Sixth Circuit Applies Objective Intent Standard for Constructive Discharge Claim in FCA Retaliation Case

The False Claims Act’s anti-retaliation provision, 31 U.S.C. § 3730(h), provides relief to an “employee, contractor, or agent,” who 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 . . . in furtherance of an action” under the FCA. Recently, in Smith v. LHC Group, Inc. et al., __ F. App’x __, 2018 WL 1136072 (6th Cir. Mar. 2, 2018) (unpublished), the Sixth Circuit clarified that the test for an employer’s intent in a “constructive discharge” retaliation case is an objective one — joining the majority of circuits that have rejected a subjective employer intent requirement in constructive discharge cases in different contexts.

Sue Smith, a former Director of Nursing for defendants (LHC Group, Inc. and Kentucky LV, LLC), alleged that while employed by defendants, she notified senior management that other employees were “perpetrating health care fraud on the federal government by seeking and receiving fraudulent reimbursements.” Smith claimed that after management ignored her report and continued to tolerate the fraud, she was effectively forced to resign from her position, rather than remain at a job that would require her to be a party to an “illegal and unethical scheme.”  Following her resignation, Smith sued her former employer, claiming that she was “constructively discharged” in retaliation for her reports of fraud to management, in violation of the FCA’s anti-retaliation provision.

To establish a FCA retaliation claim under the theory of constructive discharge, a plaintiff must establish, inter alia, that “working conditions would have been so difficult or unpleasant that a reasonable person in the employee’s shoes would have felt compelled to resign” and the employer had the requisite intent. In granting defendants’ motion to dismiss, the district court held that while, “[q]uite reasonably, Smith felt like she had to quit” due to the allegedly ongoing fraud at her job, “‘where her claims fail[] is that she has not alleged that Defendants perpetrated the alleged fraud . . . with the specific intention of forcing her to [resign].’” (emphasis and alteration in Sixth Circuit opinion). “In other words,” the district court concluded, Smith “[did] not tether her employer’s actions to the necessary requirement that the employer’s actions were done with the intent to have Smith quit her job.”

The Sixth Circuit reversed. Viewing the alleged facts from the perspective of a “reasonable person” in Smith’s position, the Court first held that “a jury could find that LHC created intolerable conditions by ignoring Smith’s complaints of illegal activity” and “requir[ing] her to engage in activity she consider[ed] illegal and immoral with the threat of prosecution and loss of her nursing license looming in the background.”

The principal issue on appeal, however, was “whether the district court [was] correct . . . that the constructive discharge doctrine requires that the employer must have a conscious ‘specific intention,’ i.e., a subjective intent, for the employee to resign.” Disagreeing with the district court, the Sixth Circuit clarified that under the constructive discharge theory, the intent requirement “is ultimately an objective one.”  It “can be satisfied so long as the employee’s resignation was a reasonably foreseeable consequence of the employer’s actions.” Smith’s allegations of constructive discharge against her former employer satisfied the objective intent standard because “her repeated complaints to management concerning illegal activity should have enabled LHC to foresee that failure to take action against the fraudulent scheme would compel Smith to leave.”

The Court rejected the defendants’ argument that the FCA’s anti-retaliation provision requires employees to show that their employers had the “subjective intent” to force their resignation. That reading of the statute, the Sixth Circuit held, was inconsistent with the provision’s mandate that courts “provide ‘all relief necessary to make [the retaliated] employee . . . whole[.]’” “This court can hardly be said to provide ‘all relief necessary’ if it should impose a subjective intent requirement,” the Court reasoned.

Writing in concurrence, Judge Bush, who was recently appointed to the Sixth Circuit, agreed that Smith adequately alleged that LHC “constructively discharged” her. He wrote separately, however, to express his “doubts as to whether her allegations show that LHC [constructively discharged her] because of her complaints” of fraud, which is “ultimately what an FCA retaliation claim requires.” (emphasis in original). “The Act,” he wrote, “does not proscribe all constructive discharges, only those taken in retaliation against an employee who attempts to stop a company from engaging in practices that defraud the government.”

It should be noted that the Sixth Circuit’s decision was unpublished. While not precedentially binding, it can be cited for its persuasive value. See United States v. Sanford, 476 F.3d 391, 396 (6th Cir. 2007).

A copy of the Court’s opinion can be found here.