September 7, 2022, Vol. 14
by Marc Campsen
Employer Liability Under the False Claims Act
The False Claims Act (“FCA”) is a tool that the federal government is using with increasing frequency and in a growing number of scenarios to crack down on government fraud. Unfortunately, in this expansion, employers are facing increasing risk and liability for their employees’ fraud.
The FCA imposes liability, among others, on anyone who knowingly presents or causes to be presented a false or fraudulent claim to the federal government for payment. The first is direct presentment liability. The second is indirect presentment liability, which focuses on someone that does not directly present a false or fraudulent claim but, instead, causes the claim for payment to be submitted. Courts describe indirect presentment liability as extending beyond the person making a false claim to the person who engages in the fraudulent course of conduct that induces payment by the government. Courts have identified the “paradigmatic case” of indirect presentment as when the non-submitting party takes advantage of an unwitting intermediary to submit the claim.
Employer direct presentment liability arises, among other scenarios, when the employer unwittingly submits claims for payment in furtherance of an employee’s fraud scheme. In that situation, the employee’s fraudulent acts are imputed onto the employer. In other words, the employee’s actions that result in submission of a false or fraudulent claim by the employer, e.g., indirect presentment, trigger the employer’s direct presentment liability. With increasing regularity, the federal government is enforcing direct presentment liability against employers for their employees’ fraudulent acts in the construction industry and in the medical industry related to Medicare (or similar) payments.
An employer can raise as a defense that it lacked knowledge of the employee scheme. This is often a high standard to satisfy because “knowledge” under the FCA can be constructive – meaning the employer was deliberately ignorant or acted with a reckless disregard of the employee’s actions. For example, a medical practice that is receiving large Medicare reimbursements but its records cannot support a corresponding number of treatments were administered or the treatments were not medically necessary will not likely escape liability. Similarly, a construction contractor submitting payments for work that was not fully performed or with inflated costs cannot avoid liability if site management or other due diligence would have identified the fraud.
Although the government can assert indirect presentment claims against the employee, and often does in conjunction with claims against the employer, the prime target for the FCA action will typically be the employer, who has deeper pockets than the employee. In certain, very narrow, circumstances, an employer may seek indemnity from the employee but that is the exception not the rule. It also can often result in a paper judgment because the employee lacks sufficient resources to reimburse the employer for the money paid to the federal government (again, which is why the federal government pursues the employer instead of the employee).
In recent years, I have been involved in defending FCA actions in federal court, settling FCA actions with the government pre-lawsuit and even trying to seek indemnity on behalf of an employer from a prior employee/owner for FCA payments to the DOJ. These cases have confirmed the federal government’s powers in asserting and prosecuting FCA claims is overwhelming and once an employer is in the cross-hairs, mitigation is the best, and often only, strategy. Understanding FCA liability and implementing protocols and procedures to avoid liability is the new frontier facing any employer receiving payment from the federal government.
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About The Author:
Marc A. Campsen is an attorney at Wright, Constable & Skeen, LLP, where he focuses his practice primarily on litigating employment and business law matters. He is recognized as a Maryland Super Lawyer.
DISCLAIMER: The materials available on this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem.