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March 7, 2024
On February 8, 2024, the Supreme Court of the United States (SCOTUS) unanimously held that a whistleblower suing under the Sarbanes-Oxley Act of 2002 (SOX) was not required to establish that his employer acted with retaliatory intent. By its ruling, the Court held that Congress designed the burden-shifting framework of the post-Enron statute to empower whistleblowers to come forward, clarifying a Circuit split on the issue.
The SOX Whistleblower Statute and Burden-Shifting Framework
SOX prohibits publicly-traded companies from retaliating against employees who report alleged instances of criminal fraud or securities law violations. Covered employers may not discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee because of protected whistleblowing activity. In a whistleblower action, the employee bears the initial burden of showing that their protected activity was a contributing factor in the employer’s unfavorable personnel action. The burden then shifts to the employer to show that it would have taken the same unfavorable personnel action in the absence of the protected activity.
Background of Murray v. UBS Securities, LLC [1]
In February 2012, UBS Securities, LLC (UBS) fired Trevor Murray. In August 2012, Murray filed a federal whistleblower action alleging that UBS violated SOX when the company terminated him after he internally reported unethical and illegal conduct that amounted to a fraud on shareholders. Murray reported that he was pressured by two leaders to skew his reports in a way that was more supportive of UBS’s business strategies. Shortly afterwards, and despite previously giving Murray a strong performance review, Murray’s supervisor sought to transfer him to another position and subsequently fired him.
At trial, UBS moved for judgment as a matter of law on the basis that Murray failed to provide evidence that UBS had any retaliatory intent when they terminated Murray. The district court denied the motion. In its jury instruction, the district court explained that, to prove his whistleblower claim, Murray needed to establish four elements: (1) that he engaged in whistleblowing activity protected by SOX; (2) that UBS knew that he engaged in the protected activity; (3) that he suffered an adverse employment action (i.e., was fired); and (4) that his protected activity was a contributing factor in the termination of his employment. To clarify the last element, the district court further instructed the jury that, for a protected activity to be a contributing factor, it must have either alone, or in combination with other factors, tended to affect in any way UBS’s decision to terminate his employment. The jury found that Murray established his claim and UBS failed to show by clear and convincing evidence that it would have terminated Murray’s employment even if he had not engaged in protected activity.
On appeal, the U.S. Court of Appeals for the Second Circuit held that the district court erred by failing to instruct the jury on Murray’s burden to prove UBS’s retaliatory intent. By concluding that retaliatory intent is an element of a SOX claim, the Second Circuit split from earlier opinions of the U.S. Courts of Appeals for the Fourth and Ninth Circuits that rejected the requirement of retaliatory intent.
The SCOTUS Opinion: No Retaliatory Intent Required
The Supreme Court reversed the Second Circuit and ruled that, while a whistleblower claimant must prove that the protected activity was a contributing factor in the unfavorable personnel action, it need not also prove that the employer acted with retaliatory intent. In other words, proving retaliatory intent is one way to establish that the protected activity was a contributing factor, but it is not the only way.
The Court set forth three main reasons for its holding. First, the plain language of § 1514A of SOX is silent with respect to retaliatory intent. Its use of the term “discriminate” means “differential treatment” and simply does not require retaliatory intent. Second, the statute provides a mandatory and exclusive method for determining whether whistleblower discrimination occurred, which is the statute’s burden-shifting framework. Requiring retaliatory intent would create a heavier burden on plaintiff-employees, and the framework is meant to be employee-friendly. Third, the Court explained that the public depends on whistleblowers feeling empowered to come forward, which Congress factored into the design of the burden-shifting framework. And while acknowledging that the framework is not as protective to employers as other frameworks, the Court cannot give employers more protection than the statutory framework already provides.
Employer Takeaways
It is important to note that, although the Court ruled only on a SOX whistleblower action, its decision is likely to influence analogous whistleblower protection statutes, which could potentially impact a broader number of employers.
The good news for employers is that the Supreme Court clarified what an employer must establish to avoid liability: an employer will not be liable when it demonstrates that it would have taken the same unfavorable personnel action in the absence of the protected behavior. According to the Court, the way to think about the analysis is to “change one thing at a time and see if the outcome changes.” The question employers should be asking themselves is whether they would have retained an otherwise identical employee who had not engaged in the protected activity. To make sure that the right questions are being asked and similarly situated employees are being treated consistently, employers should review their internal policies and provide adequate training for any personnel responsible for responding to employees’ internal complaints.
This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice. Always consult an attorney with specific legal issues.
[1] Murray v. UBS Securities, LLC, No. 22-660 (Feb. 8, 2024)
