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Many whistleblowers we work with at Whistleblower Law Collaborative are reporting fraud against their own employer and are also in the process of leaving the company–either voluntarily or due to retaliation. Roughly a quarter of our clients face a particularly stark dilemma. They must sign a release that waives the right to a whistleblower reward or forfeit a severance payment.
Employers regularly require a release as a condition of severance. They do so even when they promised the severance and employees rely on it. A company aware of potential liability has an even greater incentive to structure severance payments to buy former employees’ silence.
A potential False Claims Act (FCA) relator award dwarfs severance payments. These awards run 15-30% of the government’s recovery. They can also include damages for retaliatory denial of severance payments. However, potential whistleblowers frequently find it difficult to pass up immediate financial assistance in favor of the uncertain hope for an award years later. This is especially true during a time of transition.
Some whistleblower laws, such as the SEC whistleblower program, specifically forbid waivers of the right to a reward. Any release that requests you do so unenforceable. Moreover, it constitutes a separate illegal act on the part of the employer.
Indeed in January, the SEC reached a $340,000 settlement with asset manager Blackrock, Inc. The SEC prosecuted Blackrock for improperly including Whistleblower waivers in separation agreements. Upfront confidentiality agreements prohibiting communication of wrong-doing to the SEC can also be actionable as “pretaliation.”
Courts will not enforce releases of FCA liability because only the government can release liability for fraud against it. However, some courts have enforced waivers of a putative relator’s right to collect a future reward, but generally only if the government was already aware of the allegations. These courts reason that the government’s awareness of the fraud eliminates the public policy argument justifying these awards.
Last year, the Second Circuit Court of Appeals interpreted this narrowed enforcement rule in United States ex rel. Ladas v. Exelis, Inc. , 824 F.3d 16 (2nd Cir. 2016). The court held a contractor’s vague disclosure to the government insufficient to qualify as notice justifying a release. The court noted that in informing the government, the contractor downplayed the change as “inconsequential.” Ot also failed to reveal any kind of fraud or fraud allegation.
Ladas represents relatively good news for whistleblowers who have already signed a release, as it suggests that employers who haven’t been fully candid with the government may not be able to enforce the agreement even in jurisdictions that would otherwise permit it.
However, for whistleblowers who haven’t signed releases, there’s still a need for caution. Determining which disclosures will be deemed sufficient to justify a release is a highly fact-dependent inquiry. In other words, it is very difficult to predict at the beginning of a case. See, e.g., United States ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1170 (10th Cir. 2009) (disclosures of what employer considered “baseless” allegations of fraud deemed sufficient to serve the policy interest in disclosure).
Moreover, a potential whistleblower may not know what facts, if any, their employer has disclosed. Furthermore, sometimes a potential relator has already disclosed information to the government through a pre-filing disclosure or tip to the government before filing an FCA complaint in court.
There is no one right answer to this dilemma. One imperative, however, is clear. Never sign an employment release until you’ve sought legal advice. You should speak not just with an employment attorney but one who specializes in whistleblower law.
Ultimately whether a release is upheld will depend on a court’s views and biases about the whistleblower and the defendant’s motives. Even in the best of circumstances, predicting these outcomes is nuanced and uncertain. For a potential whistleblower facing the prospect of unemployment, it is not a determination that should be made alone. It requires competent legal advice based on the facts of the case, the precise law of the filing jurisdiction, and the client’s situation.