Employee severance packages and settlement agreements often include a broad waiver of any claims, known or an unknown, which an employee may have against the company. Although such broad pre-filing releases are highly recommended, companies doing business with the government should be cautioned that these waivers do not always protect against False Claims Act (FCA) litigation. A line of federal cases has established that these so-called “pre-filing releases” are sometimes unenforceable against suits filed by whistleblowers, or qui tam actions, for public policy reasons.
Pre-filing releases bar qui tam actions only if the government was already aware of the fraudulent conduct that forms the basis for the employee’s allegations. The Ninth Circuit in an early case held that enforcing such a waiver where the government was not aware of the fraud until the filing of a qui tam complaint would be against public policy. U.S. ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995). The court noted that the FCA’s qui tam provisions are meant to incentivize whistleblowers to come forward with information that the government would not otherwise be able to obtain. Thus, when the government first learns about alleged fraud from a whistleblower complaint, the pre-filing release will not be enforced. This view is shared by the Fourth and Tenth Circuits. See U.S. ex rel. Radcliffe v. Perdue Pharma, L.P., 600 F.3d 319 (4th Cir. 2010); U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009).
If, however, the government was aware of the conduct before the employee filed the complaint (or, in some jurisdictions, before the employee signed the release), then the release will bar the lawsuit. It is not necessary that the government have fully investigated all the allegations; instead, the government must merely be aware of the fraudulent conduct. For the release to be enforced, the Tenth Circuit has suggested that the government must have known of the alleged fraud not only before the employee filed the qui tam action, but also before the employee signed the release. The Fourth and Ninth Circuits are more favorable to employers on this matter of timing, as they hold that pre-filing waivers are enforceable if the government learned of the fraudulent conduct before the employee filed the complaint even if the government was not aware before the employee signed the release.
Employers should therefore understand the risks associated with pre-filing releases when it comes to protecting against whistleblower actions. Given that such releases are only enforceable if the government had prior knowledge of the alleged fraud, it may be in the company’s best interest to self-disclose fraudulent conduct to the government. In addition, companies should consider implementing policies that require employees to disclose to the company any information that could provide the basis for a FCA action and including in any settlement or separation paperwork signed by the employee a certification that the employee is not aware of any such violations.