concurring.
Although I am in wholehearted agreement with the majority’s concerns expressed in footnote 8, I can only concur in the result reached by the majority because I would have reached that result under a different standard. The basic criteria for determining whether an award of attorney fees is warranted in the interest of justice are set forth in Allen v. United States Postal Service, 2 MSPB 582, 2 M.S.P.R. 420 (1980). After reviewing the legislative history of the Civil Service Reform Act, the Allen Board decided that the circumstances reflecting the interest of justice include:
2. Where the agency’s action was “clearly without merit” (§ 7701(g)(1)), or was “wholly unfounded,” or the employee is “substantially innocent” of the charges brought by the agency;
5. Where the agency “knew or should have known that it would not prevail on the merits” when it brought the proceeding.
Allen, 2 M.S.P.R. at 434-35 (footnotes omitted).
The majority awards fees to petitioner under the above “substantially innocent” standard; I would have awarded fees under the above “knew or should have known” standard.
I would hold that the term merits as contained in the above “knew or should have known” standard includes, not only the underlying factual basis of the action, but also adherence by the agency to the judicial principles upon which the action is founded. In other words, when the agency *752takes an action against an employee in ignorance or disregard of governing judicial constructions and the petitioner challenges such action and prevails, the petitioner has prevailed on the merits. The question then becomes did the agency know or should it have known that it would not prevail on the merits of the challenged action at the time it took such action.
Here, the agency action challenged was the severity of the penalty levied for petitioner’s misconduct. The facts underlying the charges upon which the agency action of removal was predicated were not at issue in this case. Upon remand from this court, Van Fossen v. Department of Housing and Urban Development, 748 F.2d 1579 (Fed.Cir.1984), the Board considered the mitigating factors which the agency ignored and determined an appropriate penalty to be a thirty-day suspension. Thereafter, in its addendum opinion on attorney fees, the Board’s presiding official properly held that petitioner was a prevailing party as he obtained a very significant part of the relief sought — the penalty was reduced from removal to a thirty-day suspension— but then improperly held that since petitioner had violated the agency’s standards of conduct, the petitioner was not eligible for an award in the interest of justice under any of the Allen guidelines.
The merits at issue in the case were not whether the petitioner had violated the agency’s standard of conduct, but whether the agency’s action in levying a penalty of removal for such misconduct was proper. The agency lost its case on the merits because it failed to meet its burden of proving that the selection of a penalty was based on consideration of the relevant factors. Douglas v. Veterans Administration, 5 MSPB 313, 5 M.S.P.R. 280, 301-08 (1981). Therefore, under the facts of this case, the agency should have known that it could not ignore its legal responsibilities under Douglas and have its action sustained in imposing a penalty as severe as removal. All the facts of this case and the judicial principles involved were known to the agency at the time of petitioner’s removal.
I agree with the majority that “the significant and often prohibitive expenses related to the defense of adverse actions discourage federal employees from challenging adverse actions.” To paraphrase the majority, without the prospect of an award of attorney fees, if the underlying facts upon which the charges are based are undisputed, many employees would be forced to accept an abusively or unreasonably harsh penalty without dispute since even a successful challenge would leave them severely in debt, and possibly worse off than if they had not challenged the penalty in the first place. It is this kind of impediment that 5 U.S.C. § 7701(g)(1) was designed to eliminate. Sterner v. Department of the Army, 711 F.2d 1563, 1570 (Fed.Cir.1983). As cited by the majority, “the extent of a party’s victory” and “the magnitude of the injustice done the employee” are controlling considerations. Id. at 1567-68. Under these controlling considerations, a reduction in the penalty from removal to a thirty-day suspension in this case is a substantial victory and points up the magnitude of the injustice done to the petitioner by the agency’s abuse of discretion in its failure to consider a significant mitigating factor of which it was fully aware at the time it took the action and under the principles of Douglas was obligated to consider.
This court in Sims v. Department of the Navy, 711 F.2d 1578 (Fed.Cir.1983), refused to apply the “knew or should have known” standard in a factual situation which, though similar, had one crucial distinguishing feature. In Sims, a mitigation of penalty case, this court held that the “knew or should have known” standard did not apply because “[w]e cannot say the agency knew or should have known in 1979, when the adverse action was initiated, the substance of a 1981 MSPB decision,” i.e., the Douglas decision. Id. at 1582. In this case, petitioner was removed in October 1982 after the agency was on notice of the Douglas decision. That decision placed the burden on the agency of proving that the “selection of a penalty was based on considera*753tion of the relevant factors.” Douglas, 5 M.S.P.R. at 302.
This approach to the award of attorney fees in mitigation of penalty cases is more straightforward and easier of application than that of the majority, and it focuses on the true injustice in the case (not that the employee was charged with a minor violation of a valid regulation but that he was subjected to an unreasonably harsh penalty). In every adverse action case at the Board, the agency has the burden of proving that (1) the charged misconduct occurred; (2) the requisite nexus exists; and (3) the penalty was properly selected. Douglas, 5 M.S.P.R. at 307 (“the ultimate burden is upon the agency to persuade the Board of the appropriateness of the penalty imposed”). Each of these elements goes to the merits of the agency’s case. If the agency fails to carry its burden on any element, it has failed to prevail on the merits of its case. In a factual situation where an employee admits that all the charged misconduct occurred, one strains to regard the employee as innocent of .the charges. It seems much more in accord with a “sense of justice and fair play,” Urban Data Systems, Inc. v. United States, 699 F.2d 1147, 1154 (Fed.Cir. 1983), to simply recognize that the agency did not, and knew or should have known it would not, prevail on the merits.