Non-Disclosure Agreements and Severance Agreements May Not Silence Would-Be Whistleblowers

The False Claims Act qui tam provisions encourage and incentivize individuals to report fraudulent business practices that drain funds from the federal government. Oftentimes, current and former employees of dishonest companies are in the best position to expose such corporate behavior. However, companies regularly seek to silence would-be whistleblowers by requiring departing employees to sign nondisclosure agreements and restrictive severance agreements that ostensibly derail potential qui tam actions. Fortunately, many courts are now invalidating these agreements when they are used to gag qui tam relators.

For example, in an ongoing qui tam case in California, the district court refused to strike evidence, which the relators had copied and moved from their hard drives after quitting their employment with the defendant. While recognizing that such behavior arguably violated their signed non-disclosure agreements, the court stressed that the relators took this action only for the purpose of providing the exhibits to the government and corroborating their claims of alleged fraud on the part of their former employer. The court stressed that there is a “strong public policy in favor of protecting whistleblowers who report fraud against the government. . . . Obviously, the strong public policy would be thwarted if [Defendants] could silence whistleblowers and compel them to be complicit in potentially fraudulent conduct.”

This issue has even percolated up to a federal court of appeals, where the Ninth Circuit stated that public policy merits finding such individuals to be exempt from liability for violation of their nondisclosure agreements. Similarly, an Illinois district court held that a relator was exempt from liability for breach of a confidentiality agreement when he disclosed documents to the government that showed that his employer had engaged in fraudulent healthcare billing practices.

This recent trend in the False Claims Act case law signals that non-disclosure agreements and restrictive severance agreements may not preclude qui tam actions. However, with that being said, other courts have not yet joined this growing chorus. Therefore, potential whistleblowers should seek experienced counsel before throwing caution into the wind by downloading documents from their current or former employers’ servers.

More information for whistleblowers is located at the Nolan & Auerbach, P.A. website.