After numerous headlines, press releases, and law enforcement efforts, including the Department of Justice’s new COVID-19 Fraud Strike Force teams, there may be increased traffic at the intersection between allegations of PPP loan fraud and whistleblower activity. Being accused of wrongdoing poses many issues for employers, including potential claims for whistleblower retaliation, under both state and federal law.
Most states provide some form of protection against whistleblower retaliation. In addition, the federal statute most likely to apply to whistleblower claims related to PPP loan fraud is the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., which is enforced by the Department of Justice.
Under the FCA, any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the United States, or who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim, may be liable for a violation of the statute. 31 U.S.C. § 3729(a)(1)(A)-(B). The statute defines a “claim” as “any request or demand . . . for money or property” made to the United States. 31 U.S.C. § 3729(b)(2)(A). A North Carolina federal district court recently applied that definition in Nario v. National OnDemand, Inc., and found that “fraudulently demanding money from the United States through the PPP loan program would constitute a ‘claim’ under the FCA.”
The FCA also forbids employers from retaliating against an employee for “lawful acts done by the employee . . . in furtherance of an [FCA] action . . . or other efforts to stop 1 or more violations of [the FCA].” 31 U.S.C. § 3730(h). Accordingly, courts have found that adverse action taken against employees for reporting potential PPP loan fraud could constitute retaliation under the FCA.
For example, in Defoe v. C.C.S. Garbage Service, Inc., an employee alleged that his employer misrepresented its number of employees when applying for a PPP loan. The employee posted on Facebook that he planned to report his employer to the government. When the employer learned about that plan, it immediately fired the employee. The federal district court in Alabama found that the employee’s discharge could constitute retaliation under the FCA, and denied the employer’s motion to dismiss. Similarly, in Rucker v. Great Dane Petro. Contractors, Inc., a federal district court in Florida denied a motion to dismiss a former employee’s claim that her termination was in retaliation for complaining about illegal acts, including PPP loan fraud, under both the FCA and state whistleblower law.
Although these cases each involved court rulings made at the early stages of litigation, employers should be aware that employees can likely proceed with claims merely by alleging a reasonable belief of some violation of the FCA or a state whistleblower law. Employers should remain cognizant of the potential for whistleblower retaliation claims centered on alleged PPP loan fraud, especially given the press coverage that has thrust the issue of widespread fraud into the public consciousness.
