New Jersey Employment Law Blog

The False Claims Act is commonly referred to as the federal whistleblower law.  Its purpose is to discourage fraud against the government.  When a citizen provides information that helps the government to successfully sue the company that has perpetrated a fraud, the citizen shares in the recovery.  Evidence of fraud is often provided by current or former employees of companies that contract with the government.  No surprise there: they are in a position to know when their employers are up to no good at the expense of the public.

The Supreme Court recently heard oral argument in Rockwell International Corp. v. Stone, a case which presents this question: how much information specific information must a plaintiff (the "relator" in False Claims Act terms) provide to be entitled to a cut of the winnings when the government obtains a judgment under the Act?

The case started when Stone complained that the Rockwell International was endangering the environment by the way it handled nuclear materials at the government's Rocky Flats facility.

"Stone's report touched off a wider federal investigation, and in 1992 the company pleaded guilty to environmental violations and agreed to pay $18.5 million of criminal fines."   Stone then filed his own action under the Act, was joined by the government, and obtained a judgment of $4.1 million.

Rockwell appealed, arguing that Stone was not the "original source" of the information that led to the judgment.  Translated into English, the issue was whether the information provided by Stone was specific enough to entitle him to share in the judgment.

According to a published report, Chief Justice Roberts and Justice Scalia seemed to side with Rockwell, while Justice Ginsburg seemed sympathetic to Stone's position.  (Imagine that!)

The Court's decision, when it comes, will help to define what quality of information a relator must provide in order to recover against a corporation that defrauds the government.  We'll keep you advised.

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In our post of July 11 we promised you more on the New Jersey Supreme Court's decision in Feldman v. Hunterdon Radiological Associates. The case addresses the important question whether a physician shareholder and director of a medical group, is an "employee" and thus protected by CEPA, New Jersey's whistleblower law. The case is equally applicable to other professionals, like accountants, architects, and lawyers who practice in professional associations.

So what's the answer? "It depends."

Imagine that.

Here are the facts.

Hunterdon Radiological Associates

is comprised of physicians who practice radiology and provide magnetic resonance imaging services to the Hunterdon Medical Center (HMC) in buildings annexed to the hospital. Plaintiff began working at HRA on a part-time basis in 1978 and became a shareholder-director in 1992. Dr. Mark S. Malzberg joined the group in 1993 and became managing partner in 2000. When the events underlying this appeal occurred, there were six shareholder-director physicians at HRA: Dr. Malzberg, Dr. Sophia Yeh, Dr. Alice Sprenger, Dr. Martha Nowell, Dr. Boggiano, and plaintiff.

Plaintiff shared equally with the other shareholder-directors in HRA's profits and losses and had an equal vote in significant business decisions. The managing partner and an office manager handled administrative matters pertaining to HRA's day-to-day operations.

The specific terms of plaintiff's working relationship with HRA were contained in a 1993 "Employment and Stock Purchase Agreement" (Agreement).

In the year 2000,

Dr. Feldman plaintiff became chairperson of medical imaging at HMC, at which point she began to receive complaints from other physicians about the quality of Dr. Yeh's reading of x-rays. According to plaintiff, the other shareholders of the firm were well aware of and discussed Dr. Yeh's deficiencies but were loath to take action against her. Plaintiff took action by way of her role in the re-credentialing process at HMC, requiring Dr. Yeh to attend remedial education courses. According to plaintiff, Dr. Yeh did not cooperate on her own and, at plaintiff's insistence, HRA formally asked Dr. Yeh to pursue further education to address limitations in her performance. Plaintiff also sent a letter to the President of HMC recommending that Dr. Yeh be placed on probation pending completion of that remedial education. However, no suitable formal educational programs could be located and the shareholder-directors split over what should be done next.

Plaintiff thought strong action was required but a majority of the others did not. According to plaintiff, the work environment at HRA then became very hostile and she was marginalized by the group.

In late 2001 Dr. Feldman gave notice of her withdrawal from HRA. She was unable to find comparable employment and took another job that paid about $245,000 less than she made with HRA.

The trial court dismissed Dr. Feldman's whistleblower claim, but the Appellate Division reversed and reinstated it. This was the posture in which the case was presented to the Supreme Court, with the sole issue being whether Dr. Feldman was an employee.

The Supreme Court looked first to CEPA's two-part definition of "employee": "any individual who performs services for and under the control and direction of an employer for wages or other remuneration." Half of the question was easily answered. "Plaintiff clearly satisfies part of that definition to the extent that she performed work as a radiologist for HRA in return for an annual salary, thus rendering services for remuneration."

That left the crucial question: "whether, in light of her status as a shareholder-director, plaintiff was sufficiently subject to HRA's 'control and direction' that she could reasonably be considered an employee rather than an employer."

The court reviewed a number of alternative approaches to the issue that had been used by other courts in other kinds of civil rights cases. (We'll spare you the details.)

Ultimately, the court adopted the approach used by the United States Supreme Court to decide Clackamas Gasroenterology Associates v. Wells, an ADA case, in 2003. The court looked to a series of factors to determine "the party's true power and influence within the organization." Each case is to be decided on its own merits, and no one factor is decisive, although the court hinted that the fourth Clackamas factor --- the extent to which someone can influence the organization --- is the critical one.

Applying the new test to Dr. Fledman's CEPA claim, the court found that she had equal influence with the other shareholder/directors, and by dint of her position as radiology department chairman, may have had more influence than the others. "Her power over the direction of HRA was at least as significant as that of any other member." She simply was unable to convince her fellow shareholder/directors of her position about Dr. Yeh. That fact did not convert her into an employee for CEPA purposes. Thus, the court reversed the Appellate Division and dismissed the claim.

Feldman teaches us that labels are not the decisive factor to determine "employee" status. Like Dr. Feldman, one can have an "employment agreement" without being an employee.

And in the professions, where there is by definition a concern with exercising professional judgment in the interest of the public and a concomitant need to be concerned to be concerned with the competence of all members of an organization, the structure of the organization needs to be established with an eye towards possible CEPA liability.

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The Newark Star Ledger reports this morning that the New Jersey Supreme Court has dismissed the whistleblower complaint of a Hunterdon County physician. Dr. Ruth Feldman, who was one of five or six shareholders in Hunterdon Radiological Associates, left the medical practice in 2001. Feldman had repeatedly questioned the work done by one of her partners, which she apparently considered to be professionally substandard, and had recommended "strong action" against her. Feldman's partners disagreed. According to the complaint, after she complained, a hostile work environment arose.

A unanimous Supreme Court held that as a shareholder with a voice in the practice's decision-making process, Feldman was not an "employee" for purposes of CEPA. She therefore was found ineligible to sue under the whistleblower statute.

We'll have more on this once we have seen the court's opinion.

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A recent court decision is important to New Jersey companies that employ consultants or other independent contractors. The Conscientious Employee Protection Act [CEPA] is New Jersey's whistleblower statute. It protects "employees" from retaliation for reporting actual or suspected unlawful conduct by their employers. In D'Annunzio v. Prudential Insurance Company, decided on February 26, 2006, the Appellate Division expanded the definition of "employee" by holding that independent contractors may be "employees" and thus protected by CEPA. A multi-part test applies, so if you have questions about whether your consultants are protected from retaliation by CEPA, you should consult with counsel.

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The Conscientious Employee Protection Act, commonly known as "CEPA," is New Jersey's whistleblower statute. Recent amendments have imposed important new requirements on employers, and failure to meet them could jeopardize the employer's defense of a whistleblower complaint.

CEPA applies to all New Jersey employers with more than 10 employees. In general, it prohibits employers from taking retaliatory employment action against employees who "blow the whistle" by reporting to supervisors or public authorities corporate conduct that the employee reasonably believes violates the law.

CEPA already requires that advisory notices be posted in the workplace, in English and Spanish. Now even more must be done.

At least once per year employers must provide their employees with written or electronic notice of rights and obligations under CEPA, and of the employer's internal complaint procedures. How does the employer accomplish this in a way that satisfies the law? The law, unsurprisingly, doesn't tell us. Some logical options are e-mail, distributions at meetings, payroll notices, and personal distribution at annual reviews. What is right for your company will depend on how you do business. But if your business is in a regulated industry, or manufactures or distributes products that could affect public safety, you should pay special attention to ensure that CEPA requirements are complied with fully and consistently.

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