Under Section 806 of the Sarbanes-Oxley Act (18 U.S.C. 1514A(a)), employees are protected from retaliation for engaging in certain protected activity related to blowing the whistle on corporate fraud. “Essentially, the employee has to provide information or assist in an investigation that he reasonably believes relates to one or more of six categories of laws and regulations” relating to fraud or SEC rules violations. But before an aggrieved employee can file a lawsuit, he or she must first file a complaint with the Secretary of Labor.
This statutory requirement for SOX whistleblowers is consistent with similar requirements in other laws, but an open question existed as to how specifically courts would examine whistleblowers’ complaints to determine exhaustion. With the Fifth Circuit’s recent decision in Wallace v. Tesoro Corporation, it appears that courts may, indeed, closely scrutinize the specific allegations contained in whistleblowers’ complaints to evaluate exhaustion of administrative remedies.
In Wallace, the plaintiff employee filed an administrative complaint alleging that he was retaliated against for complaining about his employer’s accounting methodology with respect to counting taxes as revenue. After his administrative complaint was dismissed, he filed a lawsuit alleging the same protected activity (complaining about accounting methodology as to taxes as revenue), as well as new allegations that he also engaged in protected activity when he investigated and reported suspected wire fraud. The district court dismissed the new allegations because they were outside the scope of the administrative complaint.
Reviewing the dismissal on appeal, the Fifth Circuit agreed that dismissal was appropriate. Applying the same exhaustion requirement used in Title VII cases, the Fifth Circuit concluded that a SOX whistleblower lawsuit may only properly include those allegations of protected activity that the administrative complaint could be reasonably expected to encompass. Specifically, “[t]he scope of a judicial complaint is limited to the sweep of the OSHA investigation that can reasonably be expected to ensue from the administrative complaint.”
Clearly, SOX-retaliation lawsuits in the Fifth Circuit are limited in scope by the administrative complaint. For employees, that means it is critically important to include everything in the administrative complaint. And for employers, a standard litigation practice should obviously include comparing the allegations in the lawsuit to those in the administrative complaint, moving to dismiss those that were not subject to administrative review.
Wallace v. Tesoro Corp., Case No. 13-51010 (July 31, 2015)