False Claims, Real Consequences: A Legal Guide for Employers and Employees

What Is the False Claims Act?

The False Claims Act (FCA), often called the "Lincoln Law," is one of the most powerful legal tools in the United States for combating fraud against the government. Born out of the Civil War in 1863, the FCA was President Abraham Lincoln's response to rampant fraud by military contractors who sold the Union Army everything from defective rifles to sawdust instead of gunpowder. While its origins are in wartime, the FCA has evolved into the federal government's primary weapon against fraud in all sectors that receive government funding.

At its heart, the FCA imposes significant liability on any person or company that knowingly submits a false or fraudulent claim for payment to the government. What makes the FCA particularly potent is its qui tam provision. This unique feature allows private citizens, known as "relators" (and often referred to as whistleblowers), to file lawsuits on behalf of the government and share in a portion of any recovered funds, which can range from 15% to 30%.

For employers, the FCA represents a significant risk. A single employee with knowledge of wrongdoing can initiate a chain of events leading to a federal investigation, massive financial penalties, and reputational ruin. For employees, the FCA offers a path to hold their employers accountable for defrauding taxpayers and robust protections against retaliation for doing so.

Key Provisions of the False Claims Act

Understanding what actually qualifies as a “false claim” under the FCA is crucial. A false claim can be as blatant as submitting an invoice for services never provided, or as subtle as misrepresenting compliance with federal regulations to secure funding. The law covers a range of conduct, including presenting false records, conspiring to commit fraud, or knowingly avoiding an obligation to pay money back to the government.

Importantly, the FCA is not limited to those who act with outright intent. It imposes liability for knowingly submitting false claims, which includes three mental states:

• Actual knowledge: The person or entity knew the claim was false.

• Deliberate ignorance: The person avoided learning the truth, essentially choosing not to know.

• Reckless disregard: The person acted with extreme carelessness regarding the truth or falsity of the claim.

  
  

This broad scope means that ignorance isn’t necessarily a defense, especially if an employer had systems in place that failed to catch or prevent the fraud.

Common FCA Violations

Violations can arise in any industry that interacts with federal funds, but some examples occur more frequently than others:

• A hospital billing Medicare for procedures that were medically unnecessary, or never performed at all.

• A defense contractor overcharging for equipment or falsifying quality assurance records.

• A tech firm misrepresenting its cybersecurity compliance under a federal contract.

  
  

These violations can cost taxpayers millions and often come to light through employee reports, either internally or through formal qui tam actions.

Protections for Whistleblowers Under the FCA

In addition to punishing fraud, the FCA is also designed to encourage insiders to speak up without fear of retaliation. Section 3730(h) of the FCA provides robust protection for whistleblowers who take steps to expose fraudulent conduct.

Protected activity under the FCA includes investigating potential fraud, gathering evidence, reporting concerns internally, or filing a qui tam lawsuit. Notably, the employee doesn’t have to be correct about the fraud, what matters is whether they had a good-faith belief that fraud was occurring and took reasonable steps to address it.

Retaliation can take many forms. Courts have recognized demotions, suspensions, pay cuts, ostracism, and other adverse employment actions as retaliatory under the law. The scope of protection extends to employees and even some independent contractors.

Available Remedies

If an employee is retaliated against for engaging in protected FCA activity, the law offers a range of remedies, including:

• Reinstatement to their former position (or an equivalent one),

• Two times the amount of back pay, with interest, to compensate for lost wages

• Compensation for other special damages sustained as a result of the retaliation, such as emotional distress, attorneys’ fees, and other damages.

  
  

These provisions aim to level the playing field and protect those who risk their careers to expose fraud.

Recent Trends and Notable False Claims Act Cases

The Department of Justice continues its vigorous enforcement of the FCA. In fiscal year 2024, the DOJ secured over $2.9 billion in settlements and judgments in FCA cases, with a record-breaking 979 qui tam suits filed. In recent years, enforcement has gone beyond traditional fraud hotspots like healthcare and defense and extended into sectors like technology, education, and pandemic relief.

DOJ Enforcement Priorities

One of the DOJ’s most notable shifts in enforcement involves pandemic-related fraud, particularly involving misuse of Paycheck Protection Program (PPP) funds. Many companies rushed to obtain federal relief and, in the process, cut corners or misrepresented their eligibility.

Another rising focus is cybersecurity noncompliance. Under the DOJ’s Civil Cyber-Fraud Initiative, contractors who falsely certify compliance with federal cybersecurity standards may face FCA liability, even in the absence of a data breach. This sends a clear message: compliance is a legal obligation, not a formality.

Industry-Specific Highlights

In a significant 2024 settlement, Cornerstone Healthcare Group agreed to pay millions to resolve allegations that it billed for services provided by unlicensed and unauthorized individuals. In another recent case, Omnicare, a CVS-owned pharmacy, settled for millions to resolve claims of receiving kickbacks for prescribing certain antidepressants.

In October 2024, Raytheon paid $428 million to settle allegations that it knowingly provided false cost and pricing data in its negotiations for numerous government contracts, marking one of the largest government procurement fraud recoveries in FCA history.

Even for-profit colleges have come under fire. Several institutions have faced lawsuits over claims that they misrepresented job placement rates and enrollment numbers to qualify for federal funding.

Final Thoughts: The FCA’s Ongoing Impact

The False Claims Act serves as a vital safeguard for taxpayer funds and the integrity of government programs. For employers, this underscores the necessity of robust internal compliance programs, not merely as best practice, but as a critical legal shield. For employees with firsthand knowledge of fraud, the FCA offers a powerful mechanism to report misconduct, backed by strong legal protections against retaliation.

Navigating this high-stakes landscape requires expert guidance. The decision to become a whistleblower is significant and fraught with professional risk. However, the law is firmly on the side of those who act in good faith to expose wrongdoing. Our firm possesses the expertise required to guide you through the complexities of the False Claims Act, from confidentially evaluating a potential claim to litigation.

If you have witnessed fraud against the government or suffered retaliation for reporting it, contact us for a consultation. We are here to protect your rights and help you uphold the public trust.