Front Pay Awarded to Whistleblower Who Rejected Reinstatement - International Law Office

International Law Office

Employment & Labour - USA

Front Pay Awarded to Whistleblower Who Rejected Reinstatement

May 09 2007

Background
Decision

Comment


Background

In Hagman v Washington Mutual Bank Inc (1) a Department of Labour (DOL) administrative law judge has awarded over $640,000 in front pay to a California banker who rejected reinstatement after a DOL investigation found that her employer had violated the 'whistleblower' provision of the Sarbanes-Oxley Act of 2002. This is the first time a successful Sarbanes-Oxley Act complainant has received front pay in lieu of reinstatement.

The Sarbanes-Oxley Act protects employees of public companies who report conduct that they reasonably believe constitutes a violation of federal law relating to financial, securities or shareholder fraud. The act's regulations provide not only that an administrative law judge may order reinstatement of the complainant to his or her former position, but also that any such order may not be stayed pending an appeal to the Administrative Review Board.(2) Notably, no provision explicitly allowing an employer to pay the complainant in lieu of reinstatement (even during the time an appeal is pending) is found in the regulations.

Decision

Nonetheless, the judge in Hagman ruled that the claimant reasonably rejected the bank's reinstatement offer, which was made after the DOL investigator ordered reinstatement based on the finding of a Sarbanes-Oxley Act violation. In light of the manifest hostility between the parties, the judge held that front pay should be awarded instead. The judge cited the act's general language in the section on remedies, which provides that "[a]n employee prevailing in any action under subsection (b)(1) shall be entitled to all relief necessary to make the employee whole".(3)

The judge found that Hagman's rejection of the reinstatement offer was

"objectively reasonable based on the hostility exhibited towards the complainant by the respondent's managers and the likelihood of a dysfunctional work environment upon reinstatement."

The judge pointed to three reasons supporting his finding:

  • At the time the bank offered reinstatement, the harasser who had acted abusively towards Hagman was still employed by the bank and Hagman would have had to interact with him as part of her job;

  • The bank's managers continued to assert throughout the DOL investigation and, significantly, after the DOL's findings of harassment and through the trial that Hagman was terminated due to poor performance and restructuring, and its failure to incorporate its admitted retaliation into new guidelines or policies to prevent future retaliatory conduct demonstrated hostility towards Hagman; and

  • Despite repeated, explicit pleas from Hagman for protection from retaliation, none of the bank's managers provided her relief; instead, they moved the harasser to a position of immediate supervision over her.

Under these circumstances, the judge found that Hagman reasonably lacked trust in the employer and its managers and her return to the bank would "guarantee a dysfunctional, unproductive working relationship". In addition to the front pay, Hagman was awarded approximately $300,000 in attorneys' fees and $125,000 in deferred compensation. The bank has filed a petition with the DOL seeking a review of the decision.

Comment

The decision demonstrates the DOL's broad powers to award front pay in lieu of reinstatement at the complainant's request where reinstatement is inappropriate. The opinion also highlights the importance of taking swift action when confronted with complaints of wrongdoing and retaliation under the Sarbanes-Oxley Act. If, following the DOL's finding of retaliation and the bank's acceptance of that finding, the bank's managers had disciplined the harasser and enacted policies to prevent future retaliatory conduct, it is uncertain whether the DOL would have awarded front pay in lieu of reinstatement. The decision in Hagman does not, however, alter an employer's responsibility to reinstate a whistleblower immediately following a reinstatement order by an administrative law judge.


For further information on this topic please contact Kevin B Leblang or Robert N Holtzman at Kramer Levin Naftalis & Frankel LLP by telephone (+1 212 715 9100) or by fax (+1 212 715 8000) or by email (KLeblang@KramerLevin.com or RHoltzman@KramerLevin.com).

Endnotes

(1) DOL ALJ 2005 SOX-00073 (December 19 2006).

(2) 20 CFR Section 1980.109(c).

(3) 18 USC Section 1514A(c)(1).



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