Supreme Court Holds Proof of Retaliatory Intent Not Required for Sarbanes-Oxley Whistleblower Claims
In Short
The Background: In August 2022, the United States Court of Appeals for the Second Circuit held in Murray v. UBS Securities, LLC., et al. ("Murray") that an employee suing his employer under the anti-retaliation provisions of the Sarbanes-Oxley Act ("SOX") had to prove that the employer acted with "retaliatory intent." This holding put the Second Circuit at odds with the U.S. Courts of Appeals for the Fifth and Ninth Circuits, which had held that retaliatory intent was not required to prove a SOX whistleblower claim. The U.S. Supreme Court granted certiorari to resolve the circuit split.
The Result: On February 8, 2024, the Supreme Court reversed the Second Circuit's decision in Murray, holding that a SOX whistleblower claim does not require proof of "retaliatory intent," which the Court equated with "animus." Instead, the employee need only show that the protected whistleblowing activity was a "contributing factor" in the adverse employment action.
Looking Ahead: The Supreme Court's decision clarifies that adverse employment actions attributable in whole or in part to an employee's protected conduct need not be motivated by animus in order to be unlawful. Despite this relatively narrow holding, parties will likely dispute in the lower courts and administrative proceedings how the Court's decision impacts plaintiffs' burden of proof.
Under the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, no public company "may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee" for reporting conduct that the employee reasonably believes constitutes fraud or violations of securities laws. If a company discharges or otherwise retaliates against an employee for making such a report (a "protected activity"), the whistleblower-employee may be entitled to reinstatement, backpay, and other compensation. To prevail, a plaintiff must first prove by a preponderance of the evidence that the protected activity, such as an internal complaint or a report to a government agency, was a contributing factor in the unfavorable personnel action. If the plaintiff does so, the burden then shifts to the employer to prove by clear and convincing evidence that it would have taken the same adverse action regardless of the employee's protected activity. Absent such proof, the employee prevails. These procedures and standards of proof are not unique to SOX claims; many other whistleblower laws—including laws applicable to the railroad, airline, and food manufacturing industries—use the same contributing factor standard and burdens of proof.
In Murray, the Supreme Court granted certiorari to resolve a circuit split over whether a plaintiff in a SOX whistleblower case was required to prove "retaliatory intent." The plaintiff, Murray, was a research strategist at UBS Securities LLC ("UBS"). Murray alleged that he was pressured by the UBS trading desk to "skew" his market reports to support the desk's business strategies, in violation of SEC regulations which required him to certify that his reports were independent. Murray further alleged that he reported this conduct to his supervisor multiple times, but that his concerns were not addressed. Shortly after these complaints, Murray's supervisor recommended that Murray either be discharged or reassigned to a new role, despite having given Murray a strong performance review just a few months earlier. UBS ultimately discharged Murray.
Murray subsequently brought a SOX claim against UBS Securities and UBS AG alleging his dismissal was in retaliation for reporting violations of SEC regulations. At trial, the district court instructed the jury that if Murray could prove his protected activity was a contributing factor in his firing, then the burden of proof would shift to the defendants to justify the decision. The jury found for Murray, awarding him over $1 million. But on appeal, the Second Circuit reversed, holding that the statute required Murray to prove that his employer acted with animus or "retaliatory intent."
In a unanimous 9-0 decision, the Supreme Court reversed the Second Circuit's judgment. The Court held that in order to prevail on a SOX whistleblower claim, a plaintiff need not prove "retaliatory intent," a concept which the Court interpreted as "something akin to animus." Said otherwise, SOX does not require proof that the adverse action was motivated by hostility or anger toward the employee for having engaged in protected conduct. Thus, adverse actions taken even for reasons other than animus could subject an employer to liability if they were due in whole or in part to protected conduct.
The Court nonetheless affirmed that proof of intent is required to establish a SOX claim—specifically, evidence of "the intent to take some adverse employment action against the whistleblower employee 'because of' his protected whistleblowing activity." This question of intent, according to the Court, is resolved through the burden-shifting framework applicable to SOX claims.
In light of Murray, employers facing SOX or other whistleblower claims should be prepared to present a robust affirmative defense aimed at establishing that they would have taken the same action regardless of protected conduct, including, for example, evidence that other employees who engaged in the same protected conduct were not disciplined, or evidence that the plaintiff engaged in the same protected conduct for some time without any repercussions. In every case, the evidence should be tailored to the specific facts; there is no "one-size-fits-all" approach.
Murray is also a good reminder that employers should act to mitigate whistleblower risk preemptively. Such actions may include reviewing policies and procedures to ensure that adequate channels are available for employees to report misconduct internally (while not discouraging employees from reporting misconduct directly to government agencies); ensuring that such reports are investigated appropriately; establishing company policies prohibiting retaliation; training managers and employees on those policies; and vetting certain disciplinary decisions with counsel and appropriate internal resources.
Four Key Takeaways:
1. The Supreme Court held that proof of retaliatory intent—i.e., "something akin to animus" toward an employee for engaging in protected conduct—is not required to establish a SOX whistleblower claim. This holding extends beyond just the SOX context; it also applies to many other whistleblower laws using the same standards and burdens of proof as SOX does.
2. Proof of intent is still required to establish a SOX claim—"the intent to take some adverse employment action against the whistleblowing employee 'because of' his protected whistleblowing activity." This provides some assurance that a company should not be held liable for legitimate, nonretaliatory personnel decisions.
3. The Supreme Court’s decision could make it easier for employees in some cases to meet their own burden of proof, resulting in more whistleblower cases being decided on the basis of the employer's affirmative defense (i.e., whether the employer can prove by clear and convincing evidence that the same action would have been taken regardless of protected conduct). Employers should therefore be mindful of the type of evidence necessary to establish this defense and seek to develop it throughout discovery.
4. Employers can and should take steps to mitigate whistleblower risk preemptively by putting in place appropriate safeguards to protect the company's interests, as described above.
