Working for Justice

Confidentiality Agreements as the Basis for False Claims Act Suits

Posted May 8th, 2018 by in Whistleblower Law.

Corporations have long used confidentiality agreements as a cudgel to prevent employees from disclosing information about fraud and abuse to the Government. While each confidentiality agreement must be viewed in light of its individual circumstances, potential whistleblowers may be surprised to learn that the Federal Acquisition Regulation (FAR) 52.203-18 actually prohibits the use of government funds with an entity that requires its employees, who may be seeking to report fraud or abuse, to sign internal confidentiality agreements prohibiting employees from making such a report. This clause, and 52.203-19,[1] must be included in all GSA solicitations.[2] The Department of Defense has a nearly identical set of clauses, DFARS 252.203-7996 and 252.203-7997, applying said prohibitions to all defense contracts. Both FAR 52.203-18 and DFARS 252.203-7996 further contain language stating that by submitting an offer under the affected contractual regimes, vendors make the affirmative representation that they do not require employees seeking to report fraud to sign confidentiality agreements seeking to prohibit said report. These sections implement Section 743, Division E, Title VIII of the Consolidated and Further Continuing Appropriations Act of 2015, which was signed into law on December 16, 2014.[3]

The statutory language, and its subsequent implementation, pose wide-ranging downstream effects for government contractors and their employees. An employee should be able to rest easy knowing that concrete statutory language exists directly tying his or her right to report fraud to a company’s ability to benefit financially from government contracts. Furthermore, because the submission of an offer constitutes an affirmative representation of compliance explicitly tied to funding, any invoices flowing from that initial offer could constitute false claims. Accordingly, if a company tries to force a whistleblower to sign an overly restrictive agreement, a whistleblower seeking to report a completely separate fraud to the government may actually have two distinct claims under the False Claims Act: one related to the underlying fraud and one related to the confidentiality agreement that seeks to cover up the underlying fraud.

Additionally, the fact that the statute itself ties compliance directly to the appropriation of funds can significantly complicate a corporate defendant’s argument that a violation of the statute was not material to payment, which theoretically strengthens the False Claims Act lawsuit against the corporation. In fact, the “no funds may be made available” language may even be “material” enough to cause government contractors to lose previously awarded contracts and incur significant financial penalties outside the False Claims Act regime.

Employees of government contractors who are concerned with the language in their confidentiality agreements should consider contacting a whistleblower attorney about whether their agreements violate the Appropriations Act of 2015 and the False Claims Act.

[1] FAR 52.203-99 contains similar language and is discussed within the same document linked to above.
[2] Note that FAR 52.203-98 and 52.203-99 were replaced by FAR 52.203-18 and 52.203-19. The language has not changed. See https://www.va.gov/oal/business/pps/flash17-24.asp (last visited Apr. 24, 2018 5:21 PM) (“Provisions 52.203-98 and 52.203-99 are no longer referenced in the FAR.  Provisions 52.203-18 and 52.203-19 are now referenced for the same subject matter, and have been incorporated into the FAR.”)
[3] Section 21F of the Securities and Exchange Act similarly prohibits companies covered by the Securities and Exchange Act from prohibiting current and former employees from seeking and obtaining whistleblower awards from the SEC. See https://www.sec.gov/news/pressrelease/2016-164.html (last visited Apr. 24, 2018 6:05 PM); see also https://www.sec.gov/news/pressrelease/2016-157.html (last visited Apr. 24, 2018 6:03 PM).

John McKnight

John McKnight

John McKnight is a Senior Litigation Counsel in the Washington, DC office of Sanford Heisler Sharp who works primarily on qui tam / whistleblower cases. Learn More

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