In a landmark unanimous ruling late last week, Murray v. UBS Securities, LLC, et al. 601 U. S. ____ (2024), the U.S. Supreme Court held that whistleblowers do not need to prove their employer acted with "retaliatory intent" to be protected under the Sarbanes-Oxley Act. Instead, all whistleblower plaintiffs need to prove is that their protected activity was a "contributing factor" in the employer's unfavorable personnel action.
Background
The Sarbanes-Oxley Act is a federal law that was passed in 2002 with the goal of improving auditing and public disclosure in response to several accounting scandals which shook financial markets.
In recognition of the role whistleblowers played in exposing the accounting scandals of the early-2000s, Congress passed Section 806, codified at 18 U.S.C. § 1514A, which prohibits publicly-traded companies from retaliating against whistleblowing employees. The U.S. Supreme Court in Lawson v. FMR, 571 U.S. 429 (2014), thereafter extended the whistleblower protections in § 1514A to employees of non-public contractors and subcontractors of a public company.
The language of the Sarbanes-Oxley Act at issue in the Murray v. UBS Securities, LLC case was no employer subject to Sarbanes-Oxley "may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of" the employee's protected whistleblowing.
Many statutes dealing with employment discrimination and retaliation apply a relatively high bar for employee-plaintiffs, requiring the plaintiff to show that the protected activity was a substantial factor in, or the "but-for cause" of the adverse employment action.
Ruling
The case involved the termination, in 2012, of a research strategist working for a New York securities firm, UBS Securities, LLC ("UBS"). After his termination, the research analyst filed a lawsuit against his former employer claiming his termination was retaliatory. The case went to trial and the jury found in favor of the plaintiff and issued an advisory verdict on damages, recommending that the plaintiff receive nearly $1 million. The court then adopted the jury's advisory verdict on damages and awarded an additional $1.769 million in attorney's fees. UBS appealed the decision to the Second Circuit, which vacated the jury's verdict and remanded for a new trial. The appellate court identified the central question as whether the Sarbanes-Oxley Act's antiretaliation provision requires a whistleblower-employee to prove retaliatory intent, and concluded that the answer was yes.
The Second Circuit's opinion, requiring whistleblowers to prove retaliatory intent, placed that Circuit in conflict with the Fifth and Ninth Circuits, which had rejected such requirement; therefore, the U.S. Supreme Court decided to "resolve the disagreement."
In a 9-0 decision, the U.S. Supreme Court reversed the decision of the Second Circuit and remanded, holding that a plaintiff does not need to prove retaliatory intent to prevail on a retaliation claim under the Act. A whistleblower who invokes 18 U.S.C. §1514A only bears the burden to prove that his protected activity "was a contributing factor in the unfavorable personnel action alleged in the complaint." If a plaintiff makes this showing, the burden then shifts to the defendant to show, by clear and convincing evidence, that it "would have taken the same unfavorable personnel action in the absence of " the protected activity.
The U.S. Supreme Court left no doubt as to the employee-friendly nature of its decision. Justice Sotomayor, who authored the Opinion of the Court, wrote: "To be sure, the contributing-factor framework that Congress chose here is not as protective of employers as a motivating-factor framework. That is by design. Congress has employed the contributing-factor framework in contexts where the health, safety, or well-being of the public may well depend on whistleblowers feeling empowered to come forward. This Court cannot override that policy choice by giving employers more protection than the statute itself."
While the decision relieves plaintiffs of having to show retaliatory intent, the Court nonetheless asserted that Sarbanes-Oxley's burden-shifting framework does serve as a "mechanism for getting at intent" by allowing an employer to respond to an employee's circumstantial evidence with its own. This, says the Court, provides the "full picture" that allows the factfinder to make the ultimate determination as to whether differential treatment was intentional and based on protected activity.
Why Is This Important?
After this decision, there is no longer any doubt as to the burden of proof in whistleblower lawsuits under the Sarbanes-Oxley Act.
While the burden for employees is to prove that their whistleblowing contributed, even tangentially, to the unfavorable personnel decision (which includes termination, demotion, transfer, etc.), in order to defend against such claims, an employer must prove by clear and convincing evidence, that it would have taken the same unfavorable personnel action in the absence of the protected behavior. In a nutshell, this is a high bar for employers to meet.
In practice, employers should act with caution in considering personnel decisions if they are aware of a complaint or report that might qualify as a protected activity under the Sarbanes-Oxley Act (or other anti-retaliation statutes). Employers should also review their policies and practices regarding internal reporting mechanisms to ensure visibility into such complaints or report. This decision further serves to remind employers of the importance of documenting legitimate workplace performance issues.
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