Before reporting concerns about unlawful activity to the government, most whistleblowers first attempt to resolve those concerns internally by alerting management or compliance personnel. While many corporations take internal reports seriously and shield whistleblowers from reprisal, reports of misconduct can sometimes lead to retaliation against a whistleblower. As a result, a whistleblower may find themselves with two claims: (1) a whistleblower tip, which may lead to an award via the incentive programs established under federal and state law; and (2) a claim for unlawful employment retaliation, which may lead to an award of back pay or other damages resulting from the termination or other adverse action to which the whistleblower was subjected. This blog will discuss some of the procedural issues that arise as whistleblowers navigate these different claims in the context of the two most popular “bounty” programs: qui tam claims under the federal False Claims Act (“FCA”), and the SEC whistleblower program.
Simultaneously Litigating Employment and Bounty Claims
If a whistleblower wishes to litigate their employment and bounty claims simultaneously, the process is often straightforward. When filing a qui tam case under the FCA, whistleblowers are required to file such claims “under seal” in federal court and serve the complaint on the local United States Attorney. This provides the Department of Justice the ability to investigate the allegations in the whistleblower’s tip before the subject of the lawsuit is aware of its existence. If a whistleblower also wishes to litigate their claims for unlawful retaliation, they would simply include those claims in the complaint containing their whistleblower tip. Both claims would then remain under seal until such time as the DOJ concludes its investigation on the qui tam claim and decides whether to join the whistleblower in pursuing the tip. At that time, the defendant is notified of the existence of the complaint and the whistleblower’s employment claim will generally be litigated—or settled—alongside their bounty claim. Some whistleblower retaliation claims may need to exhaust administrative remedies by first filing them with OSHA or another administrative agency, which may present complications if the charge is automatically cross-filed with a different government agency or when later seeking to add the claims to the sealed complaint.
Tips under the SEC whistleblower program are handled differently. Whistleblowers who wish to report financial crimes to the SEC do so by confidentially filing a “Form TCR” – a “tip, complaint, or referral” – with the SEC. Such a tip is not a judicial filing and operates entirely independently from any employment claims a whistleblower might pursue. Generally, whistleblowers who face retaliation after reporting securities-related misconduct may proceed under one or both of two statutes: the Dodd-Frank Act (“Dodd-Frank”) and the Sarbanes-Oxley Act (“SOX”). Dodd-Frank limits its protections to individuals who faced retaliation after they reported concerns about securities fraud “to the [SEC]”—i.e., filed a Form TCR—while SOX extends its protections to individuals who reported their concerns internally prior to facing retaliation. In either case, the whistleblower may pursue their retaliation claim without regard for their pending whistleblower tip.
Effect of Settling an Employment Claim or Entering a Severance Agreement
Things become somewhat more complicated if a whistleblower resolves their employment claims, via a severance agreement or settlement agreement with their former employer. Such agreements almost invariably include a general release provision, in which the whistleblower agrees to relinquish “any and all” claims they may have against the employer. On its face, such a release would appear to waive the whistleblower’s ability to pursue a whistleblower bounty claim against the employer. However, the effect of such releases differs significantly between the two forms of tips, and may depend on when the release is signed.
In the case of qui tam claims, courts have held that a whistleblower is free to release future qui tam claims against an employer only if the government was already aware of the allegations of fraud later contained in a qui tam complaint. The courts reasoned that the public policy interest of the government being informed of fraud is nullified if it is already aware of the allegations set forth in the complaint. On the other hand, courts have found that if a whistleblower reports new information to the government via a qui tam complaint, any release of the whistleblower’s ability to pursue the qui tam claims (and recover a relator’s share) would be void against public policy to the extent it is used as a basis to dismiss or otherwise undermine the complaint, or eliminate the whistleblower’s financial incentive to report the fraud to the government in the first place. In other words, a general waiver and release signed after the government has learned of the fraud forming the basis for the qui tam claim (through a mechanism other than the filing of a qui tam complaint) may prevent a whistleblower from recovering a relator’s share or award, while a general waiver and release signed before the government knows of the fraud may have no such effect. Finally, if a relator signs a release after filing their qui tam complaint, the release can be enforced against the qui tam claim only with the consent of the government. That said, the specifics of this general rule vary between the federal judicial circuits, and whistleblowers should consult with experienced counsel to determine the applicable rules in their jurisdiction.
Reports to the SEC are more straightforward. The SEC has promulgated Regulation 21F-17, which provides that, subject to certain exceptions involving attorney-whistleblowers, “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement[.]” For this reason, any effort to enforce a severance or settlement agreement that purports to invalidate or undermine a Form TCR tip will very likely prove unsuccessful. Many employers recognize this by expressly exempting SEC and similar tips from the release provision in a severance or settlement agreement. The Commodity Futures Trading Commission (CFTC) has a similar regulation, with generally the same effect on the enforceability of a release of claims on a CFTC award tip.
While this article endeavors to set forth the contours of this topic in plain language, whistleblowers are certain to encounter a number of thorny issues – some obvious, some hidden – as they navigate their claims, and particularly if they might pursue both employment retaliation and tip award claims. If you are a whistleblower considering filing a tip and/or a claim of employment retaliation, we strongly recommend you retain an experienced whistleblower lawyer.