Under terms of employment agreement, FCA retaliation claim not arbitrable, 6th Circuit decides

by Ben Vernia | June 4th, 2014

In an unpublished opinion issued on May 22 in US ex rel Paige v BAE Systems, the Sixth Circuit Court of Appeals ruled in favor of two whistleblowers who had appealed a district court ruling dismissing their retaliation claims (brought under the False Claims Act, 31 USC 3730(h)) in favor of arbitration. The whistleblowers alleged that they had been subject to harassment in retaliation for disclosing fraud in tank contracts, and that they had been placed on administrative leave, denied promotions, given minimal responsibilities, and terminated (one was constructively discharged, he alleged; the other was laid off with other employees). Their employment agreement, with the defendant BAE Systems, included a clause requiring any dispute arising “under the terms of this agreement” to be arbitrated.

Interpreting the agreement in light of the Federal Arbitration Act, the Sixth Circuit concluded that the dispute was not subject to arbitration. First, the claims arose from the False Claims Act, and existed independently from the employment agreement. The court reasoned:

The FCA retaliation claim is not a claim for violation of the Employment Agreement; it is completely separate from the contract and asserts an independent claim that would exist even without the contract. BAE’s argument that Relators’ retaliation claim must establish they were “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment” is unavailing. See id. (emphasis added). Although the FCA retaliation statute employs the phrase “terms and conditions of employment,” its reach is not limited to instances where employers breach an Employment Agreement addressing the “terms and conditions” of employment. In the instant case, Relators do not argue that the “terms and conditions” of the Employment Agreement were violated; rather, they allege they were discharged, demoted, threatened, and harassed due to their participation in statutorily protected conduct that is not the subject of the Employment

In addition, the employment agreement was silent as to the FCA, retaliation, or statutory claims, unlike the agreements in other cases in which statutory claims were found to be subject to arbitration. Because the parties only agreed to arbitrate claims arising under the agreement, and the retaliation claims arose under the FCA, for the court to subject those claims to arbitration would constitute an impermissible rewriting of the contract.

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