Labor & Employment Law Daily Wrap Up, FEDERAL REGULATIONS—MSPB finalizes totality-of-the-circumstances standard for reviewing misconduct penalties, (Sep 2, 2026)

By Patricia K. Ruiz, J.D.

The rule ends the mandatory Douglas-factor framework in Chapter 75 appeals and codifies Board mitigation standards.

The Merit Systems Protection Board (MSPB) has issued a final rule revising how it reviews the reasonableness of agency-imposed penalties in misconduct-based adverse action appeals. The rule eliminates the requirement that the Board consider the 12 factors set forth in Douglas v. Veterans Administration in every case and instead directs the Board to determine whether a penalty falls within the tolerable limits of reasonableness based on the totality of the circumstances. The final rule also codifies the Board’s framework for sustaining, mitigating, or remanding penalties in cases arising under 5 U.S.C. § 7513.

The rule amends 5 C.F.R. § 1201.56 and applies to appeals filed with the Board on or after the rule’s effective date, which is 30 days after publication in the Federal Register. Appeals pending on the effective date will continue to be adjudicated under the framework in effect when they were filed.

Background. The rule stems from a joint notice of proposed rulemaking issued by the Office of Personnel Management (OPM) and the MSPB on July 2, 2026. The Board received approximately 676 unique comments and considered a broad range of views from labor organizations, federal employee groups, practitioners, agencies, current and former federal employees, and members of the public. The Board finalized only its own amendments to 5 C.F.R. § 1201.56 and noted that OPM is addressing its separate proposals in a different final rule.

Abandonment of mandatory Douglas-factor review. Under the final rule, the Board will no longer require consideration of the 12 Douglas factors in every misconduct appeal. Instead, when an agency action under Chapter 75 is appealed and the charged misconduct is sustained, the Board will decide whether the agency’s chosen penalty is within the tolerable limits of reasonableness based on the totality of the circumstances and the record developed in the case.

The Board stated that considerations traditionally associated with Douglas, including the seriousness of the offense, the employee’s work and disciplinary record, rehabilitation potential, mitigating circumstances, notice, and consistency of penalties imposed on similarly situated employees, remain relevant when material to a particular case. However, the Board said those considerations will no longer function as a compulsory, enumerated framework requiring discussion in every appeal.

According to the Board, the rule eliminates what it described as factor-recitation requirements and litigation focused on whether decision makers expressly addressed each factor. The agency maintained that penalty review should focus on the statutory question of whether the penalty promotes the efficiency of the service and falls within the tolerable limits of reasonableness.

Penalty review standard codified. The new regulation provides that an agency’s choice of penalty is entitled to substantial deference. The Board will review the penalty only to determine whether it falls within the tolerable limits of reasonableness in light of the sustained charges and the totality of the circumstances relating to the efficiency of the service. The determination must be made on a case-by-case basis.

The Board emphasized throughout the rulemaking that it is not eliminating consideration of mitigating evidence, comparator evidence, rehabilitation potential, or other circumstances that may bear on penalty reasonableness. Nor does the rule alter the agency’s burden to prove its case, the availability of affirmative defenses, judicial review, or constitutional due process requirements.

Codification of the Devall mitigation framework. The rule also codifies the framework derived from Lachance v. Devall governing the Board’s authority to sustain, mitigate, or remand penalties. If all charges are sustained and the penalty is found reasonable, the Board will sustain the agency action. If all charges are sustained but the penalty is found unreasonable, the Board may mitigate the penalty to the maximum reasonable penalty. When fewer than all charges are sustained, the Board may mitigate the penalty or provide the agency an opportunity to impose a lesser penalty, depending on whether the agency previously indicated its preferred alternative penalty if some charges were not sustained. The Board stated that the rule does not expand or contract its mitigation authority but instead places existing principles into regulation for the first time.

Due process and statutory protections preserved. The Board repeatedly emphasized that the rule does not alter due process requirements. Agencies intending to rely on aggravating factors in selecting a penalty must continue to identify those factors in advance notices so employees have an opportunity to respond. The agency also remains responsible for proving the reasonableness of its penalty by a preponderance of the evidence.

The rule does not affect harmful error claims, prohibited personnel practice defenses, discrimination defenses, whistleblower retaliation claims, Board jurisdiction, mixed-case procedures, veterans’ rights, or judicial review under 5 U.S.C. § 7703.

Applicability and transition. The Board adopted a transition provision providing that the new standard applies only to appeals filed on or after the rule’s effective date. Appeals already pending before the Board when the rule becomes effective will continue to be decided under the prior framework. The Board stated that records developed under Douglas remain fully relevant and probative under the new standard because the ultimate inquiry into penalty reasonableness remains unchanged.

The Board stated that arbitrators resolving covered adverse-action grievances must apply the same substantive standards the Board would apply, meaning the codified standard will govern arbitration on the same prospective basis that it governs Board appeals.

Rule text. The final rule adds a new penalty-determination provision to 5 C.F.R. § 1201.56(b)(3). The regulation states that agency penalties are entitled to substantial deference and directs the Board to determine reasonableness based on the totality of the circumstances relating to the efficiency of the service. It further codifies the Board’s authority to sustain, mitigate, or remand penalties depending on the charges upheld and the agency’s stated penalty preferences.

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