Corporate & Securities Blog

U.S. Supreme Court Retaliatory Claims Ruling May Trigger More Whistleblower Suits

When whistleblowers lose their jobs or otherwise experience an adverse employment action, employers often face retaliation claims. With respect to retaliation claims brought under the Sarbanes-Oxley Act, the U.S. Supreme Court recently clarified the parties’ respective burdens of proof in a way that may encourage more whistleblower suits and impact an employer’s litigation strategy and settlement calculus.

In Murray v. UBS Securities, the Supreme Court resolved a split that had arisen between the U.S. Court of Appeals for the Second Circuit and the Fifth and Ninth circuits regarding whether a whistleblower plaintiff under Sarbanes-Oxley is required to prove that his or her employer acted with “retaliatory intent.” Rejecting the Second Circuit’s position — and in line with the Fifth and Ninth circuits — the court on February 8 unanimously ruled that a Sarbanes-Oxley plaintiff is not required to make such a showing.

As the Supreme Court noted in Murray, Sarbanes-Oxley was passed in the wake of the Enron scandal, where Congress’ subsequent investigation uncovered “abundant evidence” that Enron’s “massive shareholder fraud” had succeeded in large measure as the result of a “corporate code of silence” enforced through firing employees who attempted to report misconduct. Congress accordingly incorporated into Sarbanes-Oxley an express provision, 18 U.S.C. Section 1514A, to prohibit “publicly traded companies from retaliating against employees who report what they reasonably believe to be instances of criminal fraud or securities law violations,” the court said.

In Murray, plaintiff Trevor Murray worked for UBS as a research strategist in the firm’s commercial mortgage-backed securities business. U.S. Securities and Exchange Commission regulations required Murray to certify his reports to UBS’s current and potential customers as accurately reflecting his views. Murray alleged that his direct supervisors pressured him to alter his reports and that he was terminated after bringing this pressure to the attention of other superiors. He filed an action against UBS in federal court alleging a violation of Section 1514A.

UBS argued on summary judgment that Murray had failed to supply evidence that UBS held any “retaliatory animus” toward him. The district court rejected that argument, holding that Murray was not required to make any such showing, and the jury later found in Murray’s favor. But the Second Circuit reversed on appeal, finding that “retaliatory intent is an element of a Section 1514A claim.”

After engaging in a detailed statutory analysis of the language of Section 1514A and the burden-shifting framework it imposes on employees and employers, the Supreme Court rejected the Second Circuit’s interpretation in its entirety. As the district court had instructed the jury, the plaintiff alleging retaliation under Sarbanes-Oxley must only prove that: (1) the employee engaged in whistleblowing activity protected under the act; (2) the employer knew of the protected activity; (3) the employee was fired or suffered some other adverse employment action; and (4) the protected activity was a “contributing factor” in the adverse employment action. The employee is not additionally required to prove the employer’s “retaliatory intent,” the Supreme Court said.

If the plaintiff proves each of the required four elements, the burden then shifts to the employer to prove that it would have terminated the plaintiff’s employment (or taken the adverse employment action at issue) even if the employee had not engaged in the whistleblowing activity.

By removing the requirement that whistleblower plaintiffs under Sarbanes-Oxley show “retaliatory intent,” the court’s decision lowers a plaintiff’s evidentiary bar and makes defending a retaliation claim trickier for employers. Indeed, finding and presenting evidence of the employer’s intent was previously one of the most difficult burdens placed on a whistleblower plaintiff. Now, however, the whistleblower only needs to show that the whistleblowing activity was a “contributing factor” to the adverse employment action. This may lead to publicly traded companies facing more whistleblower suits and being incentivized to settle where they may have previously opted to defend aggressively.

Employers covered by Sarbanes-Oxley should acquaint themselves with the Murray decision and take steps to ensure they are in a position to succeed if a retaliation action is brought and the burden ultimately shifts to the employer. Thoroughly documenting the adverse employment action and the full set of bases for such action, along with ensuring that the employer has put in place both comprehensive policies to protect whistleblowers and meaningful employee training regarding such policies, will help set the company up to demonstrate that the adverse employment action would have occurred even if the employee had not engaged in protected whistleblowing activity.


Meet the Author

Eric B. Porter

Eric Porter is a highly respected commercial litigator with extensive experience representing clients through all stages of litigation in state and federal courts

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