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Arbitration Provisions & The False Claims Act

Can a company compel arbitration when a former employee brings a retaliation claim against the company under the False Claims Act? The answer, according to courts that have encountered the issue, could go either way, depending in large part on the terms of the mandatory arbitration provision. In the context of the federal False Claims Act, the issue of whether a company can compel arbitration based on its internal policy has recently come to the forefront with respect to whistleblower retaliation claims.

More and more companies are attempting to avoid costly litigation and substantial damages by requiring employees at all levels to sign arbitration agreements upon commencement of employment. The standard provision would arguably cover all of the terms and conditions of an employee's employment. With regard to Qui Tam claims under the False Claims Act, which is a claim brought by a private citizen on behalf of the United States Government and him/herself, against a company that allegedly has made a false claim against the government for money. A typical example of this occurs in the health care industry, when a health care provider might manipulate bills or practices to defraud the Medicare system. A second, but related action under the False Claims Act, often referred to as the "(h)" claim, covers retaliation against employees for "blowing the whistle" against the company, and then suffering an adverse employment action as a result, which may include a demotion, discipline or ultimately, termination.

One court noted the strong presumption in favor of arbitration for federal claims, but noted that ability to arbitrate such claims depended on whether the arbitration provisions provided a sufficient forum for the plaintiffs to fully vindicate their rights under the False Claims Act. On the other hand, the same court also explained that resolution of this matter turned on whether the terms of the agreement were unconscionable. The common thread that appears to run through court cases analyzing whether to require arbitration of False Claims Act retaliation claims is whether or not the terms of the required alternative dispute resolution hinder the rights that the statute seeks to protect. This analysis harkens back to the reasoning of the U.S. Supreme Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985), in which the Court stated "by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than judicial, forum." Courts tend to enforce arbitration clauses when they allow a claimant to obtain remedies similar to those allowed in the statute using procedures that do not severely limit the claimant's ability to discover or prove his or her case. Arbitration provisions that severely limit remedies or procedural protections are the ones that are more likely to be discarded.

Ultimately, the issue of whether retaliation claims made under the False Claims Act must be arbitrated is not black or white. Whistleblowers under the federal False Claims Act and company counsel need to be careful when reviewing and drafting arbitration provisions, respectively, in order to obtain the desired result, whether it is avoiding arbitration or compelling it.

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