Whistleblower Retaliation Case Survives in Pennsylvania

A worker’s whistleblower retaliation lawsuit against a Pennsylvania insurance broker can proceed under state law, according to a recent federal court decision. On Nov. 27, 2023, the U.S. District Court for the Eastern District of Pennsylvania ruled that a sales director for Ideal Concepts had made a good-faith effort to report wrongdoing and had standing to sue.

In August 2023, the sales director sued under the federal False Claims Act (FCA), the Pennsylvania Whistleblower Law and common law wrongful discharge. The court dismissed the federal claim, but allowed the two Pennsylvania claims to survive.

“An employee’s investigation of nothing more than their employer’s noncompliance with federal or state regulations cannot form the basis of a viable claim under the FCA and thus cannot sustain an action for retaliation,” the court stated.

Ideal Concepts is an insurance provider based in Allentown, Pa., with more than 400 employees. The company declined to comment on the litigation.

Background

Ideal Concepts sells Medicare and Medicaid plans, for which it receives funding from the state of Pennsylvania. In March 2022, the sales director raised concerns about a company executive allegedly accessing protected health information of customers while outside the United States.

After an executive moved to Cape Verde, and later to Portugal and Brazil, he allegedly continued to access the protected health information of patients, which violates the Centers for Medicare & Medicaid Services’ regulations. Another employee allegedly did the same in Poland. The plaintiff reported this to the HR director and the compliance manager, but they did nothing in response, the lawsuit said.

In January 2023, the plaintiff learned the company intended to lay off more than 50 employees without notice, which would violate the federal WARN Act. He reported this to HR, along with his concerns about the company allegedly misclassifying employees as Allentown, Pa., residents to qualify for a tax credit to build an office building. He was fired on Jan. 27, 2023.

Ideal Concepts argued that it is not a public body or employer within the meaning of the Pennsylvania Whistleblower Law, and it did not engage in wrongdoing under the terms of the law, according to court documents. The court concluded the company is an employer within the meaning of the law because it receives Medicare and Medicaid funding.

The law protects whistleblowers who report wrongdoing, defined as a violation of a federal or state statute or regulation, or a code of ethics designed to protect the interest of the public or the employer. The court found that the plaintiff sufficiently pled wrongdoing [CA1] [LS2] related to the layoffs without warning and the fraudulent tax classifications.

To be protected by whistleblower statutes, a plaintiff must show their whistleblowing caused an employer’s discriminatory act, such as firing. The court found the sales director sufficiently established causality because of the close time proximity between his complaints and his firing.

Tips for Employers

Employers should maintain and enforce written anti-retaliation policies that protect workers who report wrongdoing, said Linda Jackson, an attorney with Arent Fox Schiff in Washington, D.C. “Cultivating a speak-up culture of honesty, fairness and trust is crucial for organizations to avoid retaliation claims,” she said.

The next step is to “establish confidential and secure reporting procedures with multiple routes so that employees can feel safe disclosing potential violations,” Jackson said. “Even allegations of fraud that may be perceived as minor or frivolous should be promptly addressed, and HR should keep detailed records documenting allegations and the steps the organization took to address the matter and, if necessary, steps taken to prevent future violations. In the event an employee who is fired brings a retaliation claim against an organization, the written policy and the company’s history of enforcement will be important to its defense.”