The Justice Department has recently issued a ruling that doubles the possible fines under the False Claims Act, raising concerns of constitutionality for whistleblower lawsuits.

What is the False Claims Act?

The False Claims Act was passed by Congress during the American Civil War in 1863. It was passed in response to contractors selling the Union Army sick horses, faulty rifles and ammunition and rotten rations.

Because it was passed during President Abraham Lincoln’s term, it is often called “The Lincoln Law.”

The False Claims Act is a law that allows a private person with evidence of fraud to initiate what’s called a qui tam lawsuit against the business allegedly responsible. They do this on the behalf of the government.

People with the most knowledge of alleged fraud against the government often work on the inside of the businesses allegedly involved. Since these individuals depend on the company itself for employment, this is essentially a whistleblower situation.

The whistleblower protection law within the False Claims Act protects whistleblowers against whistleblower retaliation from the company involved. Section 3730(h) of that act protects any employee who is discharged, demoted, harassed, or otherwise discriminated against because of their participation in a qui tam lawsuit.

This can include compensation for any damages, court costs, attorneys’ fees, and reinstatement to their old position, plus twice the amount of back pay they missed.

DOJ Increases Penalties Under False Claims Act

Until recently, the penalty for each alleged offense in a qui tam lawsuit had a minimum fine of $5,000 and a maximum fine of $10,000. The Department of Justice has issued an anticipated interim final rule that dramatically increases those fines.

This comes in response to the Bipartisan Budget Act of 2015. Under this act, agencies are required to adjust penalties for inflation over the last 30 years.

Effective on August 1, 2016, the new minimum penalty will more than double from $5,000 to $10,781. The maximum penalty will spike from $10,000 to $21,563.

This is beneficial both to the government and to the whistleblowers themselves. Whistleblowers often receive between 15 and 25 percent of the amount recovered. If the penalties in qui tam lawsuits increase, so does the money recovered by both the government and the claimants.

However, some commentators raise concerns about the constitutionality about this increase of penalties. They say that there is already an alarming trend of the increase of claims and settlements under the False Claims Act.

They wonder if the size of a damages award can violate the defendant’s right to due process. The Supreme Court has looked at the ratio of punitive damages and/or civil penalties and compensatory damages.

In one case, the Court recognized that the ratio between punitive damages and compensatory damages should be no more than a 10-to-1 ratio. However, under this new ruling, the ratio could be in extreme excess to this.

An example of this is that if a healthcare provider assigns an inaccurate billing code for something to increase what the government pays them by $100, the court could potentially award a civil penalty of $12,563. This would not be a 10-to-1 ratio, but a 215-to-1 ratio.

Critics see this as grossly unfair.

The law goes into effect in August, however will apply retroactively to claims received after November 2, 2015.