What the California False Claims Act Means to Business Owners

Similar to many other states, California has created laws that seek to discourage those who might wish to defraud the state by expanding upon federal whistleblower laws. These laws provide employees with protection from wrongful termination if they report the theft of government funds. California provides its citizens with the ability to utilize qui tam lawsuits extensively, which creates a significant risk to employers – in fact, California is one of only two states to allow qui tam lawsuits in the context of private insurance claims.

What Is Qui Tam?

Qui tam is part of a longer Latin statement that translates into “who acts both for the king and himself.” While California isn’t a monarchy, this statement does provide an accurate description of how qui tam lawsuits operate. If an employee suspects that their employer is committing fraud against the government, they are permitted to begin a lawsuit on behalf of the state or federal government. Depending on the circumstances of the case, the government may also assist in this case. Employees can receive a significant share of the damages paid by a business if their lawsuit is successful, ranging from 15-50% of the total amount, incentivizing employees to take action if any misconduct is suspected.

These lawsuits can be especially damaging to employers. Businesses found guilty of defrauding the government can be liable for up to three times the amount and charged fines that range between $5,500 and $11,000 for each violation. Employees have six years to report violations after they occur, and violations can include (but are not limited to): generating false records to submit a false claim to the government, allowing a false claim to be paid, falsifying receipts or documents that claim more money than owed, or avoiding payment to the government.

Wrongful Termination

In California, employers cannot terminate an employee for exercising a legal right or reporting a violation, so employees who report violations or file a qui tam lawsuit are protected from termination if it stems from those actions. This protection doesn’t just apply to termination, however. California law protects against retaliation from an employer in several different forms, such as demotion, a change in working conditions that makes the employee’s work difficult, or denial of a promotion due to their whistleblowing.

Avoiding Trouble

While these types of laws are intended to prevent outright fraud, they also can be used to ensnare companies that had no such ill intentions. PAGA lawsuits, for example, operate on a similar basis and have become very lucrative for unscrupulous attorneys, who can reap big bucks by using the alleged wage-and-hour violations of a single claimant to bring class-action-style lawsuits against small businesses with lots of employees. The best way to protect your business from such lawsuits is by making sure that your company’s processes and procedures are in good compliance with the law. Contact us today and let Integrated General Counsel help you steer clear of any legal pitfalls that may lie ahead.