The U.S. District Court for the Eastern District of New York recently found that two former employees of Eihab Human Services (Company) raised a genuine issue of material fact as to whether they were discharged in retaliation for reporting that an executive director ordered an employee to create fraudulent billing records in violation of the whistleblower protection provisions in the federal and state False Claims Acts (FCA).  Krause v. Eihab Human Servs., Inc., No. 10-cv-898, 2015 WL 4645210 (E.D.N.Y. Aug. 4, 2015).

Background

After being approached by an employee who was allegedly ordered by the executive director to fabricate records being sent to Medicaid regarding services rendered, the Plaintiffs, a human resources director and an associate executive director, reported the alleged incident to state auditors.  As a result, the auditors rejected certain documents.  Plaintiffs further alleged that the executive director subsequently threatened to terminate their employment, offered raises in exchange for recanting their statements and deprived them of resources necessary to perform their job functions.  Plaintiffs refused and were later discharged.  The human resources director was purportedly discharged due to an alleged failure to comply with criminal background check procedures and the associate executive director was purportedly discharged for her alleged role in forging timesheets and falsely reporting a wage violation.  Plaintiffs denied the stated bases for their terminations.

Ruling

The court rejected the Company’s argument in support of its motion for summary judgment that Plaintiffs did not engage in protected activity under the FCA, finding that Plaintiffs came forward with information about fraudulent documentation.  The court also considered the Company’s stated reasons for the terminations to be pretextual.  In particular, deposition testimony from other employees regarding the executive director’s alleged anger over the disclosure and board meeting minutes reflecting the executive director’s alleged statement that she should have fired the associate executive director over the disclosure were, in the court’s view, sufficient to support Plaintiffs’ allegations that the proffered reasons were a pretext.  The court also found it significant that the scrutiny of Plaintiffs’ conduct increased after their disclosure.

Implications

One key takeaway from this decision is that increases in surveillance or scrutiny of an employee’s conduct or performance after protected disclosures could be construed by plaintiffs in a manner that heightens the likelihood that a court may find termination decisions pretextual.