Conscientious employees are the public’s best protection against corporate wrongdoing, as Congress recognized in a provision of the Sarbanes-Oxley Act of 2002. Enacted after a series of accounting scandals, Sarbanes-Oxley expressly bars publicly-traded companies from retaliating against employee-whistleblowers who speak up about fraud and securities law violations. Today, in a victory for employees in Murray v. UBS Securities, LLC, a unanimous Supreme Court rejected UBS Securities’ argument that a victim of whistleblower retaliation under the Act must prove “retaliatory intent.” Instead, the Court held, such an employee must prove that their whistleblowing “was a contributing factor” in the employer’s retaliation—the same standard we have in California under Labor Code §1102.5. The decision is good for employees and for the public’s protection against financial wrongdoing that can have catastrophic consequences.
The case started in 2011 after Trevor Murray, a research strategist at the securities firm UBS, experienced pressure from within UBS to skew his reports to reflect favorably on the commercial mortgage-backed securities strategy adopted by UBS. Murray’s reports were distributed to UBS customers, and they fell under SEC regulations. One such SEC regulation required Murray to certify that the reports were independently produced and accurately reflected his views. After other personnel pressured Murray to provide supportive reports, Murray went to his supervisor in December 2011 and again in January 2012. Murray’s supervisor told him not to “alienate” the internal commercial mortgage-backed securities group that Murray worked with. Shortly thereafter, Murray told his supervisor that the situation had worsened—Murray was excluded from meetings and subjected to constant efforts to skew his research. Rather than take steps to ameliorate the situation, Murray’s supervisor (who had given him a very strong performance review a few months prior) emailed his own supervisor and recommended that Murray be “removed from the head count” or given an analyst position that would not require Murray to certify his reports under SEC regulation.
UBS opted to fire Murray in February 2012.
Murray filed a complaint with the Department of Labor as required under Sarbanes-Oxley. When the Department of Labor did not act, Murray filed a complaint in federal district court. The case was tried to a jury and the jury was instructed that Murray had to prove: (1) that he engaged in whistleblowing activity protected by Sarbanes-Oxley, (2) that UBS knew that he engaged in the protected activity, (3) that he suffered an adverse employment action (i.e., was fired), and (4) that his “protected activity was a contributing factor in the termination of his employment.”
The jury found that Murray proved the elements and recommended that the district court award almost $1 million in damages. The district court adopted the recommendation and awarded Murray an additional $1.769 million in attorney’s fees and costs. UBS appealed to the Second Circuit Court of Appeals, which reversed the judgment and held that to prevail, “a whistleblower-employee must prove that the employer took the adverse employment action . . .with retaliatory intent.” Under this standard, Murray would have been required to show that UBS had fired him out of prejudice, animus, or comparable hostile or culpable intent. To resolve a conflict with other circuits, the Court agreed to hear the case and reversed the Second Circuit.
The Supreme Court rejected UBS’s arguments, and the Second Circuit’s reasoning, that Sarbanes-Oxley requires a showing of “retaliatory intent” because it prohibits employers from a series of actions, including threatening or firing a whistleblower, “or in any other manner discriminat[ing] against an employee” because of the whistleblowing activity. The Court found that discrimination does not require malevolent motives—all that matters is that an employer treats an employee different than others on a protected basis, including whistleblowing. The Court observed that it is irrelevant whether an employer may have been motivated “by the belief that the employee might be happier in a position that did not have SEC reporting requirements.”
Further, the Court held, Sarbanes-Oxley expressly provides that whistleblower retaliation cases operate under a burden-shifting framework. Initially, as Murray did, an employee must show that their whistleblowing was a “contributing factor in the unfavorable personnel action.” (18 U.S.C. §1514A(b)(2)(C) (incorporating by reference 49 U.S.C. §42121(b)(2)(B)(i)).) The burden of proof then shifts to the employer to “demonstrate, by clear and convincing evidence, that the employer would have taken the same unfavorable personnel action in the absence of that behavior.” (49 U.S.C. 42121(b)(2)(B)(ii).) California has a similar requirement under Labor Code §1102.6. See Lawson v. PPG Architectural Finishes, Inc.(2022) 12 Cal.5th 703. Both under SOX at the Department of Labor or in federal court, and under California’s whistleblower protections, what motives animated the employer to fire or suspend or otherwise act against the employee do not matter, if the employer cannot show that it would have taken that action even if the employee had not spoken up about wrongdoing.
The Court observed Congress has provided more stringent burdens on plaintiffs in other contexts. Therefore, “the incorporation of the contributing-factor standard in Sarbanes-Oxley reflects a judgment that personnel actions against employees should quite simply not be based on protected whistleblowing activities—not even a little bit [citations omitted].”
Congress’s judgment on this matter, and the Court’s decision, are a step in protecting the integrity of organizations that handle vast sums of the public’s money. That public trust depends on brave employees who stand up.
Bryan Schwartz Law, P.C., believes that whistleblowers are vital to protect us all and their protections must be robust. See here, here, and here. If you believe that your employer retaliated against you after you reported wrongful activity, please contact us here.
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