A Connecticut federal court recently held, in Bechtel v. Competitive Techs., Inc., that a Connecticut technology company must reinstate two whistleblowers while it appealed a decision of the Secretary of Labor under the Sarbanes-Oxley Act.

History

Scott Bechtel and Willie Jacques were vice presidents of Competitive Technologies, Inc. ("CTI") who, on three separate occasions, allegedly voiced concerns regarding the company's financial reporting practices. Specifically, Bechtel and Jacques allegedly questioned whether certain oral agreements entered into by CTI's CEO John Nano with consultants and Bechtel and Jacques should be disclosed to shareholders and included in SEC reports. Nano met with Bechtel and Jacques and assured them their concerns would be addressed. Following that meeting, Nano allegedly became hostile towards Bechtel and Jacques, openly criticizing and attempting to embarrass them. This hostility continued until Bechtel and Jacques were terminated. Following their termination, Bechtel and Jacques filed a complaint with the Occupational Safety and Health Administration (OSHA) alleging retaliatory termination in violation of the Sarbanes-Oxley Act. OSHA, the agency responsible for adjudicating whistleblower claims arising under the Sarbanes-Oxley Act, found that CTI had unlawfully fired Bechtel and Jacques and ordered that they be reinstated to their former positions. CTI filed objections with the Secretary of Labor, requested a hearing, and filed a motion to stay the reinstatement order. An administrative law judge denied the motion, however, CTI refused to reinstate Bechtel and Jacques while an appeal was pending. Bechtel and Jacques then sought enforcement of the Secretary's order in federal court.

The Decision

The Court enforced the Secretary's reinstatement order, and in doing so looked to two other federal statutory schemes upon which the Sarbanes-Oxley whistleblower provisions are modeled. Noting that the adjudication of complaints under Sarbanes-Oxley is governed by the rules and procedures set forth in the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century ("AIR21"), the Court began its opinion by rejecting CTI's contention that it lacked subject matter jurisdiction to enforce a preliminary reinstatement order under Sarbanes-Oxley. According to the Court, AIR21 specifically allows federal courts to enforce preliminary orders reinstating employees despite the filing of objections by employers, and hence so does Sarbanes-Oxley.

Having resolved the jurisdictional issue, the Court proceeded to consider the propriety of a request for injunctive relief in this context. As a matter of first impression, the Court held that the legal elements generally required for the issuance of a preliminary injunction were not applicable in a case where the Secretary of Labor has determined, pursuant to Sarbanes-Oxley, that reinstatement is warranted. Likening the statutory scheme of Sarbanes-Oxley to that of the Surface Transportation Assistance Act ("STAA"), the Court relied upon the Supreme Court's 1987 decision in Brock v. Roadway Express, Inc. for the proposition that Congress could grant the Secretary authority to order reinstatement on the basis of an investigation provided that the investigation met minimum due process requirements. Because CTI did not contend that OSHA failed to meet minimum due process standards in making its determination, the Court concluded that Bechtel and Jacques were entitled to a preliminary injunction enforcing the Secretary's determination, despite the fact that the traditional elements of injunctive relief had not been established. The Court ordered CTI to reinstate Bechtel and Jacques and pay them all salary and benefits they would have earned had CTI complied with the Secretary's original reinstatement order.

Ramifications for Employers

The Bechtel decision illustrates the significant protections afforded whistleblowers unlawfully terminated in violation of Sarbanes-Oxley. Although reinstatement is a traditional remedy for violations of federal employment laws, such as Title VII, as a practical matter it is rarely invoked because judges recognize litigation's inherent strain on the employer-employee relationship. Even when appropriate, moreover, reinstatement is ordinarily only required after the litigation has concluded. Under the whistleblower provisions of the Sarbanes-Oxley Act as interpreted by the Bechtel court, however, reinstatement is an interim remedy that can be imposed based on a preliminary investigative finding of a violation. In other words, a terminated employee pursuing a Sarbanes-Oxley claim for retaliatory discharge may well have a right to remain on the job while his or her case is litigated through the administrative and judicial process. Needless to say, this remedial scheme has the propensity to create some rather awkward situations in the workplace.

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©2005 Wiggin and Dana LLP