A Common Scenario
An employee of a healthcare organization parts ways with the company after disputes over certain billing practices that may implicate the Federal and state False Claims Acts (FCAs). From the employee’s perspective, the billing patterns suggest possible fraud against government healthcare programs while the employer insists the billing methods are legitimate. As part of the separation, the parties sign a settlement agreement in which the employee releases all claims in exchange for a severance. Months later, the employee files a whistleblower lawsuit under the FCAs based on those same billing practices.
This scenario is not uncommon in healthcare, where billing practices are closely scrutinized. The key question is: what effect does the release have on the whistleblower suit?
The General Rule and the FCA Exception
Ordinarily, when parties settle a dispute with a mutual release of claims, courts enforce that agreement. In most settings, a broadly worded release is the end of the matter.
The FCA presents a potential exception to this general rule. The statute contains a “qui tam” provision that allows private individuals—called relators—to bring lawsuits in the name of the United States or other government entities alleging fraud against the government. Successful relators receive a share of the recovery. This structure is intended to encourage insiders to come forward with information the government might otherwise never obtain.
The enforceability of a release in the FCA context highlights the tension between the right of private parties to make binding agreements and Congress’s goal of creating an effective system for encouraging whistleblowers to disclose information. When a release eliminates the relator’s ability to share in any eventual recovery, it can reduce the incentive to come forward at all. This is why courts have sometimes declined to enforce pre-filing releases.
How Courts Have Approached the Issue
Two key cases illustrate how courts handle these releases:
United States ex rel. Green v. Northrop Corp. (9th Cir. 1995) – The relator, a former employee, signed a broad release before filing an FCA complaint alleging inflated billing on government contracts. The Ninth Circuit refused to enforce the release. The court reasoned that doing so would undermine the FCA’s purpose by de-incentivizing insiders from coming forward and by depriving the government of a potential source of information it did not already have.
United States ex rel. Radcliffe v. Purdue Pharma L.P. (4th Cir. 2010) – The relator here had disclosed the allegations to the government before signing the release. The Fourth Circuit enforced the release, holding that once the government already knows of the alleged fraud, the public interest in encouraging relators to come forward has been satisfied. Like Northrop, Radcliffe placed the FCA’s public purpose ahead of the private interest in enforcing releases, but it located the key dividing line at the point of government knowledge rather than the act of filing suit.
The pattern is clear: if the government knew of the alleged fraud before the release was signed, enforcement is likely; if it did not, courts are reluctant to enforce.
Implications for Potential Whistleblowers
When the government is unaware of the allegations, a pre-filing release is often unenforceable. However, the determination of whether the government had “knowledge” is fact-specific and can vary between courts. Relators should not assume that favorable case law guarantees a favorable outcome in their case.
Key Takeaway: Anyone considering an FCA action should avoid signing any release—whether in a severance, settlement, or other agreement—without first consulting an attorney experienced in FCA litigation.
Implications for Employers
For employers, a pre-filing release signed when the government is unaware of the allegations is unlikely to foreclose a whistleblower suit. However, FCA complaints are filed under seal, sometimes for years, while the Department of Justice (DOJ) investigates. During this time, the employer will not know that a suit has been filed, and the government’s intervention decision may be long in coming.
Despite the unfavorable case law, a well-drafted release that expressly includes FCA claims can still be strategically valuable:
- If the government had already learned of the allegations from another source, the release may be enforceable and bar the relator’s recovery.
- The release can include clear statements that the departing employee has or has not disclosed any relevant allegations to the government, creating a factual record that can support enforceability.
- Even if unenforceable against the suit itself (since the release does not bar the Government from pursuing the claims), the release can be used to limit or eliminate the relator’s share of any recovery.
- In non-intervened cases (where the Government declines to participate and the relator goes it alone), a release can create settlement leverage by weakening the relator’s position and increasing their litigation burden.
Recommendation: Employers should seek broad, carefully drafted releases—including express FCA waivers—when resolving disputes with departing employees.
DOJ Posture
The DOJ has not issued formal guidance on the enforceability of pre-filing releases. Its public enforcement posture, however, reflects a commitment to encouraging whistleblower disclosures and ensuring that allegations reach the government. That stance aligns with the courts’ reluctance to enforce pre-filing releases when the government lacked prior knowledge of the alleged fraud.
Conclusion
The enforceability of a release in the FCA context depends on timing and government knowledge. The law is generally favorable to whistleblowers, but fact-specific uncertainties make legal advice essential before signing or relying on a release.
In short:
For whistleblowers: Don’t sign without legal counsel.
For employers Use FCA-specific releases and disclosure-focused language as part of a broader risk-management strategy, but don’t expect them to be airtight no matter how well drafted.
Frier Levitt attorneys are experienced in representing both potential whistleblowers and organizations facing FCA allegations. We help clients assess, draft, and negotiate agreements and navigate the complex procedural and strategic issues that present under the FCA.
Key Takeaways: FCA Releases & Whistleblower Lawsuits
- Whistleblowers: Pre-filing releases are often unenforceable if the government did not already know of the alleged fraud. Never sign without experienced FCA legal counsel.
- Employers: Releases cannot guarantee protection from FCA suits, but carefully drafted agreements (with express FCA waivers) can provide leverage and potentially limit a relator’s recovery.
- Courts’ Approach:
- If the government already knew of the allegations → release more likely to be enforced.
- If the government did not know → release usually unenforceable.
- DOJ’s Position: The DOJ prioritizes whistleblower disclosures, aligning with courts’ reluctance to enforce pre-filing releases that could silence insiders.
- Bottom Line: Releases remain a useful risk-management tool, but employers and whistleblowers alike must seek legal guidance to navigate this complex area.
