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A pharmaceutical company that terminated an employee after he reported Medicaid fraud by a customer was liable for almost $1 million in damages under the False Claims Act (FCA), the 8th U.S. Circuit Court of Appeals ruled.
Mike Townsend, a sales employee of the Bayer Corp. in Arkansas, was responsible for marketing a female birth control device, Mirena, to doctors and other health care providers. During his employment, he learned that a doctor in Pine Bluff, Ark., was purchasing a generic version of Mirena from Canada for half of what Bayer charged and then obtaining Medicaid reimbursement from the U.S. government for the full price charged by Bayer.
When Townsend asked for guidance from colleagues at Bayer as to how he should handle this situation, those he spoke with did not encourage him to report it. To the contrary, they suggested that it was neither his responsibility nor that of the company. Nevertheless, Townsend reported the doctor to the Arkansas Medicaid Fraud Hotline. The Food and Drug Administration, Arkansas federal prosecutor, and Arkansas Attorney General’s office investigated the doctor. With Townsend’s cooperation as a witness, the doctor was ultimately convicted of submitting false claims to the government.
At about the same time, Bayer changed the way its sales force obtained reimbursement for out-of-pocket marketing expenses, including meals and benefits for potential customers. Formerly, Bayer provided sales employees a company credit card and paid the balance on the card every month. Bayer canceled the cards and began requiring employees to obtain their own credit cards, for which they were responsible but could obtain reimbursement from Bayer for work-related expenses.
Townsend obtained his own credit card but fell behind in his payment of its balance, resulting in cancellation of his card. After Bayer was notified of the cancellation, Townsend paid off the outstanding balance and obtained a new card. After Townsend obtained the new credit card, Bayer terminated Townsend’s employment for the cancellation of his prior credit card.
Townsend claimed that this reason given was merely a pretext for Bayer firing him in retaliation for reporting the illegal conduct of Bayer’s customer. The doctor had made fraudulent claims against the federal government, to which the FCA applies. Under the FCA, employees fired for reporting false claims can receive significant remedies. Townsend brought an FCA lawsuit against Bayer and obtained a $568,000 compensatory damages judgment for emotional distress, a back pay award of $321,373 (doubled to $642,746) and reinstatement to his sales position at Bayer.
On appeal, Bayer claimed that the FCA should not apply to it because Townsend never claimed that Bayer tried to defraud the government or make a false claim. The 8th Circuit rejected this argument, holding that, even though Bayer did not engage in the underlying misconduct, the FCA still prohibited it from retaliating against the employee for reporting a third party’s misconduct. Townsend presented evidence of a “culture of silence” at Bayer and that his discharge related to his disclosure of the doctor’s misconduct.
Bayer further claimed that certain evidence should have been considered by the court. For example, Bayer noted that it had not been allowed to present evidence concerning another employee who fell behind in her credit card charges and was fired. It further argued that the evidence was not sufficient to support the verdict, that Townsend’s claim was untimely and that reinstatement should be denied. These arguments were all rejected by the 8th Circuit.
The 8th Circuit did agree with Bayer that the emotional distress damages award was excessive, and it required that the trial court either reduce damages to $300,000 or hold a new trial on damages.
Townsend v. Bayer Corp., 8th Cir., No. 13-1468 (Dec. 17, 2014).
Professional Pointer: Employers should not assume that employee complaints against customers or third parties are none of their concern. Certain employment laws may impose liability on employers if they do not respond carefully to alleged misconduct by customers and others.
Jeffrey L. Rhodes is an attorney with Albo & Oblon LLP in Arlington, Va.
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