Supreme Court Lowers the Bar for SOX Retaliation Claims Implications for Employers

Plaintiffs bringing retaliation claims under the Sarbanes-Oxley Act do not have to prove their employers’ “retaliatory intent,” only that their whistleblowing activity contributed to their termination, according to a recent ruling by the U.S. Supreme Court. In a unanimous opinion issued on February 8, 2024, the Court held that Sarbanes-Oxley does not include a retaliatory intent element, and that such requirement would be inconsistent with the statute’s burden-shifting framework. The decision in Murray v. UBS Securities, LLC underscores the protections enjoyed by employees who report suspected fraud or securities violations and the risks companies face in taking action against such whistleblowers.

Below is a summary of the decision and related guidance for employers.

Background

Trevor Murray, a research strategist at UBS Securities, LLC (“UBS”), filed suit against the firm claiming that his employment was terminated shortly after informing his supervisor that he was receiving improper pressure from the trading desk to alter his reports, which were required to be based on his independent judgment. Given that he had just recently received a strong performance review, Murray alleged that he had been fired in retaliation for this protected whistleblowing activity, in violation of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A(a).

The case went to trial in 2017, where the U.S. District Court for the Southern District of New York applied the “contributing factor” standard, requiring that the jury find only that Murray’s “protected activity was a contributing factor in UBS’s decision to terminate his employment,” not that UBS intended to retaliate against him. UBS asserted that market-wide difficulties and a major trading desk loss were actually why Murray’s position was eliminated. Unpersuaded, the jury awarded Murray nearly $1 million in damages. The district court then awarded an additional $1.7 million in attorneys’ fees and costs.

On appeal, the U.S. Court of Appeals for the Second Circuit vacated the verdict, holding that the lower court erred by applying the more lenient “contributing factor” standard rather than instructing the jury to assess retaliatory intent as an element of the claim. The Second Circuit’s holding directly conflicted with decisions from two other federal appellate courts, which had rejected any such requirement for § 1514A claims.

The Supreme Court heard arguments in October 2023, expressing skepticism of the additional intent requirement. This month, Justice Sotomayor, writing for the unanimous Court, reversed the Second Circuit’s decision and remanded the case.

The Opinion of the Court

The Supreme Court’s analysis focused on UBS’s contention that the phrase “or otherwise discriminate” (which appeared the end of § 1514A(a)’s list of prohibited employer actions against whistleblowers) imported a retaliatory intent requirement. In rejecting this argument, the Court reasoned that “discriminate” means simply “differential treatment.” When an employer “treats someone worse—whether by firing them, demoting them, or imposing some other unfavorable change . . . ‘because of’ the employee’s protected whistleblowing activity, the employer violates § 1514A,” regardless of “whether the employer was motivated by retaliatory animus,” Justice Sotomayor wrote.

The Court explained the question of intent is answered through the burden-shifting framework, wherein the plaintiff must show that the protected activity was a “contributing factor in the unfavorable personnel action.” If the employee can do so, the burden shifts to the employer to make a stronger showing, i.e., “demonstrat[e], by clear and convincing evidence, that the employer would have taken the same unfavorable personnel action in the absence of that behavior.”

The Court acknowledged that other employment discrimination statutes set a higher bar for plaintiffs, requiring proof that the protected activity was a “motivating” or “substantial” factor in an adverse action. But Sarbanes-Oxley’s text “reflects a judgment that ‘personnel actions against employees should quite simply not be based on protected [whistleblowing] activities’—not even a little bit,” Justice Sotomayor wrote. The Court underscored that the “contributing factor” standard Congress chose in § 1514A is relatively plaintiff-friendly “by design,” reflecting the legislature’s intent to empower whistleblowers whose reports may protect the public: “This Court cannot override that policy choice by giving employers more protection than the statute itself provides.”

In a short concurrence joined by Justice Barrett, Justice Alito stated that he understood the Court’s opinion only to reject a requirement of “animus,” rather than to “read intent out of” § 1514A entirely: “a discriminatory discharge that is made ‘because of’ a particular factor necessarily involves an intentional choice in which that factor plays some role in the employer’s thinking.”

Implications for Employers

The Court’s opinion in Murray lowers the bar for plaintiffs asserting claims of whistleblower retaliation under Sarbanes-Oxley, which could embolden employees and change the settlement calculus in those cases. Proving the employer’s intent is often difficult, particularly when a number of factors and personnel can influence the termination decision. The more lenient “contributing factor” standard may increase litigation risk and reduce the likelihood of an early resolution.

Nevertheless, employers can take steps to put themselves in a strong position to make the necessary showing when the burden shifts and they must establish that the employee would have been terminated regardless of their whistleblower activity. Ensuring that the employee’s personnel file contains documented non-retaliatory bases for the termination decision is a critical first step. In addition, refreshing the company’s compliance policies to ensure that they are consistent with whistleblower protection laws—and carefully documenting both formal and informal complaints by employees—can put employers in a better position in the event of a retaliation claim.

Importantly, the Supreme Court’s decision highlights the reach of whistleblower protection laws, encompassing not only terminations but other “unfavorable” personnel actions, and managers should be regularly trained on both handling employee complaints and avoiding retaliatory conduct—or conduct that could be perceived as retaliatory—even if there is no retaliatory intent.

While Murray directly impacts public companies and employees covered by the Sarbanes-Oxley Act, the Court noted that several other statutes have similar causation language, including the FDA Food Safety Modernization Act and the Consumer Product Safety Improvement Act, and it is highly likely that the trial courts will see efforts to expand Murray’s reach in the years ahead. The Court’s interpretation of § 1514A’s causation language also could impact cases involving retaliation claims brought under the Dodd-Frank Act, which uses similar language to address employer intent. Employers in all industries should be mindful of the Supreme Court’s decision and carefully consider their anti-retaliation policies and practices.

We will be closely following lower courts’ interpretations of this decision in the § 1514A context and beyond.