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Sixth Circuit: Whistleblowers May Sue, Despite Arbitration Clause

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A federal appeals court said two whistleblowers may sue their former employer for unlawful retaliation under the False Claims Act (FCA), despite having contracts that required arbitration of disputes — and despite a federal law that favors such arbitration requirements.

In U.S. ex rel. Paige v. BAE Systems Technology Solutions & Services, Inc., the U.S. Court of Appeals for the Sixth Circuit held that the FCA retaliation claims of Matt Paige and Jim Gammon were not related to their employment contracts — and therefore weren’t governed by the arbitration clause, which covered issues “arising from” those contracts.

Writing for a three-judge panel, Judge Helene White ruled that FCA retaliation claim “is completely separate from the contract and asserts an independent claim that would exist even without the contract.” Mr. Paige and Mr. Gammon “do not argue that the ‘terms and conditions’ of the Employment Agreement were violated,” she wrote. “[R]ather, they allege they were discharged, demoted, threatened, and harassed due to their participation in statutorily protected conduct that is not the subject of the Employment Agreement.”

And while the Federal Arbitration Act generally favors arbitration — and has been strictly enforced in recent years — Judge White cited a “longstanding principle” in the Sixth Circuit that “no matter how strong[ly] the federal policy favors arbitration,” employees still must have agreed on the conditions that trigger it.

While favorable to employees, Judge White’s opinion was fairly limited: She noted that the BAE arbitration clause was narrower than many such provisions, which often cover any dispute arising from the employer/employee relationship — so a different case wouldn’t necessarily reach the same result. The Paige decision also was unpublished, reducing its persuasive power.

Mr. Paige and Mr. Gammon claim they faced retaliation for complaining to their superiors at BAE, a defense contractor, about fraudulent contract bidding and the false certification of time sheets. Their underlying fraud claims previously were dismissed, and were not at issue here.

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