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Hour Records at Lockheed Didn’t Defraud the Gov’t

ATLANTA (CN) - Lockheed Martin will not have to face claims that it overbilled the United States by using a flawed system to track hours on government projects, a federal judge ruled.

Two former employees sued Lockheed Martin alleging that the company retaliated against them after they reported a flaw in its labor-tracking system that they said led to overpayments from the government.

Mark Wood, one of the whistle-blowers, became the medical director of Lockheed's Marietta, Ga., site in 2002, after working as a senior occupational staff physician at the company for 12 years. While tracking methods to reduce the effect of lost time on employment costs, Wood and his co-plaintiff Kathy Isley discovered that employees were allowed to submit an unlimited amount of hours under the Family Medical and Leave Act hours, even though regulations cap FMLA leave time at 12 weeks annually, according to the complaint.

Lockheed's finance department next had Wood and Isley review the company's clock-in system used by hourly employees to track hours worked on each project. There the plaintiffs claimed to have discovered a flaw in Lockheed's labor-recording system that did not distinguish between actual worked hours and lost time, such as vacation or leave hours.

They claimed that the system spread the "lost time" across all of Lockheed's government contracts, allowing the company to falsely bill the government based on its reports, and to overstaff government projects. What's more, Wood and Isley claimed that many employees billed for overtime despite having worked fewer than 40 hours in a week, which resulted in millions of dollars in overpayments from the government.

Initially, Lockheed praised the whistleblowers for their findings, asked them to expand their research and recognized Wood's success with two awards in 2007. Wood claimed, however, that the company investigated his professional conduct for the first time in his career at Lockheed once he started emphasizing that the billing practices were leading to overpayments from the government. Lockheed then allegedly fired him in 2009 without a reason.

Isley, who had worked for Lockheed for more than 30 years, claimed she was "constructively discharged" after she refused to assume the code-processing duties of an outgoing employee, with no additional compensation.

The United States refused to intervene in Wood and Isley's complaint, which was unsealed in February 2012. The two whistle-blowers amended their complaint in August 2012, and filed a motion for sanctions in January 2013.

Lockheed asked the Northern District of Georgia to dismiss Wood and Isley's claims, arguing that they had failed to identify any fraudulent conduct or any false claims Lockheed had actually submitted to the government. It said Wood and Isley failed to allege that they had engaged in protected activity under the False Claims Act, or that the company had retaliated against them for such activity.

U.S. District Judge Thomas Thrash agreed that Wood and Isley had not proven that Lockheed's billing system was fraudulent in any way, or that it violated company policy.

Although the plaintiffs sufficiently alleged that Lockheed's hour-tracking system conceals the billing of lost time - such as sick, vacation and FMLA hours - and that it fails to distinguish between actual worked and lost time, there is no indication that its reports were deceiving in a way that violates federal law, the court found.

Because the government itself assesses overtime based on hours that include paid leave and holidays, there is no indication that the United States would consider Lockheed's billing practices fraudulent, according to the 26-page ruling.

"As Lockheed points out, the FLSA only sets a floor for the federally-mandated leave provisions that employers need to honor," Thrash wrote. "The fact that Lockheed may offer more overtime to its employees than the FLSA requires does not indicate that Lockheed is defrauding the government. The relators cannot show that paying overtime based upon all hours paid in a work week violates any statute, regulation or company policy."

Thrash noted that nothing in the complaint suggests Lockheed systematically bills the government for work it has not done or for employee hours it has not paid for or authorized.

Wood can still advance a retaliation claim, however, since he engaged in protected activity under the False Claims Act by informing Lockheed management that the alleged billing scheme resulted in overpayments from the government.

Wood's notifications, such as emails he sent to management, were sufficient to give Lockheed reason to fear it could have been reported for fraud, according to the ruling. His record at Lockheed and the short period of time between his reporting the alleged scheme and his termination also support his claim of retaliation, the judge found.

Wood also showed a causal connection between his protected activity and his termination, the ruling adds.

But Thrash found Isley's retaliation claim unsupported because she did not allege that her new assignment of duties altered her compensation, terms or conditions of employment.

The fact that Isley did not want the new duties assigned to her is insufficient, because a reasonable employee in Isley's circumstances would not have found the reassignment adverse, according to the ruling.

Thrash refused to sanction Lockheed for allegedly filing its motion to dismiss in bad faith.

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