Labor Secretary Raymond J. Donovan resigned from President Reagan's Cabinet today after he was ordered to trial on fraud and larceny charges.
President Reagan accepted the resignation "with deep regret" and said Donovan was "entitled to the benefit of a presumption of innocence."
Donovan, the first sitting Cabinet member ever to be indicted, had been on an unpaid leave of absence since he was named Oct. 1 in a 137-count indictment issued by a grand jury in New York City.
Bronx Dist. Atty. Stephen R. Bookin, chief prosecutor in the case, said, "I regret that anybody in public office has to fall." But, he added, "this office didn't bring him down. His conduct brought him down."
Donovan was said by the source to have concluded that he could no longer ask Reagan to show continuing patience and to have decided to step down in the belief that only such a move would be fair to Reagan.
The source said that Donovan is conferring today with his lawyers on strategy to pursue in the New York case and that he plans to visit the Labor Department early next week to say goodby to his associates and agency employees.
AFL-CIO President Lane Kirkland, who had been feuding with Donovan ever since he was appointed, called on Reagan to name a secretary "who will vigorously pursue the statutory obligations of the Department of Labor."
The labor federation has complained that under Donovan, the department relaxed its enforcement of regulations to make workplaces safer while at the same time stepping up its policing of union activities.
Reagan Stood by Him
At the time Donovan was named in the indictment, which also named seven other Schiavone Construction Co. officials, Reagan, then campaigning for reelection, denounced a "lynch atmosphere" surrounding his labor secretary.
Reagan over the last three years has steadfastly defended Donovan, even though there was some pressure building among presidential aides for Reagan to oust him. At one point, then-White House Chief of Staff James A. Baker III was quoted saying that Donovan ought to quit for the good of the President.
There was no immediate indication on whom Reagan would name to succeed Donovan, who was the last of the President's original Cabinet appointees in early 1981 to win Senate confirmation.
Under Secretary Ford B. Ford has been serving as acting secretary at the department since Donovan took an unpaid leave of absence last October, although agency sources have said that Linda Townsend, a department lawyer, has taken on increasing authority in recent months, as has Solicitor Francis X. Lilly.
The judge, Justice John P. Collins of the state Supreme Court, New York's trial-level court, ruled that there is sufficient evidence to bring the case to trial.
"The evidence in this case, if proved and believed, demonstrates a carefully contrived scheme to steal property," Collins wrote. "There is no justification warranting this court to dismiss the indictment in the interests of justice."
Collins upheld all aspects of the indictment and said pretrial publicity is not grounds for dismissal.
Collins has yet to rule on a separate defense motion seeking dismissal on the ground that electronic surveillance evidence presented to the grand jury was gathered illegally by the FBI and thus tainted the entire case.
He scheduled a hearing on that motion for Tuesday.
Donovan, in a statement released immediately after the judge's action, said: "Even though I know that it is rare for an indictment to be dismissed, I am disappointed by his (Collins') failure to throw out this totally unfounded and politically motivated prosecution. . . . I have not violated any law, and I am confident that a jury will find me not guilty after hearing all the evidence."
Donovan and nine other men were charged with overstating $7.4 million in payments to a minority-controlled subcontractor on a subway tunneling project run by Schiavone Construction Co. of Secaucus, N.J., which Donovan co-owns.
The indictment, handed up Sept. 24, accused the defendants of using a phony equipment lease arrangement to illegally circumvent rules that set aside a portion of federally funded construction jobs for minority-owned firms.
Donovan was Schiavone's executive vice president at the time of the subcontract, in 1979 and 1980.
Besides Donovan, the indictment named Democratic state Sen. Joseph Galiber and William Masselli, a reputed organized crime figure.