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Potential Pitfalls to Avoid For Whistleblowers


If a whistleblower provided original information and is eligible for an award, the whistleblower must affirmatively apply for the award. The SEC will NOT come find the whistleblower or their attorney.

The SEC will however post a notice of all Commission actions that resulted in monetary sanctions of more than $1,000,000 and for which a whistleblower provided original information on the website for the Office of the Whistleblower. Such a posting is called a Notice of Covered Action. Following posting of the Notice of Covered Action, it is up to the whistleblower to apply for their award. Failure to apply will result in a whistleblower missing out on their award.

Finally, a whistleblower could potentially run the risk of waiving his or her right to claim an award as the result of a whistleblower action if the whistleblower entered into an agreement with the target firm that provided a full release to all claims. Although it has not been addressed under Dodd Frank, federal courts have addressed the issue of releases repeatedly with respect to qui tam actions under the FCA. See, United States ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995); United States ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319, 326 (4th Cir. 2010); United States ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1168 (10th Cir. 2009); United States ex. rel. Nowak v. Medtronic, Inc., 806 F. Supp. 2d 310, 2011 U.S. Dist. LEXIS 82346 (D. Mass. 2011).

Under prevailing federal law, a release entered into by a relator (akin to a whistleblower) pre-filing cannot be enforced. The courts reason that public policy in favor of bringing frauds against the government (in the case of qui tam) mandates that such releases entered into pre-filing be deemed unenforceable, since enforcement of such agreements would disincentivize relators from bringing such frauds to the attention of the government. However, pre-filing releases may also be enforced “when … the government was aware, prior to the filing of the qui tam action, of the fraudulent conduct represented by the relator’s allegations.” Radcliffe, 600 F.3d at 332-33. Generally, a release entered into by a relator post-filing would not present such an issue because the government would already be aware of the fraud, so it can be enforced against the whistleblower. This area of the law is ripe for change and should be reviewed carefully each time the situation presents itself.

Labor Law § 740

The employee must choose their remedies when they sue under Labor Law § 740. They must choose this or a different statute, as § 740(7) requires a waiver of these rights. This waiver has been limited by New York Courts to actions arising from the same retaliatory action. See Strattner v. Cabrini Med. Ctr., 257 A.D.2d 549 (1st Dep’t 1999); Pipia v. Nassau County, 34 A.D.3d 664 (2d Dep’t 2006); Pipas v. Syracuse Home Ass’n, 226 A.D.2d 1097 (4th Dep’t 1996), app den’d, 649 N.Y.S.2d 377; McGrane v. Reader’s Digest Ass’n, 863 F. Supp. 183 (S.D.N.Y. 1994) (plaintiff abandoned rights under contract by choosing to sue under § 740). Federal courts have held, however, that § 740 does not waive federal statutory rights because “an effort by New York to condition a state law right on the waiver of arguably unrelated federal rights would raise serious constitutional questions.” See Reddington v. Staten Island Univ. Hosp., 373 F. Supp. 2d 177, 187-188 (E.D.N.Y. 2005); Collette v. St. Luke's Roosevelt Hosp., 132 F. Supp. 2d 256 (S.D.N.Y. 2001).

Secondly, while the whistleblower must merely allege the violation of a law in the complaint, the plaintiff will need to present actual proof that the employer engaged in a violation of law, either through summary judgment or trial. In Bordell v. GE, the Court of Appeals affirmed the trial court’s grant of partial summary judgment for the plaintiff’s claim premised on Labor Law § 740, because the plaintiff did not present “proof of an actual violation” that was complained of and allegedly led to the plaintiff’s adverse employment action (discharge in this case). See Bordell v. GE, 88 N.Y.2d 869 (N.Y. 1996); Khan v. State Univ. of N.Y. Health Sci. Ctr., 288 A.D.2d 350 (2d Dep’t 2001).

The violation of law complained of must rise to the level such that it creates and presents a substantial and specific danger to the public health or safety, or which constitutes health care fraud.” § 740(2)(a). The New York Court of Appeals specifically noted that “fraudulent billing is not the type of violation which creates a “substantial and specific danger to the public health and safety.” Remba v. Federation Employment & Guidance Serv., 76 N.Y.2d 801, 802 (N.Y. 1990); See also, Fitzgibbon v. Sanyo Sec. Am., Inc., 92 Civ. 2818 (RPP), 1994 U.S. Dist. LEXIS 8386, *15 (S.D.N.Y. June 22, 1994) (“the whistleblower law does not protect threats to disclose unlawful activities, such as violations of securities laws”). However, in 2006 the law was amended to provide for a cause of action for health care fraud, which is defined by the N.Y. Penal Code § 177 to relate to providing false information for the purpose of obtaining payments the person is not entitled to.

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