In the first case of its kind, a Connecticut District Court has ordered a Connecticut company to reinstate two former employees who made whistleblower claims under the Sarbanes-Oxley Act. In doing so, the Court in Bechtel v. Competitive Technologies, Inc., 369 F.Supp.2d 233 (D. Conn. 2005) determined that: (1) the district court had subject matter jurisdiction to enforce a preliminary order of reinstatement under the Sarbanes-Oxley Act by the Secretary of Labor; and (2) the plaintiffs were not required to meet the stringent test for obtaining a preliminary injunction in order to be entitled to such relief in this case.
The Bechtel case involved two former employees, Bechtel and Jacques, who voiced concerns regarding their former employer, Competitive Technologies, Inc. (“CTI”)’s financial reporting to the Securities and Exchange Commission. Shortly after voicing such concerns, CTI terminated their employment. Bechtel and Jacques filed whistleblower complaints with the Secretary of Labor, alleging they were terminated after reporting irregularities covered by Sarbanes-Oxley. Sarbanes-Oxley authorizes an employee to bring a retaliation claim against his employer if the employee is terminated, demoted or threatened as a result of the employee’s reporting of conduct reasonably believed to violate federal securities laws. An employee is not required to prove an actual violation of any law; it is sufficient that the employee believes that he or she is engaging in whistleblowing. The Act also authorizes the Secretary of Labor to order reinstatement of the former employee.
Following an investigation of Bechtel’s and Jacques’ complaints, the Secretary of Labor issued a preliminary order finding that CTI had violated Sarbanes-Oxley, and ordered CTI to reinstate Bechtel and Jacques and pay them backpay. CTI appealed the Secretary of Labor’s preliminary order, which was set down for a new trial. The applicable administrative regulations required, however, that CTI reinstate Bechtel and Jacques pending resolution of the appeal. CTI refused to reinstate Bechtel and Jacques, and they subsequently filed an application for preliminary injunction in the District Court, seeking enforcement of the preliminary order of reinstatement.
The District Court granted the plaintiffs’ motion for preliminary injunction and ordered CTI to reinstate Bechtel and Jacques and pay them backpay. In its decision, the Court first determined that Sarbanes-Oxley conferred jurisdiction on the District Court to enforce even preliminary orders such as that at issue in the Bechtel case. Specifically, the Court concluded that the Act explicitly authorizes jurisdiction in the District Court to enforce a preliminary order as if it were a final order, and that a finding to the contrary would negate the plain words of the Act that preliminary orders of reinstatement may not be stayed pending appeal of the Secretary’s order.
Perhaps more importantly, the Bechtel court also concluded that a plaintiff seeking enforcement of a preliminary order of reinstatement under Sarbanes-Oxley is not required to meet the stringent standard for obtaining a preliminary injunction. In a typical case, a plaintiff must establish: (1) irreparable harm (i.e., harm which cannot be compensated with money damages, or with respect to which such damages are impossible to calculate); and either (2) a likelihood of success on the merits of the case or (3) a sufficiently serious question going to the merits of the case, with a balance of hardships tipping in favor of the party requesting the preliminary injunction. This is a difficult standard to meet, which explains why preliminary injunctions are infrequesntly granted.
In the Bechtel case, however, the Court determined that Bechtel and Jacques were entitled to an injunction based exclusively on the Secretary of Labor’s findings and thus, they were not subject to the stringent test set forth above. This is because the SarbanesOxley Act makes clear that the Secretary of Labor and not the court makes the determination of whether an order of reinstatement is appropriate.
The Bechtel case makes all too clear the significant protections the SarbanesOxley Act affords to employee whistleblowers who allege that they were unlawfully terminated in violation of the Act. In particular, reinstatement to employment, which is ordered as a matter of course by the Secretary of Labor when violations of the Act are found, is an extraordinary form of relief seldom ordered by courts when deciding cases under other employment laws. This is, of course, because reinstatement is very often not a practical option, given the serious strains that litigation places on the relationship between employer and employee. Furthermore, under Sarbanes-Oxley, an employee may be entitled to reinstatement even before the litigation is concluded, as was the case in Bechtel, where CTI was required to reinstate Bechtel and Jacques while its appeal of the Secretary of Labor’s preliminary order was pending.