Federal Lawsuit in Colorado Demonstrates Employers Could Be Liable Under the False Claims Act from Their Own Employees

Federal Lawsuit in Colorado Demonstrates Employers Could Be Liable Under the False Claims Act from Their Own Employees

Brett Whitley, Associate

            On January 8, 2026, a former employee of a Colorado corporation, AMS Collective, Inc. (the “Corporation”), filed a lawsuit (“Lawsuit”)[1] against the Corporation and its President alleging, in pertinent part, that the Corporation and its President are liable under the False Claims Act (“FCA”)[2] for terminating her in retaliation for her attempts to stop the Corporation from submitting a response to a request for quotation (“RFQ”) from the U.S. Department of Energy with false information. The Corporation and its President have since moved to dismiss the Lawsuit due to the former employee failing to allege that the response to the RFQ constituted a “claim” for payment under the FCA.  The Lawsuit is an example of what employers attempting to obtain federal contracts should consider when their employees speak out about alleged FCA violations, especially in light of the Trump administration’s recent use of the FCA to prohibit diversity, equity, and inclusion (“DEI”) practices in the workplace.

Background of the FCA

            Under the FCA, any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval [or] knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim . . . is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 . . . plus 3 times the amount of damages which the Government sustains because of the act of that person.” 

            In pertinent part, a “claim” under the FCA is “any request or demand, whether contract or otherwise, for money or property” that is presented to an officer, employee, or agent of the United States. 

            Under § 3730 of the FCA, a person may bring a civil action for an FCA violation for the federal government.  Similarly, under said section, any employee who is discharged, demoted, suspended, threatened, harassed, or discriminated against in the terms and conditions of their employment because of lawful acts done by the employee to stop an FCA violation or in furtherance of an FCA action is entitled to reinstatement, 2 times the amount of back pay, interest on the back pay, compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees.

The Lawsuit as an Example of a Private FCA Action Brought Under § 3730

            The former employee in the Lawsuit alleges she told the President of the Corporation that she believed the response to the RFQ to the Department of Energy contained inaccuracies because it stated the Corporation began using a qualify management system earlier than the Corporation actually began using that system.  The former employee alleges her raising that issue with the President was protected under the FCA and that she was terminated for engaging in that protected conduct.  Though the Corporation and President allege her raising that issue with the President was not the reason she was terminated, they argue that even if it was the reason she was terminated, no FCA liability can result because the response to the RFQ was not a “claim” under the FCA (i.e., it was not a request or demand for money or property” presented to an officer, employee, or agent of the United States). 

            Given the limited information in the case, it is difficult to discern if there was truly a FCA “claim.” Ultimately, if the former employee’s Lawsuit prevails, she would be entitled to back pay at two times the regular rate of pay, interest on that back pay, and her reasonable attorneys’ fees.

Employer Considerations

            The Rocky Mountain Employer has frequently addressed how the federal government could hold private employers who act as federal contractors liable under the FCA;[3] however, as demonstrated by the Lawsuit, some of the dangers of FCA liability can come from the employees within the employers’ workplace.  Further, with the Trump administration actively taking aim at federal contractors with illegal DEI practices through the FCA, it is reasonable to expect that the employees of those employers attempting to obtain federal contracts could claim their employer has illegal DEI practices despite representing to the federal government that it is compliant with federal anti-discrimination laws in order to receive a reward.[4]  And as seen in the Lawsuit, if the employer is alleged to have discriminated, discharged, or harassed the employee for putting the federal government on notice of these misrepresentations, the employer could face a lawsuit under the FCA from the employee.  Campbell Litigation is available to evaluate employers’ practices to ensure their compliance with federal anti-discrimination law or determine responses to employees’ claims that the employer is making misrepresentations to the federal government through a claim under the FCA.

[1] Karlson v. AMS Collective, Inc., et al., Civil Action No. 26-cv-00092 (D. Colo. Jan. 8, 2026).

[2] 31 U.S.C. § 3729.

[3] See, e.g., https://www.rockymountainemployersblog.com/blog/2026/4/16/the-department-of-justices-first-case-aimed-at-targeting-diversity-equity-and-inclusion.

[4] If the federal government proceeds with an action brought by a private person under the FCA, the private person would be entitled to 15%-25% of the proceeds of the action or settlement of the claim.