The Supreme Court recently issued a unanimous pro-employee ruling that makes it harder for employers to defend whistleblower claims. In Murray v. UBS Securities, LLC, the Court rejected the argument that an employer must have intent to retaliate against a whistleblower under the Sarbanes-Oxley Act ("SOX"). Rather, the only showing required is that the whistleblowing is a "contributing factor" to the adverse action. However, the Court noted: an employer may rebut, if whistleblowing is shown to be a "contributing factor," by demonstrating the same action would have been taken regardless of the protected activity. While most companies are already careful when taking adverse action against employees who have raised complaints implicating protected activity, this ruling may make the Plaintiff's bar more likely to file whistleblower claims nonetheless.

Though the Court's ruling parsed SOX, it impacts how many companies will defend not only SOX whistleblower claims but similar claims under 16 other federal laws with whistleblower-protection provisions that apply the same burden-shifting framework under the Whistleblower Protection Act. This underscores the need for employers to be more deliberate when taking employment-related actions involving whistleblowers to ensure a well-developed and well-documented justification can be provided to show that the same decision would have been taken regardless of any protected activity.

Notably, many federal laws still rely on higher standards of proof for retaliation that diverge from the Whistleblower Protection Act and require a showing of animus: for example, the Civil Rights Act of 1964 Title VII and Age Discrimination in Employment Act (the retaliatory motive must be "but for"); the Fair Labor Standards Act (retaliatory motive must be "casually linked);" the Family Medical Leave Act (the retaliatory motive must be "motivating factor").

The Sarbanes-Oxley Act

In 2002, SOX was passed responsive to widespread corporate fraud, which shook financial markets and led to huge losses for a wide swath of investors. Major publicly traded corporations including WorldCom, Tyco International, and Enron had purportedly engaged in such practices, eroding confidence in the markets. Estimated losses totaled more than $250 billion.

Under SOX, publicly traded corporations must adhere to standardized financial recordkeeping and reporting protocols and promote and not interfere with independent financial audits (among other requirements).

To break the "corporate code of silence," SOX prohibits employers from "discriminating against an employee . . . because of protected activity" such as reporting "criminal fraud or securities violations." The SOX standard for proving a retaliation claim derives from the Whistleblower Protection Act of 1989 (49 U.S.C. § 42121(b)(2)(B) (often called AIR21)), one of 16 federal laws with similar whistleblower protections that rely on the same burden-shifting framework. To establish the claim, an employee must prove they were "discriminated" against for engaging in protected activity. Even if the employee does so, the employer can rebut and prevail on the claim if it offers "by clear and convincing evidence that [it] would have taken the same unfavorable personnel action" against an employee if they had not engaged in the protected behavior.

Murray v. UBS Securities, LLC

A former UBS employee, Trevor Murray, who was a research strategist, filed a whistleblower action alleging that UBS had terminated his employment for engaging in protected activity after Murray informed his supervisor that he believed two leaders were engaging in "unethical and illegal efforts to skew his independent reporting." Murray claimed he was fired for exposing the leaders' conduct and refusing to create misleading reports in advance of their business strategies around commercial mortgage-backed securities, which he was responsible for certifying were produced independently and accurately reflected his own views. Shortly after whistleblowing to his supervisor, the supervisor recommended that Murray be removed from his role. UBS, however, claimed Murray was laid off during a larger cost-cutting reduction in force due to the company's financial challenges. UBS argued it was entitled to judgment as a matter of law because Murray "failed to produce any evidence that [his supervisor] possessed any sort of retaliatory animus toward him."

After a trial, the district court instructed the jury to first consider whether Murray's whistleblowing activity was a "contributing factor" to the adverse employment action, rather than the "primary motivating factor." If so, then the burden would shift to UBS to show that it would have taken the same action regardless of whether the worker engaged in protected activity under SOX. The jury ruled in Murray's favor.

On appeal, the Second Circuit vacated the jury's verdict and remanded for a new trial, holding that SOX required a higher burden of proof to show that the employer "intended" to retaliate against the employee based on the protected conduct (rejecting the "contributing factor" analysis).

What Was the Supreme Court's Ruling?

Under SOX, the Supreme Court held that an employee must prove their protected activity "was a contributing factor in the unfavorable personnel action," but they don't need to also prove their employer acted with "retaliatory intent." The Court's decision resolves a circuit split on the burden of proof for SOX retaliation cases. The Second Circuit's 2022 ruling requiring a plaintiff to prove "retaliatory intent" directly conflicted with decisions from the Fifth and Ninth circuits, requiring a plaintiff only show protected activity was a "contributing factor."

The Court parsed SOX's requirement that an employer cannot "discriminate against an employee . . .because of" protected activity." The Court held that SOX's whistleblower-protection provision prohibits the same kind of "discrimination" prohibited by, for example, Title VII of the Civil Rights Act of 1964. The "normal definition of discrimination," the Court observed "is differential treatment." As Justice Sonia Sotomayor noted: "Prohibited discrimination occurs when an employer intentionally treats a person worse because of protected activity. . . It does not matter whether the employer was motivated by retaliatory animus or was motivated, for example, by the belief that the employee might be happier in a position that did not have SEC reporting requirements." The Court wrote that it has long held that "discrimination" could be intentional even if it was not motivated by animosity toward a protected characteristic. The Court said that the SOX employee-protection provision did not suggest a different interpretation of the word "discriminate." Thus, SOX does not require the employee to offer proof of a "malevolent motive" (as under Title VII).

Critically, the Supreme Court ruled that any whistleblower who invokes the Whistleblower Protection Act at 18 U.S.C. § 1514A has the burden to prove that their protected activity "was a contributing factor in the unfavorable personnel action alleged in the complaint" and is not required to make a further showing that their employer acted with "retaliatory intent." Sixteen federal laws incorporate the Whistleblower Protection Act's burden-shifting framework.

Future Impact on Employers

The Court's ruling poses challenges to employers defending whistleblower claims. Employees will have a lower burden of proof to establish a whistleblowing claim going forward when brought under any of the 16 federal laws applying the Whistleblower Protection Act. This may incentivize employees to bring such claims. Strategically, employers in these cases must be prepared to defend their employment decisions by "clear and convincing evidence" that they would have fired the employee even absent the protected whistleblowing activity. This is especially so since, on mass-layoffs, whistleblowers are often less visible (as opposed to other protected classes). The bottom line for many employers may not change as a result of the Murray case: Continue to be sure before terminating a whistleblower that clear and objective evidence exists to show that the reasons for termination are legitimate.