George Fort lost his $335,000-per-year job as chief financial officer at Tennessee Commerce Bank soon after he told the audit committee that the bank was violating securities laws. On March 7, 2008—the day after he passed on his concerns to federal and state regulators—the bank put him on administrative leave. Two months later it fired him.
Fort filed a claim with the Department of Labor (DOL), contending Tennessee Commerce discharged him in retaliation for raising questions about possible insider trading, weak internal controls and other alleged violations of the Sarbanes-Oxley Act of 2002 (SOX). The law protects SOX whistleblowers from retaliation.
For its part, the bank vigorously denies it engaged in any unlawful conduct. It insists it terminated Fort, the bank’s SOX compliance officer, for poor job performance.
Fort scored a stunning first-round victory in March 2010 when his retaliation claim was upheld by the DOL’s Occupational Safety and Health Administration (OSHA).
The Secretary of Labor not only ordered the bank to immediately give Fort his job back, she told the bank to pay him more than $1 million in back wages, bonuses, stock options, employee benefits and attorneys fees in what was believed to be the largest DOL whistleblower award to date under the eight-year-old law.
Not surprisingly, the bank immediately announced it would appeal. Meanwhile it refused to reinstate Fort, pointing out that its board of directors has a fiduciary obligation to entrust the critical CFO duties only to someone the board believes to be competent and reliable.
OSHA counter-attacked in the Federal District Court for the Middle District of Tennessee by obtaining a preliminary injunction May 19, compelling Fort’s immediate reinstatement. However the wind soon went out of OSHA’s enforcement sails when the 6th Circuit stayed the injunction, saying the bank would suffer “irreparable harm” if it was required to immediately reinstate Fort.
“A balancing of the harms supports the issuance of a stay,” Judges Jeffrey Sutton, Richard Griffin and William Bertlesman ruled May 25.
OSHA under attack
Whistleblower advocates view the case as a serious attack on OSHA’s powers because the bank contends that federal judges can’t enforce SOX preliminary reinstatement orders.
“Mr. Fort should not have to wait years to get his job back, and the delay will have a chilling effect on other workers who are aware of similar misconduct,” argues Adam Carter, a principal with The Employment Law Group, a Washington, D.C., firm which represents whistleblowers.
Carter maintains the bank’s jurisdictional challenge “flouts the plain meaning and intent of the statute, which mandates reinstatement of a SOX whistleblower who prevails before OSHA.”
In court filings, DOL warned that “a failure to enforce the Secretary’s order of reinstatement will discourage employees from reporting improper accounting practices of their employers, and encourage managers to retaliate against meritorious complainants, in direct contravention of the Act’s purpose.”
That pitch persuaded Judge William Haynes of the Middle District of Tennessee, who “firmly” concluded that he had the power to enforce Fort’s reinstatement, although he acknowledged some ambiguity in the applicable jurisdictional statutes.
When it ordered the stay of Haynes’ reinstatement ruling, the 6th Circuit found that reinstating Fort before it determines the threshold jurisdictional question would be “highly damaging” to the bank given the ongoing tension between the parties. By contrast, Fort “can be made whole” with a monetary award if OSHA’s reinstatement order was properly issued, the panel said.
The 6th Circuit also held that a stay was warranted because the bank had “raised a substantial question” about whether the district court has subject matter jurisdiction to enforce DOL preliminary reinstatement orders.
“This issue of first impression in this court has been addressed only once in a published court of appeals decision, Bechtel v. Competitive Techs, Inc., a [2006 2nd Circuit] case in which the three judges had three different takes on the issue,” observed the panel, which ordered expedited briefings on the bank’s appeal of the preliminary injunction.
Richard Cino, a partner at Jackson Lewis, expects other circuits will eventually address the issue of preliminary SOX reinstatement. Even if that remedy is curtailed, he says, “The law certainly has teeth because of the various damages that are available under the statute.”
However such decisions would undoubtedly spur more employers to appeal OSHA’s reinstatement orders before complying, says Thomas Linthorst, a partner at Morgan Lewis.
“OSHA would take it as a blow,” Linthorst adds, “because in those instances where they have found [retaliation], they view the preliminary reinstatement remedy as an important one.”
Even if the 6th Circuit concludes that DOL preliminary reinstatement orders are not enforceable, “I don’t see it as giving employers a blank check to always ignore a reinstatement order from the DOL,” says Doug Towns, a partner at Jones Day.
Regardless of how the decision goes, employers should expect a more aggressive stance on whistleblower cases from the reinvigorated Obama-era OSHA, which has ordered other SOX whistleblowers reinstated in recent months. Displaying its new “get tough” attitude in the press release accompanying Fort’s reinstatement order, DOL warns “This case … sends a strong message that retaliatory actions will not be tolerated.”