Employers Can Be Liable For Retaliating Against An Employee Who Filed an FCA Claim Against a Former Employer

Posted by Scott Stein, Max Fischer and Joe Cooper

In a case raising an issue of first impression, a court recently held that an employer can be held liable under the FCA’s retaliation provisions for adverse action taken against an employee based on that employee’s protected activity against a prior employer. Cestra v. Mylan Inc., et al., No. 14-825, 2015 U.S. Dist. LEXIS 67069 (W.D. Penn. May 22, 2015). Acknowledging that its decision was an unprecedented expansion of existing law, the district court also certified its decision for interlocutory review by the Third Circuit.

Relator Cestra claimed that his employer, Mylan Inc. (“Mylan”), terminated his employment in violation of the antiretaliation provision of the False Claims Act (the “FCA”), 31 U.S.C. § 3730(h)(1) because Mylan allegedly fired him for pursuing an FCA qui tam action against his previous employer. Mylan moved to dismiss Cestra’s claim, arguing that it could not be found liable under Section 3730(h)(1) because it was not the target of the FCA action and was not related to Cestra’s prior employer. The district court adopted the magistrate judge’s report and recommendation and denied the motion to dismiss, while at the same time certifying the following question to the Third Circuit:

Whether [Section 3730(h)(1)] applies to an employer that fired an employee after discovering that the employee was a whistleblower . . . in an ongoing qui tam action under the FCA against his former, unrelated employer.

The district court emphasized that the purpose of Section 3730(h)(1) is to incentivize whistleblowing by protecting whistleblowers, thereby aiding the federal government’s efforts to detect and deter crime, finding that Mylan’s reading of Section 3730(h)(1) would be “unduly narrow” and, if applied, would “undercut the purpose of [Section 3730(h)(1)].” However, the court noted that that there was no authority for finding that the FCA applies to an employer that fires an employee for engaging in protected conduct against an unrelated entity. Indeed, the court found that there is substantial ground for difference of opinion on the question. While the plain text of Section 3730(h)(1) does not restrict liability to employers that are the target, or related to the target, of the FCA investigation, the “general rule” in the Third Circuit holds that the employer “must be on notice of the ‘distinct possibility’ of FCA litigation against the employer.” (Emphasis added). Certifying the question, the district court aptly emphasized that resolution of the issue would “impact not only the parties in this case, but also other FCA whistleblowers and their subsequent employers.”

We will continue to monitor developments in this case and encourage employers to be cautious in addressing and responding to employee whistleblowing, even as it relates to an employee’s former employer(s). The Cestra case is not a complete outlier—the Securities and Exchange Commission and other agencies and courts around the country are taking more aggressive approaches to the protection of whistleblowers. As such, it is more important than ever to ensure that any response or decision with respect to whistleblowing activity is well-reasoned in light of this developing legal landscape.