It’s the kind of drama that would play well in Hollywood.
A lowly employee discovers his company is overcharging the government, only to meet a wall of corporate opposition when trying to bring the problem to light. Ultimately, he strikes out on his own to expose the truth, because the public deserves to know.
And, in the end, his only compensation is the knowledge that he made the right decision.
That might make a decent plot for a movie, but the truth is, the federal government is willing to pay employees who expose businesses that overcharge Uncle Sam. It is a scenario that plays out predominantly in industries such as health care, but any business that counts the federal government as a client is potentially at risk.
In fact, the Supreme Court recently upheld a previous decision that private sector businesses can be held liable for overcharging the government. Under what are known as the qui tam provisions of the federal False Claims Act, an employee who helps uncover one of these financial discrepancies will receive a cut of the money the government recovers.
Think you can just require employees to sign a confidentiality agreement when they are hired and avoid the problem altogether? It’s not quite that easy. The courts have ruled that such contracts are not legal because they circumvent the purpose of the False Claims act and keep the government from learning of the fraud.
John D. Goodman, an attorney for Cleveland’s Ulmer & Berne LLP, recently tackled the somewhat sticky issue of qui tam actions during a breakfast forum. Basically, the best defense against the threat of a legal tangle, according to Goodman, is a good offense. He suggests business owners create an environment in which any potential problems can be reported to managers without the fear of retribution. Many times, employees look to the False Claims Act because their employers ignored them, or, in some cases, fired them for simply reporting a wrong.
“Many people (involved in qui tam actions) said they believed they were terminated because they went to their employer and said, ‘I believe this is going on,’” explains Goodman, who added that qui tam actions are only viable if the employee is providing information that is private and confidential. “Having an employee report to the company first could help bring it out of the qui tam realm.”
Some companies, however, learn their lesson the hard way. Consider the case of the United States ex rel. Green v. Northrop Corp. Michael Green, a former employee of the company, sued Northrop, which created parts for the B-2 bomber, because he was terminated from his job, even after the two parties negotiated a settlement in which Green received $190,000 in exchange for keeping quiet about company dealings.
The courts later decided that Green was indeed allowed to file an action on behalf of the government even after pocketing the hush money. If there is a moral to this story, Goodman says it is the fact that covering up any government overpayments is more trouble than simply admitting a mistake and trying to work out a settlement.
In the end, going public may be the uncomfortable, yet legally wise move to make.
How to reach: Ulmer & Berne, www.ulmer.com, (216) 621-8400
Jim Vickers ([email protected]) is an associate editor at SBN.