4th Circuit Denies Job Reinstatement for Whistleblower

August 6, 2008 (PLANSPONSOR.com) - The first person to win whistleblower protection under the Sarbanes-Oxley Act (SOX) has had his reinstatement to work denied by the 4th U.S. Circuit Court of Appeals.

According to the Associated Press, the appellate court ruled that David Welch “utterly failed to explain how Cardinal’s alleged conduct could reasonably be regarded as violating any of the laws” covered by SOX. SOX was signed into law in 2002 in the wake of the Enron and WorldCom scandals and established stricter accounting practices and protection for employees who point out violations.

In 2002 after reporting what he said were misclassifications in financial reports that overstated the bank’s earnings by $195,000, Welch was dismissed as chief financial officer of Cardinal Bankshares Corp., the AP reported. Welch filed a complaint with the Occupational Safety & Health Administration (OSHA) alleging he was retaliated against for engaging in protected activities under the Corporate and Criminal Fraud Accountability Act of 2002, Title VII of the Sarbanes-Oxley Act of 2002, according to the court document. OSHA denied the complaint, and Welch filed an appeal with the Department of Labor’s Office of Administrative Law Judges (ALJ).

The ALJ ordered Cardinal to reinstate Welch; however, in 2006 the U.S. District Court for the Western District of Virginia refused to enforce Welch’s reinstatement saying Cardinal was not given sufficient and timely notice of the reinstatement due to a conflicting order later issued by the ALJ (See Court Refuses to Enforce Whistleblower Reinstatement ).

The ALJ’s decision was overturned in 2007 by the Administrative Review Board (ARB), which found that Welch did not show how Cardinal violated federal law with its poor accounting practices. The 4 th Circuit affirmed the ARB’s decision.

The opinion in Welch v. Chao is here .