General Releases in Employment Contracts Cannot Bar Employees from Filing or Participating in Qui Tam Cases Under the False Claims Act

Joel D. Hesch

The full trial technique will be available to read soon in the forthcoming 44:1 issue of the American Journal of Trial Advocacy.


          It is typical for employers to require terminated employees to sign general releases when they separate as a condition of receiving a severance package or final paycheck.  Unfortunately, general releases can be viewed with such a broad scope as to encompass every possible cause of action, including the filing of, or participation in, qui tam suits under the False Claims Act (FCA).  Under the FCA, the government pays whistleblower rewards to employees for reporting fraud against the government.  The qui tam provisions of the FCA have become one of the most important tools for the federal government to combat fraud committed against it.  Naturally, it would be unlawful for an employer to pay employees in exchange for promising not to report fraud against the government.  The circuit courts of appeals that have examined the issue of enforcing releases against qui tam claims have generally refused to enforce the releases based on public policy; that is, they rule in line with this common principle.  However, a few circuit courts addressing this issue have wrongfully adopted a “government knowledge” standard as the limit of public policy.  These courts have required employees to be dismissed from qui tam cases on a case-by-case basis depending upon the stage of the government’s investigation at the time the release is entered.  Thus, those courts have unwittingly accomplished by operation of law that which the company could not directly negotiate with the departing employee—namely, requiring employees to promise not to seek government rewards through the filing of qui tam suits under the FCA in order to receive a severance package or final check.

            Unfortunately, those courts that have adopted a government knowledge approach focused solely upon the public policy interest in notifying the government of fraud.  They failed to recognize that the FCA contains several specific provisions that create an equally strong public interest of inviting whistleblowers to fully participate in the entirety of the qui tam suit, long after a government investigation has concluded.  Indeed, the reward structure of the FCA’s qui tam provisions offer rewards on a sliding scale which pays higher rewards for higher levels of participation throughout the entire case.

            The FCA also contains additional provisions authorizing whistleblowing employees to pursue qui tam cases unilaterally if the government elects to decline to take over the case.  In other words, even after the government concludes its investigation and notifies the court that it declines to take over the qui tam case, the FCA authorizes the relator to proceed with the case on the government’s behalf.  This FCA provision stands directly counter to courts allowing a general release to dismiss a relator’s qui tam suit based on the stage of the government’s investigation or knowledge of the fraud.  The FCA invites and incentivizes whistleblowers to proceed alone once the government’s investigation is over and the government declines to intervene.  This right is not conditioned upon the level of information known to the government.  Indeed, it specifically allows the relator to proceed alone after the government concludes its investigation.  The public policy behind allowing whistleblowers to pursue qui tam suits unilaterally is very important because it allows the government to preserve resources while still recovering funds lost due to fraud.  This entire declination section of the FCA would be displaced if courts inject a government knowledge test to uphold general releases.  Thus, the public policy interest in relators pursuing declined qui tam cases is stronger than the interest of the company in enforcing a general release based upon any purported government knowledge test. 

            Those courts that have adopted a government knowledge test also failed to fully consider the chilling effect that a case-by-case analysis with a vague government knowledge standard would have upon all potential whistleblowers in all cases, not just those where a government investigation is completed at the time a particular employee signs a general release.  Indeed, in 1986, Congress specifically repealed the “government knowledge bar” from the FCA because it led to whistleblowers refraining from filing qui tam cases.  Because employees that are being terminated and asked to sign a general release cannot predict, with any certainty, what information the government has or at what stage of any investigation the government might be, these employees are likely to simply forgo filing a qui tam suit.  Thus, even when there is no government investigation, because the employee does not know one way or the other, she may choose to forgo filing.  That is precisely what happened in 1943 when Congress enacted the government knowledge bar, and fewer than six qui tam cases were filed each year.  Adoption of a government knowledge test would similarly lead to fewer opportunities for the government to recover public funds lost due to fraud and defeat the purpose of the FCA.

            Finally, in 2014, Congress passed another law that informs and creates a strong public policy interest in not enforcing general releases against qui tam suits; this statute bars the government from even doing business with any entity that seeks to restrict employees from reporting fraud against the government.  This new law has not yet been evaluated by the courts, but it strengthens the public policy such that courts should adopt a bright line rule that all general releases that bar filing or participating in qui tam complaints are unenforceable. 

            For all of these reasons, there is a strong public interest in whistleblowers participating in the entirety of a qui tam suit.