REINSTATEMENT; AFTER ACQUIRED EVIDENCE; SHAREHOLDERS' RE-ELECTION OF BOARD OF DIRECTORS WHO REMOVED COMPLAINANT; HOSTILITY TOWARD COMPLAINANT; DISPLACMENT OF INCUMBENT
Recognizing that reinstatement is a drastic remedy that can pose difficulties, the ALJ in Welch v. Cardinal Bankshares Corp., 2003-SOX-15 (ALJ Feb. 15, 2005), noted that it is nonetheless part of the "make whole" goal of the SOX and that it is the presumptive remedy in wrongful termination cases. The Respondent presented four grounds for not granting reinstatement in Welch, but the ALJ rejected each.
First, the Respondent asserted that it had learned of facts that made the Complainant (who was the Respondent's CFO) unfit for his position ("after acquired evidence"). Those facts allegedly were egregious errors contained in call reports that were purportedly not learned of by the Board of Directors and the CEO until after the Complainant had been fired. The Respondent argued that the Complainant would have been fired for such errors had he not already been fired. The ALJ, however, found that the record made at the hearing established that the Respondent clearly knew about the call report errors prior to the time he was fired, and therefore could not rely on the errors to invoke the after acquired evidence rule.
Second, the Respondent argued that because the shareholders had re-elected the same Board of Directors who fired the Complainant, it would be egregious to require reinstatement, thereby substituting a tribunal's judgment for the judgment of both the company's independent directors and the shareholders, who are the intended beneficiaries of SOX. The ALJ rejected this argument, observing that the re-election reflected nothing more than the shareholders general approval of the board and not specific approval of dismissal of the Complainant, and that there was no legal authority to support the argument as a factor to consider in regard to reinstatement.
Third, the Respondent argued that its operations were small, and that the Complainant would be required to work in close proximity with persons who had developed a distrust and dislike of him. The ALJ noted that numerous courts have held that friction is typically not a sufficient basis for denying reinstatement. The ALJ found evidence that hostility toward the Complainant existed within Respondent's workforce and officers, but concluded that SOX nonetheless compelled reinstatement.
Finally, the Respondent argued that it would have to displace the Complainant's replacement, who was uninvolved with the events leading to the Complainant's discharge. The ALJ, however, found that the incumbent was unlikely not to have known that the CFO position was subject to a legal claim by the Complainant given the extensive local and national press coverage that had been given to the case. The ALJ also noted that the Respondent had long known that it would be ordered to reinstate the Complainant (the ALJ had issued his decision on the merits in January 2003) and that the delay in the decision on remedies had been occasioned by the Respondent's decision to attempt to take an interlocutory appeal. Thus, the incumbent's potential hardship if bumped was directly attributable to the Respondent's litigation strategy. The ALJ also discussed the Fourth Circuit's decision in Spagnuolo v. Whirlpool Corp., 717 F.2d 114 (4th Cir. 1983), in which the court established a "rightful place" theory where aggrieved employees cannot bump innocent incumbents but are given seniority rights for the next vacancy and back pay to compensate for lost earnings. The ALJ noted that Spagnuolo was decided under Title VII and the ADEA, and also distinguished the facts of that case and the facts in Welch. Further, the ALJ noted that dicta in Spagnuolo supports reinstatement if the employer hired the incumbent in violation of an order requiring reinstatement of the complainant to a comparable position.
REINSTATEMENT; ENFORCEMENT IN DISTRICT COURT; SUBJECT MATTER JURISDICTION; DOL ORDER OF REINSTATEMENT IS SUFFICIENT WITHOUT PROOF OF ELEMENTS TO COMPEL INJUNCTIVE RELIEF
In Bechtel v. Competitive Technologies, Inc., No. 3:05-CV-00629 (D.C.Conn. May 13, 2006), OSHA had found in favor of the Complainants and ordered reinstatement. The Respondent requested a hearing and moved for a stay of the reinstatement order, which the ALJ denied. The Respondent refused to comply with the reinstatement order and the Complainants filed an enforcement suit in federal district court. The Respondent argued that the court did not have subject matter jurisdiction because the Secretary had not yet issued a final order. The Court, however, found that it had jurisdiction under the plain language of the SOX statute. 18 U.S.C. § 1514(b)(1)(A) and (B) (incorporating the procedures of AIR21).
The Respondent also argued that the Complainants had failed to demonstrate the material elements for injunctive relief. The Court, however, found that such elements are not relevant because under the SOX statute the Complainants were entitled to an injunction based exclusively on the Secretary's findings.
PRELIMINARY ORDER OF REINSTATEMENT; DISTRICT COURT LACKS ENFORCEMENT JURISDICTION WHILE APPEAL IS PENDING BEFORE THE ARB
In Welch v. Cardinal Bankshares Corp., No.: 7:06-CV-00407 (W.D.Va. Oct. 5, 2006), the court dismissed the Plaintiff's action seeking enforcement of the ALJ's preliminary order of reinstatement in a SOX whistleblower case which was pending on appeal before the ARB. The court found that it did not have jurisdiction to enforce such an order. Upon review of the statutory language of SOX, and the AIR21 procedures incorporated therein, the court found that jurisdiction was afforded to a district court only to enforce a final order of the Secretary, notwithstanding the regulation at 29 C.F.R. § 1980.113. In support of its interpretation of the SOX and AIR21 statutes, the court observed the general principle that federal courts can only review the final decisions of administrative agencies; the fact that the whistleblower provision of the STAA specifically provides for an enforcement of a preliminary order of reinstatement, whereas the SOX and AIR21 do not; and the efficient administration of justice (because a preliminary order of reinstatement could be overturned on appeal).
PRELIMINARY ORDER OF REINSTATEMENT; DISTRICT COURT ENFORCEMENT
In Bechtel v. Competitive Technologies, Inc., No. Civ.3:05CV629AVC (D.Conn. May 13, 2005) (case below 2005-SOX-33), the Plaintiff employees, joined by the Secretary of Labor, sought enforcement of the Secretary's preliminary order of reinstatement in a SOX whistleblower case. OSHA had found in favor of the employees and ordered reinstatement. The Respondent requested an ALJ hearing and moved for a stay of the reinstatement order, which the ALJ denied. SeeBechtel v. Competitive Technologies, Inc., 2005-SOX-33 and 34 (ALJ Mar. 29, 2005). The Respondent nonetheless continued to refuse to comply with the reinstatement order, resulting in the plaintiffs' district court suit for enforcement. The district court rejected the defendant's argument that the district court did not have subject matter jurisdiction, finding that although the agency had not yet issued a final order, the statute explicitly authorized district court jurisdiction to enforce a preliminary order as if it were a final order. The court also rejected the Defendant's argument that the Plaintiffs were not entitled to a preliminary injunction because they had not demonstrated the material elements for such relief. The court held that the SOX "makes clear that the Secretary of Labor and not the court makes the determination of whether an order of reinstatement is appropriate."
Accordingly, the court ordered the Defendant to immediately reinstate the plaintiff employees and to pay them all salary, benefits and other compensation that would have been earned had the Defendant complied with the preliminary order when it was issued.
In Kalkunte v. DVI Financial Services, Inc., 2004-SOX-56 (ALJ July 18, 2005), the ALJ held that reinstatement was not available as a remedy because the Respondent was no longer in business, having gone bankrupt. The ALJ awarded front pay instead.
REFUSAL OF OFFER OF REINSTATEMENT MUST BE OBJECTIVELY REASONABLE; FRONT PAY; ALJ APPLIES HIGHER BURDEN ON RESPONDENT WHERE IT ADMITTED LIABILITY BUT MANAGERS WITH INFLUENCE OVER THE COMPLAINANT'S WORKING CONDITIONS CONTINUE TO REFUSE TO ACKNOWLEDGE ERROR
In Hagman v. Washington Mutual Bank, Inc., 2005-SOX-73 (ALJ Dec. 19, 2006), the ALJ found that the Complainant's rejection of the Respondent's offer of reinstatement was objectively reasonable based on the hostility exhibited toward the Complainant by managers and the likelihood of a dysfunctional work environment upon reinstatement. For the same reasons, the ALJ found that reinstatement was inappropriate and that front pay should be awarded instead. First, at the time that the reinstatement offer was made, the Complainant would have still had to interact with the manager who had intentionally threatened her physically and professionally, made regular work communications fraught with tension, and was responsible for the retaliatory termination. Second, the Respondent's managers continued to assert, even after accepting OSHA's findings, that the Complainant had been terminated due to poor performance and restructuring, even though the Complainant had been a high-performing, committed employee, and the evidence overwhelmingly failed to support the claim of poor performance. Third, despite requests for assistance from persons in positions of authority at the Respondent, they provided no aid or relief, and in fact moved the harasser to a position of immediate supervision over the Complainant. Moreover, the Respondent had made no changes in its processes for preventing or handling retaliation, credit problems or fraud concerns. The ALJ found such a failure by managers to understand their past errors supported the Complainant's testimony that she would be scared to report or investigate credit problems out of fear of retaliation. The ALJ held:
In light of the foregoing, I hold that the standard for recovery for finding excessive hostility between parties warranting front pay in place of reinstatement is relaxed under the special circumstances of this case, where a respondent's retaliation and pre-textual termination against a complainant is admitted, when compared to the evidentiary burden required to prove a prima facie claim of a hostile work environment. I find there is a noted distinction between this case and one in which a plaintiff is arguing the presence of a hostile work environment as an element of her prima facie case, where the burden of proof remains firmly on the party alleging a hostile work environment. That situation warrants stricter scrutiny and a higher burden of proof on a complainant than here, where Respondent has admitted that an adverse act hostile to Complainant has occurred yet its management refuses to acknowledge this admission and remains in a position of influence over the prevailing Complainant's work performance. Under the circumstances of this case, I hold that Respondent should be required to show by clear and convincing evidence why reinstatement is warranted. I find that Respondent has failed to show that Complainant's reinstatement to her former position is appropriate in this case.
Slip op. at 36-37.
[Note: The Respondent withdrew its appeal of the ALJ decision before the ARB. Hagman v. Washington Mutual Bank, Inc., ARB No. 07-039, ALJ No. 2005-SOX-73 (ARB May 23, 2007) PDF |
HTM].
FRONT PAY; CALCULATION; USUAL AWARD IS FOR A SPECIFIC PERIOD OF TIME RATHER THAN UNTIL RETIREMENT
In Hagman v. Washington Mutual Bank, Inc., 2005-SOX-73 (ALJ Dec. 19, 2006), the ALJ found that an award of front pay in lieu of reinstatement was appropriate. In determining the front pay award, the ALJ followed a line of cases suggesting that such awards are usually made for a set amount of time rather than for an entire lifetime. Specifically, the ALJ found that where, as in the instant case, the Complainant was only in her 40s, front pay until retirement was not warranted. Rather, based on the evidence of record including the assumptions and opinions of financial experts, the ALJ applied an assumption that the Complainant would fully recover her career track in 10 years. The ALJ found that the present value of the Complainant's loss of earnings and benefits was $642,941.
[Note: The Respondent withdrew its appeal of the ALJ decision before the ARB. Hagman v. Washington Mutual Bank, Inc., ARB No. 07-039, ALJ No. 2005-SOX-73 (ARB May 23, 2007) PDF |
HTM].
PRELIMINARY ORDER OF REINSTATEMENT; ALJ MUST PROVIDE CLEAR AND COHERENT NOTICE THAT THE PRELIMINARY ORDER OF REINSTATEMENT WOULD BE IN EFFECT WHILE THE ARB CONDUCTS ITS REVIEW OR UNTIL THE ARB STAYS THE ORDER
In Welch v. Cardinal Bankshares, __ F.Supp.2d __ , 2006 WL 14400 (W.D.Va. Jan. 4, 2006) (case below ARB No. 04-054, ALJ No. 2003-SOX-15 ), the U.S. District Court for the Western District of Virginia declined to enforce an ALJ's preliminary order of reinstatement in a Sarbanes-Oxley whistleblower case on the ground that the ALJ had not followed the proper procedure for entry of such an order. The court cited an ARB decision, which possibly suggested that the ALJ should have issued a separate, preliminary order of reinstatement as is required in ERA cases. In an order denying the plaintiff's motion to alter or amend judgment, however, the district court clarified that the citation to ERA authority was only intended to support the proposition that the ALJ must state a ruling "in clear, coherent, and unambiguous terms" and was not a ruling that the ERA procedure applied to SOX cases. Welch v. Cardinal Bankshares, No. 7:05CV00546, slip op. at 5 (W.D.Va. Jan. 26, 2006) (case below ARB No. 04-054, ALJ No. 2003-SOX-15 ). Thus, the deficiency was not the lack of a reinstatement order separate from the ALJ's decision and order, but the lack of effective notice to the Respondent that the preliminary order of reinstatement would be in effect while the ARB conducted its review or until the ARB stayed the order.
ADMINISTRATIVE REVIEW BOARD DECISIONS
PRELIMINARY ORDER OF REINSTATEMENT; ALJ IS NOT REQUIRED TO ISSUE A PRELIMINARY ORDER SEPARATE AND DISTINCT FROM DECISION AND ORDER
In Welch v. Cardinal Bankshares Corp., ARB No. 06-062, ALJ No. 2003-SOX-15 (ARB June 9, 2006), the ARB rejected the Respondent's contention that a preliminary order of reinstatement is effective only if the ALJ issues a separately designated and explicit preliminary order.
REINSTATEMENT ORDER; BIFURCATED PROCEEDING ON MERITS AND DAMAGES; ALJ SHOULD NOT ISSUE REINSTATEMENT ORDER UNTIL MATTER BECOMES APPEALABLE
Where the ALJ conducts a bifurcated proceeding first adjudicating the merits, and then the damages if the complaint is found to be meritorious, the ALJ should not issue the preliminary order of reinstatement until he or she issues the final appealable order. SeeWelch v. Cardinal Bankshares Corp., ARB No. 04-054, ALJ No. 2003-SOX-15 (ARB May 13, 2004) (Respondent argued that if it could not immediately appeal the ALJ's merits decision, it would be in an untenable position as the ALJ ordered reinstatement; the ARB noted, however, that the ALJ apparently had only found the Complainant entitled to reinstatement, and appropriately had not yet issued a preliminary order of reinstatement).
[SOX Digest XIV A] REINSTATEMENT; ALJ DOES NOT HAVE THE AUTHORITY TO IMPOSE A MONETARY SANCTION FOR A RESPONDENT'S REFUSAL TO REINSTATE A COMPLAINANT EVEN AFTER THE ALJ DENIED A MOTION TO STAY AN OSHA REINSTATEMENT ORDER
In Windhauser v. Trane, ARB No. 05-127, ALJ No. 2005-SOX-17 (ARB Oct. 31, 2007), OSHA issued a preliminary order of reinstatement. The ALJ denied the Respondent's motion to stay the order of reinstatement, and the ARB denied a petition for review of the ALJ's order because it was an interlocutory appeal. Later, the ALJ approved a settlement, but awarded sanctions against the Respondent based on refusal to comply with the preliminary order of reinstatement. The ALJ reasoned that SOX's grant of authority to an ALJ to deny a motion to stay reinstatement, perforce granted the ALJ authority to preserve the integrity of that denial through imposition of administrative sanctions. The ALJ awarded the Complainant a pro rata portion of his salary and expected bonus for the months from the preliminary order of reinstatement to the settlement of the case. On appeal, the ARB held that the ALJ did not have the authority to impose monetary sanctions, and that any enforcement actions for failure to
reinstate are, by statute, in the jurisdiction of the federal district courts. The ARB therefore vacated the sanction.
ADMINISTRATIVE LAW JUDGE DECISIONS
PRELIMINARY ORDER OF REINSTATEMENT; SANCTIONS FOR FAILURE TO REINSTATE
In Windhauser v. Trane, 2005-SOX-17 (ALJ June 1, 2005), the case had been terminated by settlement, but the ALJ imposed a monetary fine on the Respondent for its failure to reinstate the Complainant. The ALJ pointed out that without an administrative sanction for failure to reinstate without a stay having been granted, a Respondent could enjoy a passive stay, at least until District Court enforcement. The ALJ calculated the fine based on double the amount the Complainant would have earned in salary and bonuses from the date of the OSHA order until the date of settlement of the case.
In contrast, in Welch v. Cardinal Bankshares Corp., 2003-SOX-15 (ALJ Aug. 9, 2005), the ALJ denied a motion seeking an order to show cause why administrative monetary sanctions should not be imposed by the ALJ on the Respondent for its failure to reinstate the Complainant as ordered by the ALJ in his supplemental Decision and Order on damages. The ALJ denied the motion, finding that enforcement of an order of reinstatement must be pursued by instituting a civil action in U.S. District Court filed by the Secretary or the person on whose behalf the reinstatement order was issued. The Complainant cited the above-noted order in Windhauser as support for the imposition of monetary sanctions, but the ALJ in Welch found that order to be neither binding nor persuasive authority. Rather, the ALJ found that enforcement in district court was the Complainant's only avenue for relief, citing as an example,
Bechtel v. Competitive Technologies, Inc., No. Civ.3:05CV629AVC (D.Conn. May 13, 2005) (case below 2005-SOX-33).
PRELIMINARY ORDER OF REINSTATEMENT; STANDARD FOR MOTION FOR STAY MIRRORS TEST FOR DETERMINING WHEN AGENCY ACTION MAY BE STAYED; ECONOMIC REINSTATEMENT MAY BE AN APPROPRIATE SUBSTITUTE; ALLEGED IRREPARABLE HARM MUST BE ACTUAL AND NOT THEORETICAL
In Welch v. Cardinal Bankshares Corp., ARB No. 06-062, ALJ No. 2003-SOX-15 (ARB June 9, 2006), the ARB applied the four-part test the Board uses to determine when agency action may be stayed to a motion for stay of an ALJ's preliminary order of reinstatement in a SOX case. In regard to the first element, the Board declined to find that it would be likely that the Respondent would prevail on the merits where (1) there had been a full evidentiary hearing, full development of the evidentiary record, and the ALJ had found that the Complainant had been fired for engaging in protected activity, and (2) the ALJ's reasoning, while subject to further review, appeared sound on its face. The Employer also presented "after acquired evidence" that purportedly established other legitimate reasons for terminating the Complainant; however, this evidence had not been presented before the ALJ and the Respondent had not made a showing that it was not readily available prior to the closing of the record before the ALJ. The ARB also noted that, even if after acquired evidence made reinstatement inappropriate, other remedies such as front pay can be an appropriate substitute.
In regard to the second element, the ARB rejected the Respondent's assertions of irreparable injury because a lack of confidence in the Complainant reinstated as CFO could place the Board of Directors as risk for personal liability and because it would have to remove its current CFO. The ARB found that any alleged irreparable harm must be actual and not theoretical, and certain to occur. The Board also noted that the Complainant need not be reinstated as CFO; rather the Respondent could use his skills while the case is being litigated "by a variety of other means. Alternatively, front pay or economic reinstatement could be a substitute for reinstatement.
In regard to the third element, the ARB found that the Complainant would be harmed if a stay was granted because he had already waited more than three and one-half years to have his pay and benefits restored. The ARB rejected the Respondent's contention that the Complainant could not claim harm because he did not timely seek reinstatement. Rather, the ALJ's preliminary order made it unnecessary for the Complainant to seek enforcement.
In regard to the forth element, the ARB found that the public interest militated against a stay.
REINSTATEMENT; PREREQUISITE TO ENFORCEMENT IS OPPORTUNITY FOR RESPONDENT TO MOVE FOR A STAY BY THE ARB
In Welch v. Cardinal Bankshares Corp., ARB No. 06-062, ALJ No. 2003-SOX-15 (ARB Mar. 31, 2006), the ARB affirmed that the ALJ had issued a preliminary order of reinstatement and ordered that the Respondent would have ten days to move for a stay of that order. This issue arose because, in Welch, the ALJ had ordered the Respondent to reinstate the Complainant, but because he had issued a merits decision and a second decision on damages, and had erroneously placed a notice of appeal rights on the earlier merits decision, there was some confusion over when the matter became ripe for appeal to the ARB and whether the reinstatement order was merely recommended. When the Complainant sought enforcement of the reinstatement order in federal district court, the court concluded that the Respondent did not, under the circumstances of this case, have adequate notice, and that the ALJ's reinstatement order could not be enforced without the Respondent having had the opportunity to seek a stay from the ARB. The court therefore dismissed the enforcement action. The court, however, indicated that the dismissal was without prejudice to file a new motion to seek enforcement "should the ARB deny a stay on the merits."
ADMINISTRATIVE LAW JUDGE DECISIONS
PRELIMINARY ORDER OF REINSTATEMENT; REGULATORY OPPORTUNITY TO PETITION FOR STAY OF OSHA REINSTATEMENT ORDER IS NOT INCONSISTENT WITH GOVERNING STATUTES
In Bechtel v. Competitive Technologies, Inc., 2005-SOX-33 and 34 (ALJ Mar. 29, 2005), one Complainant argued that DOL's regulation that allows a party to request a stay of a preliminary order of reinstatement is inconsistent with statutory mandate (SOX referring to AIR21 in regard to remedies). The ALJ found that the Acts were not in conflict with the regulations; that the Acts limit automatic stays of reinstatement orders but do not suggest that a stay is never appropriate; and that agencies act appropriately in prescribing regulations to implement statutory intent as the agency has defined it upon a review of legislative history and underlying policies.
PRELIMINARY ORDER OF REINSTATEMENT; STAY GRANTED ONLY FOR EXTRAORDINARY REASONS; ANALYSIS SIMILAR TO ANALYSIS FOR INJUNCTIVE RELIEF; POSSIBILITY THAT "ECONOMIC REINSTATEMENT" WOULD CONSTITUTE CONSTRUCTIVE COMPLIANCE; SECURITY RISK ASSERTION IS NOT AUTOMATICALLY GROUNDS FOR STAY
In Bechtel v. Competitive Technologies, Inc., 2005-SOX-33 and 34 (ALJ Mar. 29, 2005), the ALJ found that the statutory mandate of reinstatement dictates that a stay be granted only for extraordinary reasons -- i.e., circumstances similar to those supporting injunctive relief. In the instant case, the ALJ found that there was a reasonable basis to conclude that the Complainant's would be able to establish a prima facie case and that she was not able to conclude that the Respondent would be likely to succeed on the merits. The ALJ also found that the Respondent had not established that reinstatement would cause it irrepable harm or that the harm it would realize would outweigh that experienced by the Complainants or that reinstatement would be contrary to public policy.
The ALJ, however, ruled that "economic reinstatement" would be constructive compliance with a preliminary order for reinstatement.
The ALJ concluded that the assertion that the Complainants were a security risk, proffered after OSHA had ordered reinstatement, was not grounds for an automatic stay but rather a relevant factor in determining whether injunctive relief should be granted.
PRELIMINARY ORDER OF REINSTATEMENT; STAY GRANTED ONLY FOR EXTRAORDINARY REASONS; CLAIM OF IRREPARABLE HARM BASED ON DISPLACEMENT OF SUCCESSOR TO COMPLAINANT'S POSITION
In Windhauser v. Trane, 2005-SOX-17 (ALJ Feb. 11, 2005), the ALJ found that a stay of a preliminary order of reinstatement should be granted only for extraordinary reasons, rejecting the Respondent's argument that language in the legislative history of the analogous whistleblower provision of the Pipeline Safety Act indicates that the standard should be "sufficient grounds." The ALJ rejected the Respondent's irreparable harm argument based on its being forced to terminate the Complainant's replacement, the ALJ observing that the replacement had been appointed to the position the same day that the Respondent filed its reply brief on the instant motion for a stay.
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