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Case Addresses The Intersection Between Whistleblower’s Rights And Protecting Confidential Information

Posted in Compliance, Fraud Prevention

When employees’ “whistleblower” claims include confidential issues protected by their employment agreements, odd things can happen as demonstrated by a recent United States District Court decision.  (U.S. ex rel. Wild-Hirt v. AARS Forever, N.D. Ill. 2013).

The employees in this case alleged that their former employer had violated the False Claims Act (FCA) and similar State law by providing health care that was inconsistent with Veterans Administration contract standards.  They subsequently filed this “qui tam” action seeking damages in the name of the United States and, in particular, in order to retain a portion of those damages in accordance with well-accepted law concerning whistleblower rewards.

In a creative approach to defending the action, the former employer filed counterclaims relying on the employment agreements and, specifically, several important provisions: (1) confidential information would not be disclosed; (2) the employees agreed to hold the company harmless for any disclosure of confidential material; (3) the employees would also hold the company harmless for any violations of the Health Insurance Portability and Accountability Act (HIPAA); and (4) the employees agreed that they would not receive any qui tam reimbursements. Finally, the employment agreements stated that these provisions would remain enforceable even after the employee-employer relationship had ended.

The Court was asked to rule on motions to dismiss these counterclaims but allowed them to go forward.  In particular, the company was allowed to allege that the employees breached their employment agreements by revealing confidential information to the government and by retaining HIPAA-covered documents.  However, the Court limited the counterclaims to those independent of plaintiffs’ allegations of fraud and those provable only if the defendants were found not liable.

In short, a defendant cannot enforce an indemnity that would be triggered only if it were deemed to have violated the FCA, otherwise such a defendant would be able to make the employee pay for its wrongful conduct.