Court Permits Counterclaim Against Relator for Breach of Employment Agreement

A recent federal court decision from the District of New Jersey confirms that while the FCA protects employees’ right to blow the whistle, it does not give them carte blanche to ignore confidentiality obligations or employment agreements. Two former employees of a medical device manufacturer sued their former employer for allegedly promoting a medical device for off-label and medically unnecessary uses. After its motion to dismiss was denied, the manufacturer answered and filed a counterclaim against the former employees for breach of their employment agreements. The relators then moved to dismiss the counterclaims.

Denying the motion, the court noted that employer had alleged that “[b]oth Relators signed employment agreements, at the beginning of their employment [ ] requiring them to refrain from disclosing or retaining certain [employer] confidential or proprietary information,” and that the relators “‘took, disclosed, and then published’ confidential patient claims data and proprietary business information related to the [device] and customer lists in their First Amended Complaint, thereby breaching their employment contracts.” Notably, the Court rejected the relators’ argument that the claim should be dismissed because “the agreements, essentially restricting the disclosure of documents evidencing false claims against the government, would frustrate the underlying policy considerations of the FCA,” noting that accepting the manufacturer’s allegations as true (as the Court was required to do on defendants’ motion), the counterclaims were not obviously barred.

This is the latest in a series of decisions from various district courts confirming that the ability to file an FCA case is not a license for former employees to violate their confidentiality obligations without consequence. Accordingly, it emphasizes the desirability of requiring employees to sign confidentiality agreements. Although such agreements cannot insulate employers from liability for actual FCA violations, they can discourage employees from filing frivolous qui tam suits, or from making unauthorized disclosures of confidential information that are not reasonably necessary to inform the government of potential fraud.

A copy of the district court’s decision in U.S. ex rel. Bahnsen v. Boston Scientific Neuromodulation Corporation (D.N.J.) can be found here.