Do Releases from Employees Protect Employers from Claims under the False Claims Act?

The start of a new year can sometimes ring in staffing changes.  In this context, employers often agree to make severance payments to a terminated employee in exchange for a general release of claims against the employer.  Properly drafted separation and general release agreements insulate employers from numerous statutory and common law claims (though there are exceptions, such as claims for unemployment compensation).  In the health care sector, employers need to consider whether such a release will protect them from liability under the False Claims Act (31 U.S.C. §3729-3733) (“FCA”).  The answer, as further explained below, is a “definite maybe.”

The False Claims Act

The FCA permits an individual to file what is known as a qui tam action, that is, an action by an individual on behalf of the United States against persons or entities who knowingly submit false claims to the government or who knowingly use false records or statements to get a claim paid by the government.  The penalties for an FCA violation are severe, including per claim civil penalties ranging from $5,500 to $11,000 and the tripling of the government’s actual damages.  And since qui tam plaintiffs stand to receive a portion of any recovered damages, there can be a strong economic incentive to file such claims.

Historically, some jurisdictions prohibited enforcing releases to bar subsequent qui tam suits. Courts reasoned that such releases would frustrate the purpose of the FCA, which is to deter fraud and to increase incentives for individuals to bring suits on behalf of the government.

In recent years, some jurisdictions (though not those governing Connecticut employers) are refining the general rule to uphold employment releases in limited circumstances, specifically, when the government is already aware of the potential fraud claims, (perhaps as a result of its own enforcement efforts or where the employer voluntarily discloses potential wrongdoing prior to the execution of a release).  However, if the government would not have known about potential violations but for the employee’s claim, these jurisdictions suggest that employment releases would be void as against public policy.

Other Considerations: The Connecticut False Claims Act

The Connecticut False Claims Act (CGS §17b-301a-301p) is modeled after the federal FCA, but is limited to false claims against medical assistance programs administered by the Connecticut Department of Social Services (including Medicaid, Charter Oak, Husky A and Husky B). False claims under the state statute include billing for services not rendered; providing unnecessary services; billing for non-covered services as covered services; and billing for more expensive services than those that are necessary.

Similar to the federal FCA, the state statute permits the Connecticut Attorney General to investigate false claims and permits private individuals to file claims on behalf of the state. Like the federal law, the Connecticut statute is silent on whether liability releases signed prior to the filing of an action under the statute are enforceable.

Guidance for Connecticut Employers

Given emerging trends, employers in the health care sector should consult experienced legal counsel regarding separation documents in order to maximize the protections afforded by general releases. Depending upon the circumstances and other statutory requirements which may pertain, strategies may include the following:

  • Use broad language but make specific reference to claims under the FCA and state law;
  • Add a statement to the release that all federal and state claims are waived “to the maximum extent permitted by law,” so that it is clear that the entire release need not be stricken if determined overly broad;
  • Affirmatively recite that the employee has not filed a claim against the employer and is unaware of any violations of the law on the part of the employer;
  • Include an acknowledgment that in the event the employee reports a regulatory violation to a governmental agency, he or she expressly waives any damages that might be awarded in any legal proceeding;
  • Document the exit meeting to evidence the employee’s conduct and provide support for his or her understanding of the release when it was signed.

The foregoing will not necessarily bar an FCA claim, but may be helpful in defending against a future claim. Lastly, if the employer has knowledge of specific allegations made by an employee that might form the basis of a meritorious qui tam lawsuit, it may wish to consider self-disclosure to the government since this will generally lessen potential damages and strengthen the ability to dismiss the qui tam action on the basis that the government is aware of the underlying facts prior to the filing of the lawsuit.