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High Court Ruling Makes It Easier for Whistleblowers to Advance SOX Retaliation Claims


U.S. Supreme Court

The U.S. Supreme Court ruled Feb. 8 that “retaliatory intent” doesn’t have to be proven in whistleblowers’ Sarbanes-Oxley Act (SOX) retaliation claims, only that the protected activity was a “contributing factor” in an unfavorable employment action. In this case, the distinction involves a whistleblower seeking reinstatement of a damages award of nearly $1 million along with $1.77 million in attorney fees and costs.

The ruling is a reminder to employers to practice good documentation on all employment decisions.

“SOX protects employees of a broad array of entities—namely, public companies, essentially, those listed on stock exchanges and other types of companies that make SEC [U.S. Securities and Exchange Commission] filings, like mutual funds, as well as their officers, employees, contractors, subcontractors and agents,” said Brian Neil Hoffman, an attorney with Holland & Hart in Denver and Washington, D.C. “SOX specifically applies to reports about various types of perceived fraud.”

“This decision makes it easier for SOX whistleblowers to establish retaliation,” said Katie Reynolds, an attorney with Fisher Phillips in Boston. She said the decision underscores the importance of diligent documentation of workplace issues and employment decisions to defend against any inference of retaliation.

“Employers should continue to ensure they are operating lawfully and ethically,” said Tracey Salmon-Smith, an attorney with Faegre Drinker in Florham Park, N.J., and New York City.

Plaintiff Persuaded Jury in Case

In Murray v. UBS Securities, Trevor Murray was employed as a research strategist at securities firm UBS within the firm’s commercial-mortgage-backed securities (CMBS) business. He was responsible for reporting on CMBS markets to current and future UBS customers. SEC regulations required him to certify that his reports were produced independently and that they accurately reflected his own views.

Murray contended that, despite this independence requirement, two leaders of the CMBS trading desk improperly pressured him to skew his reports to be more supportive of their business strategies, instructing Murray to clear his research articles with the desk before publishing them.

Murray reported that conduct to his supervisor, asserting that it was unethical and illegal. His supervisor expressed sympathy for Murray’s situation but emphasized that it was important for Murray to not alienate his internal client—that is, the trading desk, the plaintiff said.

When Murray later informed his supervisor that the situation with the trading desk was bad and getting worse because he was being left out of meetings and subjected to more efforts to skew his research, his supervisor said he should just “write what the business line wanted,” according to the plaintiff. Soon thereafter, Murray was fired.

UBS had argued to the jury that marketwide difficulties and a $2 billion loss on a UBS trading desk in London had required the elimination of certain positions, including Murray’s.

The jury ruled in favor of the plaintiff, and the district court adopted the jury’s damages award of more than $900,000 and awarded the attorney fees and costs of $1.77 million. The 2nd U.S. Circuit Court of Appeals reversed, holding that SOX’s anti-retaliation provision required a whistleblower to prove retaliatory intent. The Supreme Court reversed the 2nd Circuit’s holding and remanded the case for further proceedings consistent with its opinion.

Opinion Emphasized Burden-Shifting Framework

The burden-shifting framework used in SOX cases provides that the whistleblower bears the burden to prove the protected activity was a contributing factor in the unfavorable employment action alleged, the Supreme Court noted. If the whistleblower makes that showing, the burden shifts to the employer to show by clear and convincing evidence that it would have taken the same unfavorable action in the absence of the protected activity.

The Supreme Court contrasted that framework with that of Title VII of the Civil Rights Act of 1964 and other laws prohibiting employment discrimination.

“Many statutes dealing with employment discrimination apply a higher bar, requiring the plaintiff to show that his protected activity was a motivating or substantial factor in the adverse action,” the court said. But the incorporation of the contributing factor standard in Sarbanes-Oxley reflects a judgment that employment actions against employees “should quite simply not be based on protected whistleblowing activities—not even a little bit.”

The contributing-factor burden-shifting framework is meant to be more lenient than most, the court said. Congress adopted this framework to protect “employees in industries where whistleblowing plays an especially important role in protecting the public welfare,” including the securities industry under SOX.

“The jury heard both sides of the story,” the Supreme Court said. “It then determined that Murray had shown that his protected activity was a contributing factor in his firing while UBS had not shown that it would have taken the same action in the absence of his protected activity. That burden-shifting—and not some separate, heavier burden on the plaintiff to show ‘retaliatory intent’—is what the statute requires.”

UBS argued that without a retaliatory intent requirement, innocent employers will face liability for legitimate, nonretaliatory employment decisions, the Supreme Court noted. However, the court ruled, the statute’s burden-shifting framework provides that an employer will not be held liable if it demonstrates by clear and convincing evidence that it would have taken the same unfavorable action in the absence of the protected behavior, the court added.

Moreover, a retaliatory intent requirement is absent from the statutory text, the court held.

How Might This Ruling Affect Employers?

SHRM had supported the 2nd Circuit’s requirement that a SOX retaliation plaintiff show retaliatory intent to prevail, submitting an amicus brief cautioning that to reverse would create a lack of clarity for HR and employers and create inconsistency in the standards for similar retaliation claims, contrary to congressional intent.

“Without an intent requirement, human resource professionals and employers would be left in the position of proving that they did not engage in certain conduct as opposed to the traditional requirement that the affected employee bear the burden of proving that they did engage in certain conduct with the requisite state of mind,” SHRM wrote.

Following the Supreme Court’s decision, it’s more important than ever that employers covered by SOX train their employees on the court’s decision and law’s requirements, said Owen Wolfe, an attorney with Seyfarth in New York City.

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