Employers defending against Sarbanes-Oxley Act (SOX) whistleblower retaliation claims should be prepared for a long and potentially onerous litigation process, even if the claims lack merit. A recent district court decision vividly illustrates this point.

On September 25, 2013, a federal court in the Northern District of Texas held that a complainant was entitled to de novo review of her SOX whistleblower claim in federal court, even though she had been litigating the case for two years through multiple levels of administrative review before the U.S. Department of Labor (DOL). De novo review means, in essence, that the court must treat the matter as an entirely new case, and the prior rulings have no effect on its consideration of the case. The case, Candler v. URS Corporation, No. 13-cv-1306-B (September 25, 2013), underscores the likelihood of potentially lengthy and costly litigation of SOX whistleblower disputes.

Jamie Candler filed a SOX whistleblower retaliation complaint with the Occupational Safety and Health Administration (OSHA) in May 2011, alleging she was fired after she raised concerns about alleged accounting irregularities. In October 2011, OSHA issued a preliminary finding that her employer had not violated SOX’s whistleblower provision. Candler then requested a formal hearing before the DOL’s Office of Administrative Law Judges (OALJ). In March 2013, after a two-day hearing, the OALJ issued a decision denying her complaint. Candler next appealed the decision to the DOL’s Administrative Review Board (ARB) on March 26, 2013.

Just three days after appealing to the ARB and over two years after bringing her complaint before the DOL, Candler filed her whistleblower claim in a federal court. She sought de novo review under section 806 of SOX, which provides that the complainant may file a complaint in a district court “if the Secretary [of Labor] has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant.” Appeals from adverse determinations, as in the Candler case, keep those decisions from becoming final. Candler’s employer filed a motion to dismiss the federal court complaint because of the advanced administrative proceedings.  Alternatively, it asked the district court to order the ARB to complete its review of Candler’s administrative appeal before the matter could proceed, if at all, in federal court.

The district court denied the employer’s motions. It found that under the plain language of the statute, Candler was entitled to de novo review under SOX because (1) more than 180 days had elapsed since the filing of her administrative complaint without a final ruling issued by the Secretary of Labor, and (2) the delay was not due to any bad faith on Candler’s part.

In allowing de novo review, the district court rejected the employer’s argument that the plain language of the statute would lead to an absurd result. The employer had argued that de novo review at this juncture, after a full administrative hearing that was pending appeal at the ARB, would be inefficient, unreasonable, and duplicative. Applying a literal reading of the language of the statute, the court found that this argument was insufficient to deny Candler de novo review in federal court.

The Candler court is not the first district court to reach this conclusion. The majority of district courts and the Fourth Circuit—the only circuit court to address this issue—have also found that complainants have a right to de novo federal court review even when they have already initiated SOX administrative proceedings. Absent further instruction from Congress, these courts have been hesitant to stray from SOX’s statutory language allowing de novo review after 180 days, even in spite of competing concerns about inefficiency and duplication of efforts. Only one unpublished district court decision—Allen v. Stewart Enterprises, Inc., No. 05-4033 (April 6, 2006)—has reached the opposite conclusion and stayed district court proceedings pending resolution by the ARB.

However, Candler is particularly significant because it allowed de novo review by a district court even after the OALJ held a full hearing and issued a decision on the merits. The only reason the ALJ’s decision was not final was that Candler had appealed the decision to the ARB. Therefore, Candler is a clear warning to employers that a favorable ruling at the administrative level may not be the end of whistleblower litigation. Instead, it may be the beginning of a long and costly resolution process. Even if employers successfully defend claims before the OALJ, whistleblowers may seek a “second bite at the apple” in district court and, at least for now, the courts are allowing these cases to proceed. Unless Congress alters the language of the SOX whistleblower provisions or the employer’s “unnecessary duplication” argument gains traction in the courts employers should prepare for a potentially arduous process for resolving whistleblower disputes that may include duplicative discovery, duplicative hearings, and added expense.

Meg Campbell is a shareholder in the Atlanta office of Ogletree Deakins and co-chair of the firm’s Ethics Compliance, Investigations, and Whistleblower Response Practice Group.

Jesse C. Ferrantella is an associate in the San Diego office of Ogletree Deakins.

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