from post-termination retaliation

By Marjorie Johnson, J.D.

The anti-retaliation provision of the False Claims Act (FCA) does not apply to retaliation that occurs only after the employment relationship has ended, the Tenth Circuit ruled, affirming dismissal of a lawsuit brought by a former campus director who claimed she was unlawfully retaliated against for reporting her former employer’s unethical practices after she resigned. After undergoing an exhaustive analysis of the statutory language, the appeals court found that the FCA’s anti-retaliation provision unambiguously excluded relief for retaliatory acts occurring after the employee has left employment (Potts v. Center for Excellence in Higher Education, Inc., November 6, 2018, Phillips, G.).

Resigns, signs non-disparagement agreement. The employee had worked as a campus director for CollegeAmerica Denver, a predecessor of the Center for Excellence in Higher Education, Inc. She resigned in 2012, purportedly because she believed that CollegeAmerica engaged in unethical business practices by “actively deceiving” its accreditor. The parties entered into a written agreement by which CollegeAmerica agreed to pay her $7,000 and support her unemployment claim, and she agreed to refrain from filing complaints with any governmental or regulatory agencies and not to intentionally disparage its reputation.

Breach-of-contract lawsuit. Later, after she disparaged the Center in an email to a former coworker, it sued her in state court for breach of contract. She then sent a written complaint to the Accrediting Commission of Career Schools and Colleges (ACCSC) concerning the Center’s alleged deceptions. After learning this, the Center amended its lawsuit to allege that she also breached her contract by filing a complaint with the ACCSC.

Suit dismissed. She then filed suit, asserting that the Center’s lawsuit violated the FCA’s anti-retaliation provision. The district court granted the Center’s motion to dismiss, ruling that the FCA’s anti-retaliation provision did not apply because she was a former employee whose allegedly protected acts had occurred exclusively after her employment ended.

What is statutory meaning of “employees”? Two key subsections of the FCA’s anti-retaliation provision were at issue. Sec. 3730(h)(1) provides in relevant part that “Any employee . . . shall be entitled to all relief necessary to make that employee . . . whole, if that employee . . . is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee.” Sec. 3730(h)(2) provides in relevant part that “Relief . . . shall include 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.”

Timing of retaliation crucial. Addressing the crucial issue of who is protected under these two key subsections, the Tenth Circuit concluded that “employees” includes “only persons who were current employees when their employers retaliated against them.” If that condition has been met, it won’t matter whether the employee remains a current employee of the employer when suing. Thus, the label “former employee” itself means nothing—what matters is the employee’s employment status when the employer retaliates.

Qualifying acts. The court reached this conclusion by examining the wording of Sec. 3730(h)(1), which set forth the qualifying retaliatory acts: “discharge, demotion, suspension, threats, harassment, or any other manner of discrimination in the terms and conditions of employment.” Four of these six categories of retaliatory acts, by their nature or wording, must occur during employment (as must the protected activity). A former employer cannot discharge, suspend, or demote a former employee, nor can it discriminate against a former employee in the terms and conditions of employment.

Canons of statutory interpretation. Relying on the “associated-words” canon, the Tenth Circuit rejected the plaintiff’s assertion that the subsection nevertheless protects former employees from “threats” and “harassment” by their former employers. This canon, which recognizes “the observed phenomenon that birds of a feather flock together,” provides that when several words are “associated in a context suggesting that the words have something in common, they should be assigned a permissible meaning that makes them similar.” In particular, “words grouped in a list should be given related meaning.” As Congress “snugly embedded ‘threatened’ and ‘harassed’ within the other four retaliatory acts needing to occur during employment,” the court couldn’t apply “a different temporal range for those two terms than applies for their four neighbors.”

The Tenth Circuit also applied the “ejusdem generis” canon because Congress “tacked on a catchall phrase at the end of an enumeration of specifics.” Specifically, it read the subsection’s residual clause as including “similar discriminations” to discharge, demotion, suspension, threats, and harassment. “We can’t see why close cousins to threats and harassment would count only during employment (i.e., when in the terms and conditions of employment), but threats and harassment would continue to count years after employment ends.”

The “series-qualifier” canon was also applicable. This provides that “when there is a straightforward, parallel construction that involves all nouns or verbs in a series, a prepositive or postpositive modifier normally applies to the entire series.” Here, the six verbs were parallel (discharged, demoted, suspended, threatened, harassed, or discriminated against), and neither the prepositive “in any other manner” or the postpositive “in the terms and conditions of employment,” made the verb string not parallel. Finally, Sec. 3730(h)(2) also supported the conclusion that “employees” under § 3730(h)(1) included only persons who were current employees when retaliated against because the listed remedies all related to an employment relationship.

Other statutes. The Tenth Circuit rejected the former employee’s reliance on a DOL regulation interpreting the anti-retaliation provision in the Sarbanes-Oxley Act, which referred to employee as meaning “an individual presently or formerly working,” explaining that the regulation might simply recognize “that a former employee could sue for retaliatory discrimination that occurred during employment.” The court also rejected her reliance on the U.S. Supreme Court’s conclusion that Title VII’s retaliation provision applies to post-employment retaliation against former employees. Unlike Title VII, the FCA—by its list of retaliatory acts—temporally limited relief to employees who are subjected to retaliatory acts while they are current employees.