Whistleblower Employees May Not Have Carte Blanche to Confidential Information

Typically employees (or former employees) who turn whistleblower and file a qui tam lawsuit claiming that his/her employer violated the False Claims Act are protected from retaliation.

However, a whistleblowing employee's protections are not absolute. Employers are beginning to challenge these qui tam lawsuits on the grounds that the employee had no right to take and make public trade secret and other business proprietary information to support the qui tam—and it's working.

Example: Lorraine Notorfransesco, the billing manager of Springfield, Pa.-based Surgical Monitoring Assoc. (SMA), a private practice specializing in intraoperative neurophysiological monitoring, filed a whistleblower action against her employer alleging that SMA violated the False Claims Act. To substantiate her claim, she submitted patient records, invoices, billing records and customer billing rates. SMA countersued her, claiming that her action placed into the public record confidential and proprietary business information that was "commercially valuable" and that its release could cause it "irreparable harm."

Notorfransesco asked the court to dismiss the counterclaim on the grounds that the information wasn't confidential, she was under no obligation to keep the documents confidential, and that the counterclaim should be barred on public policy grounds.

The federal district court refused to dismiss the counterclaim, essentially saying that whistleblowers do not have carte blanche to take someone else's documents in order to file a qui tam lawsuit. First, Notorfransesco had signed a confidentiality agreement covering the documents at issue, agreeing to keep them confidential; the employee handbook also required employees to keep SMA's trade secret information confidential. And while there is a strong public policy argument for supporting whistleblower claims alleging improper billing, SMA's counterclaim is for "independent damages" for the competitive disadvantage it would suffer from the use of the information by competitors—so SMA could bring the counterclaim, the court said.

Whether SMA will prevail will depend on the nature of the documents and whether Notorfransesco took more than necessary to support her qui tam claim. The lawsuit is still pending.

Public policy prevails—to a point
This case is just one in a growing area in False Claims Act defense. "The best defense is a good offense. It's one of the hottest tactics [defendants are using]," explains attorney Gordon Schnell, with Constantine Cannon, a whistleblower practice, in New York City. While the False Claims Act as a matter of public policy supports whistleblowers' right to collect evidence to support a claim, particularly if the whistleblower believes that the employer may destroy the evidence, this defense is viable because it's not seen as retaliation but instead involves damages independent of False Claims Act liability.

The strength of an employer's challenge also depends on what records were taken. In addition to the confidentiality concerns, there also are no universal standards regarding the extent to which a whistleblower can gather company documents to support his or her False Claims Act action, according to attorney Judi Williams-Killackey, with Quarles & Brady in Milwaukee. "It's all over the board, and depends on the circumstances," she explains. Where an employee has gone too far in information gathering to support the claim, the court is more likely to allow the employer's counterclaim, says Williams-Killackey.

How labs can protect themselves
To reduce the risk that an employee will take confidential business information, labs should not leave such data unprotected and make sure that only employees who need access to it pursuant to their job responsibilities have such access.

Employees should also sign separate confidentiality agreements protecting proprietary trade secret and business information. This way it will be harder for an employee to claim that he or she didn't have an obligation to keep it confidential, as in the Notorfransesco case. And don't rely on a confidentiality provision in an employee handbook, because a court may not see a handbook as a "contract" and thus the confidentiality provision may not be enforceable, warns Williams-Killackey.

Also make sure that the confidentiality agreement isn't overreaching. It's okay for an employer to have language requiring an employee to keep proprietary business, trade secret and competitively sensitive information confidential, but overbroad language requiring confidentiality of "any documents" is probably not enforceable, says Schnell. If your state has particular requirements for these types of confidentiality agreements, make sure your agreements conform to these laws, says Williams-Killackey.

If your lab does end up as a defendant in a whistleblower lawsuit, tread carefully before using this tactic. Any counterclaim needs to be in good faith and not in retaliation for having filed the claim. "You don't want to create more problems by challenging the qui tam," says Williams-Killackey.

You'd also want to determine whether you have good grounds to challenge the lawsuit this way. For instance, Schnell recommends to his whistleblower clients that employees don't go fishing for documents, don't collect documents that would fall outside of one's job responsibilities, don't take original documents, take only what's needed and take documents directly related to the False Claims Act claim. "Reasonableness is the strongest defense to these counterclaims," he says.

(Notorfransesco v. Surgical Monitoring Assocs., No. 09-1703 (E.D. Pa. Dec. 12, 2014)).

Takeaway: Labs may not be able to stop employees from becoming whistleblowers,
but they can better protect their confidential business information from exposure in a qui tam lawsuit—and may be able to forestall the suit from being filed.