Supreme Court Holds Proof Of Retaliatory Intent Not Required For Sarbanes-Oxley Whistleblower Claims - Whistleblowing - United States

[Gunnar Larson]

https://www.mondaq.com/unitedstates/whistleblowing/1428322/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 certiorarito 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.
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