On May 22, 2014, the United States Court of Appeals for the Sixth Circuit held that a mandatory arbitration clause as part of an employment agreement did not apply to claims brought pursuant to the False Claims Act’s retaliation provision (FCA). The case is United States ex. rel. Paige and Gammon v. BAE Systems Technology Solutions & Services, Inc., No. 13-2237 (6th Cir. May 22, 2014).

Relators Matte Paige and Jim Gammon filed two causes of action against BAE pursuant to the FCA. First, they brought a qui tam action, which alleged that BAE violated the FCA by submitting false time sheets in connection with government contracts. In addition, the Relators alleged that BAE retaliated against them after they complained to management about the fraud in violation of the FCA’s anti-retaliation provision. Both Relators alleged that BAE’s harassment ultimately led to their dismissal.

Before complaining to management, Relators entered into an Employment Agreement with BAE, in which they agreed to abide by the “terms and conditions” section of the Agreement. The “terms and conditions” clause included provisions regarding salary, confidentiality, job duties, and termination. Specifically, the termination provision stated that either BAE or the Relators could “at any time, with or without notice, [ ] terminate employment with or without cause.” The Agreement also contained an arbitration provision, which stated in applicable part:

“The Employee agrees that [ ] any dispute arising from this Agreement, which cannot be resolved through normal practices and procedures of the Company, shall be resolved through a mediation/arbitration approach. The Employee agrees to select, with the Company, a mutually agreeable neutral third party to help mediate any dispute, which arises under the terms of this Agreement. . . . Employee further agrees that the dispute shall be decided by binding arbitration under the rules of the American Arbitration Association.”

After BAE terminated the employment of Paige and Gammon, they filed suit in the United States District Court for the Eastern District of Michigan. The parties agreed that the arbitration provision was a valid arbitration clause. The question was whether the Relators’ FCA retaliation claim fell within the Agreement’s scope. The District Court dismissed their claims finding the Employment Agreement required mandatory arbitration. The Sixth Circuit, in an unpublished opinion, reversed and remanded.

The Sixth Circuit narrowly read the arbitration provision. First, the Circuit concluded that the provision contained three different references to an employment dispute: “(1) any dispute arising from this Agreement,” “(2) any dispute, which arises under the terms of this Agreement,” and (3) “the dispute.” The Sixth Circuit, without citation, concluded that the broader and more encompassing phrase, “any dispute arising from,” must “be read to mean ‘any dispute, which arises under the terms of this Agreement.’” Therefore, the Sixth Circuit held that the arbitration provision did not cover FCA retaliation claims because the “terms and conditions” section of the Employment Agreement did not explicitly cover such claims.

The Circuit drew a distinction between claims that “concern the employment relationship” and claims that “arise from the terms of the Employment Agreement.” The Court was unwilling to find that the Relators’ claims arose under the Employment Agreement simply because the claims concerned the employment relationship.

While the opinion is unpublished, it is one of the only opinions on the topic. Therefore, it is influential. The ruling could diminish the effectiveness of mandatory arbitration provisions contained within employment agreements. Pursuant to the Sixth Circuit’s reasoning, if an arbitration provision contains language requiring arbitration for disputes “arising from” or “arising under” the agreement, claims based on FCA or other statutory retaliation claims will likely fall outside the provision’s reach. Review your arbitration provisions and amend them if necessary to specify that the arbitration clause covers retaliation claims brought pursuant to both employment and non-employment statutes.

Additional Information

For more information on this and other employment law-related questions, please contact your Kutak Rock attorney or an employment attorney.