U.S. Supreme Court Clarifies Burden of Proof Standards for Sarbanes-Oxley Whistleblower Lawsuits
Ashley Graves, Associate
On February 8, 2024, the United States Supreme Court resolved a split among the lower Courts of Appeals regarding a plaintiff’s burden of proof in whistleblower retaliation cases where the plaintiff has been punished for reporting criminal fraud or securities violations under the Sarbanes-Oxley Act (the “Act”). The Court’s decision in Murray v. UBS Securities, LLC[1] clarifies that employees need not show evidence of the employer’s retaliatory intent or animus, and must only show that the employee’s protected whistleblowing activity was a “contributing factor” to the employer’s adverse employment actions.
Background
Plaintiff Trevor Murray was employed at UBS, a securities firm, as a research strategist. Despite the Securities and Exchange Commission (“SEC”)’s mandate that his securities-related reports and analyses be produced independently and accurately, Murray was pressured to skew his reports to better support the trading desk’s business strategies. He reported this conduct to his supervisor, who did nothing in response and simply encouraged Murray to continue following trading desk directives. After Murray continued to complain about escalating misconduct, his supervisor recommended Murray’s termination. UBS adopted the recommendation and fired Murray.
After exhausting his administrative remedies with the Department of Labor, Murray filed his lawsuit alleging he was terminated for reporting fraud in violation of § 1514A of the Act. At trial, the District Court instructed the jury that Murray needed to establish four elements to prevail: (1) he engaged in whistleblowing activity; (2) UBS knew he engaged in protected activity; (3) he suffered an adverse employment action; and (4) his protected activity was a “contributing factor” in his termination, and the District Court clarified that Murray was not required to prove that his protected activity was the primary motivating factor behind his termination. The jury found in Murray’s favor and awarded over one million dollars in damages, and the district court awarded approximately two million dollars in attorneys’ fees and costs.
The Court of Appeals for the Second Circuit’s Decision and the Split Among the Federal Circuits
The Court of Appeals for the Second Circuit vacated the trial court’s determination and remanded for a new trial, holding that the trial court’s instruction to the jury, that Murray needed only to prove his protected activity played a contributing factor in his termination, was erroneous. The Second Circuit held that, for a retaliation claim under the Act, Murray was required to demonstrate that UBS acted with retaliatory intent. The Second Circuit reasoned that discrimination necessarily entails acting on the basis of prejudice, “which requires a conscious decision to act based on a protected characteristic or action.” The Court reasoned that while an employee need not demonstrate that retaliatory intent was the sole factor impacting the employer’s decision, there still must be “more than a temporal connection between the protected conduct and the adverse employment action.” Because the Murray decision directly conflicted with previous decisions from the Fifth and Ninth Circuit Courts of Appeals, the Supreme Court granted certiorari to resolve the split.
The Supreme Court’s Decision
The Supreme Court rejected the Second Circuit’s approach and its overemphasis on the word “discriminate,” reasoning that § 1514A’s text does not reference or include a retaliatory intent requirement. Moreover, applying recent precedent, the Court noted that the word “discriminate,” as used in § 1514A(a), does not inherently require retaliatory intent, and instead means “differential treatment” generally. A showing of retaliatory intent is one way a plaintiff may satisfy their burden, but it is not the only way.
The Supreme Court also referenced its decision in Bostock v. Clayton County, which clarified that a lack of animosity is irrelevant to a discrimination claim.[2] The Court also reasoned that the Second Circuit’s approach unduly turned the Act’s plaintiff-friendly “contributing factor” burden-shifting framework[3] on its head, since the framework already provides a mechanism for demonstrating intent in whistleblower cases under the Act. Thus, placing an additional burden on a plaintiff to provide direct evidence of retaliatory animus or intent was contrary to the language of the Act and its burden-shifting framework, particularly since “discriminatory intent is difficult to prove,” and “employers control most of the cards.”
Employer Considerations
The Court’s holding resolves any doubts created by the Second Circuit regarding a plaintiff’s burden of proof to show retaliation under the Sarbanes-Oxley Act for reporting criminal fraud or securities violations. The Court’s decision reaffirms Congress’ intent behind the Act to promote employee whistleblowing without fear of repercussions, while also providing employers with a defense to show that they would have engaged in the same adverse employment action(s) in the absence of any protected whistleblowing activity.
[1]Murray v. UBS Securities, LLC, et al., 601 U.S. ___ (2024); https://www.supremecourt.gov/opinions/23pdf/22-660_7648.pdf
[2]Bostock v. Clayton Cnty., 590 U.S. 644, 663 (2020)
[3]Under the Act’s burden-shifting framework, the employee (or former employee) is only required to show that engaging in protected whistleblowing activity was a contributing factor (rather than a substantial or motivating factor) to the adverse employment decision made by the employer. If the employee makes this showing, the employer then must demonstrate, by clear and convincing evidence, that it would have made the same decision regardless of whether the employee engaged in protected activity.