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The Employment Law Alert is one of many Orrick publications designed to provide our clients and contacts with information they can use to more effectively manage their businesses and access Orrick's expertise. Please contact Lori Soldinger for information on our other publications. You are receiving this communication because we
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February 2005Administrative Law Judge Issues First Order of Reinstatement in Sarbanes-Oxley Whistleblower CaseAlmost a year after the first Sarbanes-Oxley whistleblower determination in favor of a complainant, a U.S. Department of Labor Administrative Law Judge issued the remedies order in the case. Welch v. Cardinal Bank Shares, 2003-SOX-15 (Feb. 15, 2005). Welch, who filed a Sarbanes-Oxley §806 whistleblower complaint after he was terminated for complaining to Cardinal's president and CEO about the company's accounting practices, becomes the first employee under Sarbanes-Oxley to win an order of reinstatement, in addition to being awarded back pay, costs and attorneys' fees. Section 806 of Sarbanes-Oxley protects employees of public companies from retaliation for reporting any conduct that the employee reasonably believes constitutes mail, wire or bank fraud, fraud against shareholders, or violates securities laws. An employee who invokes whistleblower protection is entitled to "make whole" remedies, including reinstatement (in termination cases), back pay with interest, special damages, attorneys' fees, litigation costs, and expert witness fees. In ordering reinstatement, the ALJ stated: "[r]einstatement is a drastic remedy and will frequently pose difficulties, but reinstatement as a remedy is generally appropriate to further the stated remedial goals of Sarbanes-Oxley, i.e. to make complainants whole." Cardinal argued that reinstatement was inappropriate in the case because Cardinal had an independent basis for justifying Welch's termination based on evidence acquired after his termination, and because Cardinal's shareholders supported the termination. Cardinal further argued that reinstatement was unsuitable due to the "distrust and enmity" that had developed between Cardinal and Welch, and because Welch's reinstatement would displace a subsequently hired individual. In response to the after acquired evidence argument, the ALJ found Cardinal's assertion unconvincing because Cardinal knew of Welch's alleged reporting errors prior to his termination. The ALJ also held that Cardinal's shareholder support argument lacked legal authority and that Welch's intent to make his return "productive for all concerned" outweighed Cardinal's concerns about "distrust and enmity." Finally, the ALJ rejected Cardinal's displacement argument because Cardinal filled the position despite Welch's legal claim to it and because the incumbent CFO was also likely aware of Welch's pending claim. The ALJ's opinion in Welch presents the first analysis of whether reinstatement is an appropriate remedy when it comes to the special problems associated with returning whistleblowers to their former positions. If you would like more information as to how the law is developing under the other provisions of the whistleblower protections of Sarbanes-Oxley, please contact any of Orrick, Herrington & Sutcliffe LLP's employment law partners listed below. Michael Delikat (New York) 212-506-5230 D. Barclay Edmundson (Los Angeles) 213-612-2397 Lynne C. Hermle (Silicon Valley) 650-614-7422 Mark Howitson (Silicon Valley) 650-614-7643 Timothy J. Long (Sacramento) 916-329-7919 /(Los Angeles) 213.612.2404 Jill L. Rosenberg (New York) 212-506-5215 Ira Rosenstein (New York) 212-506-5228 Robert S. Shwarts (San Francisco) 415-773-5760 Gary R. Siniscalco (San Francisco) 415-773-5833 Julie A. Totten (Sacramento) 916-329-4908 Robert S.
Whitman (New York) 212-506-5257
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