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Supreme Court Affirms That SOX Whistleblowers Need Not Prove Retaliatory Intent
In a decision earlier this month, Murray v. UBS, the U.S. Supreme Court settled a split among the federal courts of appeal regarding the evidentiary burden for whistleblowers bringing retaliation claims under the Sarbanes-Oxley Act of 2002 (“SOX”). In a unanimous decision written by Justice Sonia Sotomayor, the Court reversed the Second Circuit’s holding that SOX requires that whistleblowers prove “retaliatory intent” as an initial element of their case.
The Murray decision makes it easier for a whistleblower to make a preliminary showing of a SOX violation, thereby shifting the burden back onto the employer to prove that it had a legitimate, non-retaliatory reason for the adverse employment action.
Background
Congress enacted the Sarbanes-Oxley Act in the wake of the Enron scandal to rectify some of the problems that led to such a massive fraud, including a culture of silence that discouraged employees from voicing concerns or reporting fraudulent behavior, since employees who did so were often fired or otherwise retaliated against.
SOX forbids publicly traded companies (and their subcontractors) from retaliating against employees who “blow the whistle” about suspected criminal fraud or violations of the securities laws. Under SOX, no covered employer 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 activity.
For a retaliation claim brought under SOX, the statute provides that the whistleblower bears the initial burden of proving that the protected activity (i.e., the whistleblowing) was a contributing factor in the unfavorable employment action at issue. If the whistleblower is successful in making that showing, the burden then shifts to the employer to prove, by clear and convincing evidence, that it would have taken the same personnel action in the absence of the protected activity.
The Murray Case
The plaintiff in Murray was hired as a research strategist at securities firm UBS. As a strategist, Murray was required under SEC regulations to certify that his reports on relevant markets to current and future UBS clients were produced independently and reflected his own views. In his lawsuit, Murray alleged that two leaders of the trading desk in his department pressured him to skew his reports to support their business strategies and asked him to clear his articles with them before publishing.
According to Murray, when he brought these concerns to his supervisor, he was instructed to write what the trading desk leaders wanted. Shortly afterwards, his supervisor emailed his own supervisor and recommended that Murray be fired (despite his having recently received a positive performance review) or, alternatively, transferred to a position in which he would not have to certify his independence to the SEC. Murray was fired soon after, and he subsequently filed suit under SOX.
At trial, the district court gave the jury instructions that closely resembled the burden-shifting framework discussed above. The jury found for Murray, and UBS appealed to the Second Circuit, which vacated the jury award and remanded the case for a new trial. In doing so, the Second Circuit held – contrary to earlier decisions by the Fifth and Ninth Circuits – that the jury should have been instructed that Murray had the burden of proving that UBS had “retaliatory intent” when firing him. The Supreme Court granted certiorari to resolve the circuit split regarding whether retaliatory intent is part of a whistleblower’s burden of proof.
Supreme Court’s Holding
In reversing the Second Circuit’s decision, the Supreme Court affirmed that a whistleblower bringing a retaliation claim under SOX need only initially show that the whistleblower’s protected activity was a “contributing factor” in the employer’s adverse personnel action. The burden then shifts to the employer to demonstrate, by clear and convincing evidence, that the same personnel action would have been taken in the absence of the whistleblowing.
The Court acknowledged that this framework was not as “protective” of employers as some other statutes, attributing this to Congress’s intent to use a more lenient framework in situations such as Murray’s, where discriminatory intent is difficult to prove, and employers “control most of the cards.”
The Supreme Court also emphasized that by penalizing employers when whistleblowing is shown to have been a “contributing factor” in an adverse employment action, SOX represents a conscious Congressional judgment that “personnel actions against employees should quite simply not be based on protected [whistleblowing] activities – not even a little bit.”
Recommendations For Employers
In the wake of the Murray decision, there are a number of steps employers should take to minimize their risk of SOX liability:
• Ensure that managers and human resources professionals are trained to recognize whistleblowing complaints and know how to respond to them.
• Before taking adverse action against a whistleblower, consider whether that same action would be taken if the employer had learned of the employee’s protected disclosure through other means, or if the whistleblowing had not occurred at all.
• Because one of the best defenses against a claim of retaliation is contemporaneous documentation of the reasons for adverse employment decisions, ensure that internal policies and protocols for documenting matters such as performance issues and inappropriate conduct are being followed.
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If you have questions about this decision or the Sarbanes-Oxley Act, please feel free to contact one of our experienced employment lawyers.
