Employers Beware: A Former Employee May Bring an FCA Retaliation Action Even After Voluntarily Resignation

Applying the "constructive discharge" theory, the Sixth Circuit in Smith v. LHC Group, Inc., 727 F. App'x 100 (6th Cir. 2018) held that the plaintiff could maintain an FCA retaliation action against her former employer upon alleging that she resigned to avoid participating in a scheme to defraud the government.

Plaintiff Sue Smith worked as Director of Nursing for two home healthcare providers, and was responsible for evaluating patient referrals and completing paperwork to secure Medicare and Medicaid funding. According to Smith, certain other employees admitted patients without the necessary clinical evaluations and regardless of whether defendants could accommodate the patient's needs in order to boost profits. Smith alleged that senior management failed to act when she reported this misconduct. Smith resigned because she believed that continuing in her role would render her complicit in the fraud and subject to potential criminal and civil liability.

In an FCA retaliation action, Smith alleged that defendants "constructively discharged" her for reporting the suspected misconduct, but the district court dismissed the case because Smith failed to allege that the fraud was perpetrated "with the specific intention" of forcing her to resign.

Reversing, the Sixth Circuit first clarified that the legal standard for "constructive discharge" is objective. A former employee "need not prove that his or her employer undertook actions with the subjective intention of forcing the employee to quit." Instead, the "intent requirement can be satisfied so long as the employee's resignation was a reasonably foreseeable consequence of the employer's action." The Sixth Circuit remanded for factfinding about whether it was reasonably foreseeable that defendants' failure to act upon Smith's report would have compelled a reasonable person to resign.

At first glance, Smith seems to overstep the purpose of the FCA's retaliation provisions. Under an expansive reading, an employee who reports suspected misconduct and witnesses no detectible response by the company (even if the company, without the employee's knowledge, investigated and found no wrongdoing) can resign and assert an FCA retaliation claim based on the "constructive discharge" theory.

As the concurrence in Smith notes, however, the FCA provides an important check on this potentially unbounded class of potential plaintiffs—namely, causation. The FCA requires a plaintiff to prove that discharge, constructive or otherwise, was "because of" plaintiff's alleged protected activity. In other words, if Smith would have resigned even without reporting the alleged fraud, then her claim should fail. Whether the FCA's causation requirement will in fact provide a meaningful check on Smith remains to be seen.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.