Administrative Review Board Decisions

The following case summaries were created by the Administrative Review Board staff.

Administrator, Wage and Hour Div., USDOL v. L'uomo Creatives, LLC, ARB No. 2024-0062, ALJ No. 2021-SCA-00005 (ARB Sept. 27, 2024) (Order of Administrative Closure)

ADMINISTRATIVE CLOSURE OF CASE; FAILURE TO FILE PETITION FOR REVIEW

In Administrator, Wage and Hour Div., USDOL v. L'uomo Creatives, LLC, ARB No. 2024-0062, ALJ No. 2021-SCA-00005 (ARB Sept. 27, 2024), the ARB ordered administrative closure of an administratively assigned ARB case after Respondents failed to file a petition for review of a November 15, 2021 ALJ Decision and Order of Default Judgment against Respondents for violations arising under the McNamara-O'Hara Service Contract Act of 1965 (SCA).

On September 4, 2024, Respondents filed a copy of the publicly available November 15, 2021 ALJ decision with the ARB via the ARB's electronic filing system and, in their filing, they excluded the required components of a petition for review under the SCA's implementing regulations. The ARB issued an order directing Respondents to file a petition for review by September 26, 2024, and stayed the matter pending disposition of its order. As Respondents did not respond and comply with the ARB's order, the ARB lifted the stay on the matter and ordered its administrative closure.

Johnson v. Shamrock Trucking, ARB No. 2024-0056, ALJ No. 2024-STA-00019 (ARB Sept. 27, 2024) (Decision and Order Dismissing Petition for Review)

ARB DISMISSED APPEAL WHERE COMPLAINANT FAILED TO FOLLOW ARB ORDERS TO FILE OPENING BRIEF AND SHOW CAUSE

In Johnson v. Shamrock Trucking, ARB No. 2024-0056, ALJ No. 2024-STA-00019 (ARB Sept. 27, 2024), Complainant filed a Petition for Review with the ARB after an ALJ issued a decision and order dismissing his complaint. The ARB issued a notice of appeal and order setting a briefing schedule which required Complainant to file an opening brief by September 2, 2024. Complainant did not file an opening brief by September 2, 2024.

On September 10, 2024, the ARB issued an Order to Show Cause requiring Complainant to file his opening brief and a response showing cause and explaining why the ARB should not dismiss his appeal by September 24, 2024. The ARB informed Complainant that if he failed to comply with the ARB's order, it could dismiss his appeal without further notice to the parties in keeping with the ARB's authority to manage its docket and dispose of cases. Complainant failed to file a response and opening brief by September 24, 2024. The ARB gave Complainant another opportunity to file his response and brief and again informed him his appeal could be dismissed if he failed do so. As Complainant did not respond or comply with the ARB's orders, the ARB dismissed Complainant's appeal.

Morrell v. DLH Holdings Corp., ARB No. 2023-0030 ALJ No. 2020-SOX-00005 (ARB Sept. 23, 2024) (Decision and Order)

ORDER AFFIRMING ALJ'S D. & O.; PROTECTED ACTIVITY; SUBJECTIVE BELIEF; OBJECTIVELY REASONABLE BELIEF; AFFIRMATIVE DEFENSE

In Morrell v. DLH Holdings Corp., ARB No. 2023-0030, ALJ No. 2020-SOX-00005 (ARB Sept. 23, 2024), the ARB affirmed the ALJ's D. & O.

Complainant, who had over thirty years of experience in financial planning, financial analysis, and government contract accounting, began working for Respondent on June 20, 2011. Her initial job duties included performing accounting work on government contracts, reviewing financial statements, preparing earnings releases, preparing budgets, and preparing presentations for the Board of Directors. In December 2012, Respondent's Controller resigned, and Complainant inherited that position's public reporting duties, which included reviewing 10-K and 10-Q reports filed with the U.S. Securities and Exchange Commission (SEC).

In mid-2015, Respondent initiated the process of acquiring a company called Danya. In early 2016, to prepare for the acquisition, Respondent began planning a reduction-in-force (RIF) and identified positions that could be eliminated. The acquisition of Danya closed in May 2016. Zach Parker, Respondent's President and CEO, and Kathryn JohnBull, Respondent's CFO, testified that Complainant's position was selected to be included in the RIF in April or May 2016 because Complainant's job duties were going to be integrated into a new Controller position.

In February 2016, Respondent began recruiting for a new Controller. Around the same time, Complainant proposed new positions for herself within the company but did not apply for the Controller position. In August 2016, Respondent hired Norm Toma as the new Controller and transferred some of Complainant's job duties to Toma.

During the last three months of 2016, Complainant complained that Toma was not providing timely and accurate financial statements, took issue with an updated valuation model, and disagreed with JohnBull on showing earnings per share on the adjusted expected earnings before interests, taxes, depreciation, and amortization (EBITDA). On January 24, 2017, Complainant emailed Parker regarding a reduction in workers' compensation accruals. On February 11, 2017, Complainant formally filed an internal whistleblower complaint by emailing Frederick Wasserman, the Chairman of the Board of Directors, and Victor DiGioia, outside legal counsel. In response, Respondent's outside counsel initiated an investigation.

On March 27, 2017, Respondent's outside counsel concluded that Complainant's complaints had no merit and submitted the results to the Audit Committee of the Board of Directors. Although the Audit Committee accepted the results, it had an outside accounting firm and an independent auditor review the complaints. Both concluded that Respondent did not engage in any illegal conduct.

On March 31, 2017, Respondent terminated Complainant's employment as part of the planned RIF. Afterward, Respondent eliminated her position and her job duties were absorbed into the Controller and Director of Financial Systems roles.

On August 15, 2017, Complainant filed a whistleblower complaint with OSHA alleging that Respondent unlawfully terminated her employment in retaliation for her engaging in protected activity. On October 4, 2019, OSHA dismissed the complaint.

Complainant timely requested an ALJ hearing, which was held on May 3-4, 2021. On March 27, 2023, the ALJ issued a D. & O. Dismissing Complaint. The ALJ found that Complainant established she held a subjective belief that Respondent violated securities laws and/or regulations specifically regarding the takedown of the workers' compensation accrual and fringe benefits allocations on government contracts. However, the ALJ found that Complainant did not establish an objectively reasonable belief that Respondent violated the SOX on any of the alleged protected activities.

The ALJ concluded that, because Complainant failed to establish protected activity, her claim failed. In the alternative, the ALJ found that, even if Complainant had established she engaged in protected activity, Respondent demonstrated by clear and convincing evidence that it would have taken the same adverse employment action against Complainant absent the alleged protected activity.

Complainant appealed the ALJ's D. & O. to the ARB.  On appeal, the ARB affirmed the ALJ's D. & O.

PROTECTED ACTIVITY; SUBJECTIVE BELIEF

In order to establish protected activity, a complainant must establish a "reasonable belief" that they disclosed illegal activity, which has both a subjective and objective component. To satisfy the subjective component, the employee must have actually believed that the conduct constituted a violation of relevant law or was likely to.

The ARB found that substantial evidence supported the ALJ's finding that Complainant had a subjective belief that Respondent violated the SOX. Complainant established that she actually believed that Respondent violated the SOX in the way it calculated its workers' compensation accrual based on her emails to Parker, Wasserman, and DiGioia, which stated that Respondent's change in its estimation practice should be disclosed because it made the difference between reporting net income instead of net loss. Complainant also established that she actually believed that Respondent was misleading its investors regarding its allocation of fringe benefits based on emails expressing her concern to coworkers, Parker, Wasserman, and Digioia. Therefore, the ARB affirmed the ALJ's findings that Complainant subjectively believed that Respondent violated the SOX based on substantial evidence in the record, satisfying the first component of a reasonable belief.

PROTECTED ACTIVITY; OBJECTIVELY REASONABLE BELIEF

Complainant also bears the burden of showing that "a reasonable person of similar experience, training, and factual knowledge would objectively believe that a violation has occurred." To demonstrate a reasonable belief that she was reporting violations, a complainant "need not prove an actual violation of law, but they 'must do more than speculate, argue theoretical scenarios, or share mere beliefs that some corporate activity is wrong and may theoretically affect the corporation's financial statements and its shareholders.'"

The ARB found that substantial evidence supports the ALJ's finding that Complainant did not have an objectively reasonable belief on any of the alleged protected activities.

First, the ARB found that Complainant's concern that Respondent's workers' compensation accrual constituted a SOX violation related to a theoretical situation that did not occur. In this situation, Complainant alleged that Respondent permissibly decreased its workers' compensation accrual, but it needed to disclose the change in its estimation practice—otherwise it could mislead investors and would violate SEC recordkeeping requirements. However, the change was appropriately disclosed in Respondent's Form 10-Q and was part of the normal first quarter reassessment of accruals. Moreover, although Complainant felt the disclosure was inconspicuous, she acknowledged that the change was addressed. The ARB concluded that a reasonable person with Complainant's experience would not have objectively believed that a SOX-protected violation had occurred since the change in Respondent's estimation practice was disclosed.

Second, the ARB found that Complainant's reports regarding Respondent's EBITDA reports were likewise not objectively reasonable. Complainant had reported that JohnBull made improper accounting adjustments on financial reporting in order to hit EBITDA targets. However, the record demonstrated that there were no inaccuracies and that this was part of Respondent's normal, standard monthly diligence process. The ARB further found that Complainant's argument rested on speculation and reflected a difference of opinion. Given Complainant's lengthy experience and training, the ARB concluded that that a reasonable person of similar experience, training, and factual knowledge to Complainant would not have believed that a violation had occurred.

Third, the ARB found that Complainant did not establish an objectively reasonable belief that Respondent's method of allocating fringe benefits violated the SOX. Complainant asserted that JohnBull made a $100,000 reduction in Danya fringe benefits costs that should have equally applied to both administrative expenses and direct costs, but which was applied entirely to administrative expenses. Complainant alleged this allocation reduced these expenses in reporting and public disclosures and was misleading to investors. However, this issue did not impact revenue recognition and reflected a difference of opinion. In addition, an outside accounting firm reviewed Respondent's methodology and confirmed that Respondent's accounting of fringe benefits was correct and consistent with industry standards. The ARB concluded that, given Complainant's thirty years of experience in financial planning, analysis, and government accounting, a reasonable person of similar experience and training would not have objectively believed that Respondent's method in allocating fringe benefits violated the SOX.

Fourth, the ARB found that Complainant lacked an objectively reasonable belief that Respondent was non-compliant with a bank reporting covenant. Complainant expressed concerns about delays in receiving data she needed to prepare financial statements for a bank and claimed that the delay resulted in a late financial statement that could violate Respondent's covenant with the bank. However, the ARB found that Respondent complied with the reporting within the cure period and no default ever occurred. The ARB found that Complainant's concerns related to a theoretical situation that did not occur. Thus, the ARB concluded that no reasonable person of similar experience, training, and factual knowledge would have objectively believed that a violation occurred.

Fifth, the ARB found that Complainant's complaints pertaining to Respondent's business and personnel decisions were not protected activity because Complainant did not allege any connection to a violation under the SOX regarding these concerns. Thus, the ARB concluded that no objectively reasonable person would have believed that her generalized personnel and compensation concerns alleged violations under the SOX.

Thus, the ARB affirmed the ALJ's finding that Complainant did not demonstrate that she had an objectively reasonable belief that she engaged in protected activity. Because Complainant did not establish that she engaged in protected activity, the ARB concluded that she failed to meet her burden to establish her whistleblower claim by a preponderance of the evidence.

AFFIRMATIVE DEFENSE

If a complainant meets their burden of proof, the employer may avoid liability if it proves its affirmative defense, which requires demonstrating by clear and convincing evidence that it would have taken the same adverse action in the absence of any protected activity.

The ARB found that substantial evidence supported the ALJ's finding that Respondent established by clear and convincing evidence that it would have terminated Complainant's employment absent any alleged protected activity. Complainant had contended that Respondent did not meet their burden because Respondent did not memorialize the list of employees who were to be included in the RIF until mid-March 2017. Although Respondent did not memorialize the list of employees included in the RIF, the testimony of Parker and JohnBull made it evident that Complainant's position was included in the RIF nearly a year before Complainant engaged in her alleged protected activities. In addition, after Complainant's employment was terminated, her position was eliminated and her job duties were absorbed by either the Controller or the Director of Financial Systems. Further, although Complainant received a salary increase in July 2016, similarly situated employees also received salary increases and were still included in the RIF.

Therefore, the ARB affirmed the ALJ's finding that Respondent established by clear and convincing evidence that it would have terminated Complainant's employment absent the alleged protected activity.

Dickerson v. Iteris Inc., ARB Nos. 2023-0026, ALJ No. 2022-SOX-00009 (ARB Sept. 17, 2024) (Decision and Order)

COMPLAINANT FAILED TO ADEQUATELY BRIEF APPEAL; SUBSTANTIAL EVIDENCE SUPPORTS ALJ'S DECISION THAT COMPLAINANT DID NOT ENGAGE IN PROTECTED ACTIVITY

In Dickerson v. Iteris Inc., ARB Nos. 2023-0026, ALJ Nos. 2022-SOX-00009 (ARB Sept. 17, 2024), Complainant alleged that Respondent unlawfully terminated his employment in retaliation for reporting financial irregularities. The ARB affirmed the ALJ's holding that Complainant did not engage in protected activity under the SOX because Complainant did not subjectively believe, nor was it objectively reasonable for him to believe, that he had reported SOX-related violations prior to his termination.

First, the ARB found Complainant failed to adequately brief his appeal. Once the ARB accepts an appeal, the parties in their briefs must establish the factual basis of their claims and defenses with citations to the record and relevant legal authority in support of the relief they request. Where a party completely fails to meet these minimum briefing requirements, and instead relies upon bare conclusions, the party forfeits its position on appeal. While the ARB enforces relaxed briefing standards for unrepresented litigants such as Complainant, the ARB must be able to discern cogent arguments.

The ARB then affirmed the ALJ's finding that Complainant did not establish he engaged in protected activity. In order to establish protected activity, a complainant must establish that they had "reasonable belief" that they disclosed illegal activity, which has both a subjective and objective component. To satisfy the subjective component, the employee must actually have believed that the conduct constituted a violation of relevant law or was likely to. An objectively reasonable belief, in turn, is measured "based on the knowledge available to a reasonable person in the same factual circumstances with the same training and experience as the aggrieved employee."

The ARB affirmed the ALJ's determination that Complainant was a sophisticated professional with extensive accounting knowledge and qualified as an expert with respect to the reasonable belief standard. Given Complainant's education and experience, the ARB found that the ALJ aptly reasoned Complainant appropriately held himself out as an expert on securities regulation and controls and that he was ultimately hired as an expert.

The ARB then held that substantial evidence also supported the ALJ's overarching conclusion that even Complainant considered the four instances of alleged protected activity too hypothetical for him to truly believe they were actual violations or were likely to become violations. The ARB noted that the ALJ correctly held, "nothing in the record suggests that Complainant brought to [Respondent's] attention any completed or ongoing conduct that he believed violated any of the statutes, regulations, rules, or other law listed in the Act." To satisfy the subjective component of the "reasonable belief" test, the employee must actually have believed that the conduct he complained of constituted a violation of the six enumerated categories of law under Section 806 of SOX; general assertions of wrongdoing not tied to the Section 806 categories are not protected. A whistleblowing complaint may concern a future violation that an employee reasonably believes is likely to happen, however, complainant must do more than "speculate, argue theoretical scenarios, or share mere beliefs that some corporate activity is wrong and may theoretically affect the corporation's financial statements and its shareholders."

Administrator, Wage and Hour Div., USDOL v. Davis-Paige Management Systems, LLC, ARB No. 2024-0053, ALJ No. 2019-SCA-00003 (ARB Sept. 4, 2024) (Order of Administrative Closure)

ADMINISTRATIVE CLOSURE OF CASE WHERE COMPLAINANT FAILED TO FILE PETITION FOR REVIEW

In Administrator, Wage and Hour Div., USDOL v. Davis-Paige Management Systems, LLC, ARB No. 2024-0053, ALJ No. 2019-SCA-00003 (ARB Sept. 4, 2024), the ALJ determined Respondents violated the McNamara-O'Hara Service Contract Act of 1965 (SCA) in failing to pay its employees' wage rates and fringe benefits required under the SCA. Respondents then failed to timely file a petition for review of the ALJ decision or a request for an extension to file said petition by the 40-day appeal deadline.

Respondents subsequently filed a motion requesting an extension of time to file a petition for review more than three months after the deadline to appeal or request an extension of time to appeal had passed. The ARB denied Respondents' motion on the basis it would decide whether to accept a late-filed petition for review per applicable regulations and ARB precedent if a petition for review was filed. The ARB thus ordered administrative closure of the matter.