District Court: Firm Must Reinstate Whistleblowers

In the first federal court decision enforcing a preliminary reinstatement order under the Sarbanes-Oxley Act of 2002, the U.S. District Court for Connecticut has ordered Competitive Technologies Inc. (CTI) of Fairfield, Conn. to reinstate, pending the outcome of litigation, two men who claimed they were fired for whistleblower activities protected by the act.

In September 2003, John Scott Bechtel and Willie Jacques Jr., former vice presidents of CTI, a full-service technology transfer and licensing provider, complained to OSHA that CTI had fired them in June 2003 because they raised concerns about the company's financial reporting.

OSHA investigated the complaints and issued its findings on Feb. 2, 2005. The agency ordered CTI to reinstate the men to their jobs and pay them back wages and benefits.

According to OSHA findings cited in U.S. District Judge Alfred Covello's May 13 ruling, Bechtel and Jacques refused to sign off on CTI's SEC 10-K report for the fiscal year ending July 31, 2004, because of concerns that certain oral agreements made between CEO John Nano and consultants should have been disclosed in the report and to shareholders. Although Bechtel and Jacques eventually signed off on the report -- assuaged by Nano's assurances that their concerns would be addressed by the next disclosure meeting -- Nano then "criticized and attempted to embarrass [Bechtel and Jacques] at staff meetings and in front of co-workers," according to the OSHA findings. Nano allegedly terminated the men on June 30, 2003.

CTI filed an objection to OSHA's findings with the Labor Department's Office of Administrative Law Judges and requested a stay of the reinstatement order. An administrative law judge denied both that request and a subsequent request for reconsideration.

On April 18, the Labor Department, along with Bechtel and Jacques, petitioned the U.S. District Court in New Haven, asking the court to enforce the reinstatement order. On May 13, Covello ordered CTI to temporarily reinstate Bechtel and Jacques retroactive to Feb. 2, 2005, and to compensate them for lost income and benefits from that date forward. The litigation about the underlying case is pending before a Department of Labor administrative law judge.

"This is a significant decision in favor of workers who are penalized for doing the right thing," OSHA Acting Assistant Secretary of Labor Jonathan Snare said. "It affirms that the law does not give the employer the option to refuse reinstatement during the Sarbanes-Oxley appeal process."

Sarbanes-Oxley, the Corporate and Criminal Fraud Accountability Act, provides employees the opportunity to file a complaint with OSHA if they have been retaliated against by their employer for reporting suspected corporate fraud or other activities related to fraud against shareholders. If OSHA determines after an investigation that an employee's complaint has merit, it can order remedies such as reinstatement and back pay. Either party has 30 days to file objections or request a hearing on the matter with the Labor Department's Office of Administrative Law Judges.

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