Last month, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgement against an employee-whistleblower who had claimed that her former employer retaliated against her in violation of the False Claims Act’s (FCA) whistleblower protection provision. Lam v. Springs Window Fashions, LLC, 37 F.4th 431 (7th Cir. 2022). The court held that her former employer’s conduct fell short of “harassment” protected under the statute and that she failed to establish a causal connection between her informing management of potential false claims issues and her eventual termination. While the Seventh Circuit declined to adopt a strict test for the meaning of “harassment,” its holding shows that the court believes that harassment requires significant conduct to be actionable under the FCA.
Jennifer Lam, the employee-whistleblower, began working at defendant Springs in January 2019. In her role with Springs, she oversaw the global fabric inventory and tariffs on these fabrics. Springs discovered a possible tariff problem as Lam believed a specific fabric had originated in China, instead of the manufacturer designation of Taiwan/Malaysia, which, based on new country-of-original regulations, would require Springs to pay a steep 25 percent tariff on the fabric. Lam alleged that Springs was informed about this issue by her predecessor, who had been reprimanded and forced to resign.
Lam contends that she communicated her tariff concerns to the CEO at three meetings between June and September 2019 that Springs should pay higher tariffs on the fabric, at which point the CEO would become “frustrated and visibly irritated.” Lam also alleged that she was “scolded” by Senior Vice Presidents and threatened with her future job security by other members of Springs’s C-Suite.
In October 2019, the General Counsel informed Lam that Springs has made a “business decision” to classify the fabric as Taiwanese/Malaysian and Lam dropped the issue. Later in 2019, Lam was put on a performance review plan although Lam contends that her boss had never indicated there had been any issues with her performance. Lam was terminated in February 2020 based on Spring’s contention that Lam had failed to properly notify them and handle an audit of one of its facilities.
Lam sued in April 2020, claiming that Springs retaliated against her, in violation of the FCA’s whistleblower protection provision, for bringing up the tariff issues. To prevail on this claim, Lam needed to show that her actions were taken in furtherance of the statute, that Springs knew about it, and that Springs retaliated against her because of this protected conduct. While Springs concedes the first two elements, it maintains that they did not retaliate against her. The district court, and ultimately the Seventh Circuit, agreed.
Defining harassment under the FCA is an issue of first impression for the Seventh Circuit. While the court did not settle on a definition in this case—declining to adopt one of two proposed standards, either (a) whether the conduct described would have dissuaded a reasonable worker from complaining to management (adopted by two other federal circuits) or (b) whether the retaliatory acts were severe or persuasive enough to affect the terms and conditions of her employment—the court opined on what does not constitute harassment.
The court held that, under either test, no reasonable jury could find that Lam was harassed within the meaning of the FCA and therefore it need not settle on a standard. Based on similar cases, the court found that Springs’s executives comments toward her displayed a “lack of good manners” but that it would not dissuade a reasonable person from reporting a potential legal violation.
The court also rejected Lam’s argument that she had been terminated in retaliation for her contention that higher tariffs were owed by Spring. In so holding, the court found that Lam’s contention that she was told she did not have a long-term future at the company and being put on a performance improvement plan for reasons she believed to be pretextual could not give rise to a retaliatory discharge under the FCA. The court reasoned, in part, that Lam presented no evidence that the reasons for her firing were pretextual, principally because she failed to timely tell her boss about the audit, and it was unclear what her plan was to fix it. Given that, and the lack of evidence to the contrary, a reasonable jury would not connect her termination with her stance on tariffs.
The Seventh Circuit’s opinion serves as a helpful resource for defendants, as it evidences the exacting requirements that a plaintiff must adhere to in order to properly plead a claim for retaliation under the FCA.
The authors thank McGuireWoods summer associate Jonathan Wrobel, a Loyola University Chicago School of Law rising third year student, for assistance preparing this legal alert. He is not licensed to practice law.