The U.S. Supreme Court on February 8, 2024, held in a unanimous decision1 that whistleblowers do not need to show retaliatory intent in order to establish protection under the Sarbanes-Oxley Act of 2002 (“SOX”), 18 U.S.C. §1514A.
In this OnPoint, we examine the existing federal protections for whistleblowers, and the impact the Supreme Court’s recent decision will have on employers.
Federal Protections for Whistleblowers
Generally, a whistleblower is an employee who raises complaints or concerns about the legality of an employer’s actions to the employer or a government agency. A number of federal statutes currently protect whistleblowers in the workplace. The Whistleblower Protection Act protects federal employees who work for the government and report possible violations of law either internally or externally (subject to exceptions for sensitive information). Under the Whistleblower Protection Act, federal agencies are prohibited from taking retaliatory action against employees who make protected disclosures, or make a disclosure based on a reasonable belief that there has been a violation of law, rule or regulation; gross mismanagement; a gross waste of funds; an abuse of authority; or a substantial and specific danger to public safety.
Under federal Equal Employment Opportunity (EEO) laws such as Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act and the Americans with Disabilities Act, employees are protected from retaliation and related conduct. Under the EEO laws, employers are prohibited from taking materially adverse action against employees who engage in “protected activity.” Such protected activity may include raising a complaint based on an EEO law or participating in a workplace investigation related to a complaint under an EEO law. It can also include opposing or communicating opposition to a perceived violation of an EEO law.
SOX is one of the most significant federal statutory shields for whistleblowers, insofar as it imposes requirements for financial reporting and recordkeeping for publicly traded corporations and companies that are subject to certain securities filing requirements. Subsidiaries, contractors, subcontractors and agents of such companies may also be covered in certain circumstances. Section 806 of the Act, 18 U.S.C. § 1514A, provides whistleblower protections for employees of such companies and states that no covered employer, or any officer or employee of such employer, may “discharge, demote, suspend, threaten, harass,” or discriminate in any way against an employee who provides information or assists in an investigation regarding conduct by the company that the employee reasonably believes constitutes mail fraud, wire fraud, bank fraud, securities fraud, violation of SEC rules or violates any federal law related to fraud against shareholders.
The Supreme Court Weighs in on SOX Whistleblower Protections
On February 8, the Supreme Court considered SOX’s whistleblower protections and held that whistleblowers do not need to show retaliatory intent on the part of the employer in order to establish causation on a SOX retaliation claim.
The recent decision stems from a lawsuit filed by a former employee, who alleged that his employer violated the anti-retaliation provisions of SOX by terminating his employment after he reported alleged unethical and illegal conduct by other employees of the company.
Generally, to establish a retaliation claim under SOX, the plaintiff must prove four elements:
- their employer is subject to SOX;
- the plaintiff engaged in a protected activity (i.e., raising a concern about fraud or violations of law);
- the employer took an adverse action as a result of this raised concern; and
- causation between the protected activity and the adverse action.
As it relates to establishing causation, the employee must follow a burden-shifting framework that requires him or her to prove that engaging in protected activity “was a contributing factor” to some adverse employment action taken against the employee. If the employee can do so, the employer can still prevail if it can establish by “clear and convincing evidence” that it would have taken the same adverse action against someone who had not engaged in the protected behavior.
At trial, the district court instructed the jury that the employee need only prove by a preponderance of the evidence that his whistleblowing activity was a contributing factor, either alone or in combination with other factors, that affected the employer’s decision to terminate his employment. That is, the employee was not required to make a separate showing that the employer acted with retaliatory intent in its decision to terminate him. Once established, the employer would bear the burden of establishing by clear and convincing evidence that it would have terminated the employee’s employment regardless of his protected activity. In 2017, the jury ultimately sided with the employee and awarded approximately $900,000 in damages. The employer appealed.
In 2022, the Second Circuit vacated the jury award and remanded the case for a new trial. The Second Circuit held that the district court erred in its jury instruction and that former employees suing under 18 U.S.C. § 1514A were required to prove that their employer’s adverse action was done with retaliatory intent (i.e., animus, prejudice or hostility toward an employee because of their lawful whistleblowing activity). The Second Circuit’s decision was based in large part on its finding that the word “discriminate” as it appears in the statute connotes a requirement of proving retaliatory animus. The employee appealed the Second Circuit’s decision and the Supreme Court granted certiorari in May 2023.
The case was argued before the Supreme Court in October 2023, and the Court reversed and remanded the decision of the Second Circuit. The Court held that under SOX’s anti-retaliation provisions, an employee need not prove an employer had retaliatory intent in taking action to terminate that employee. The Court noted in passing that other statutes dealing with employment discrimination are more protective of employers in that they require a plaintiff “to show that his protected activity was a motivating or substantial factor in the adverse action.” However, the incorporation of the “contributing-factor” requirement in SOX “‘reflects a judgement that personnel actions against employees should quite simply not be based on protected activities’ – not even a little bit.” The key inquiry is therefore whether the employer would have retained an otherwise identical employee absent the protected activity. The Court took specific issue with the Second Circuit’s holding that the word “discriminate” in the statutory language necessitated a showing of retaliatory intent, which the Supreme Court construed as “something akin to animus.” The Court emphasized that showing that an employer acted with retaliatory intent is one way of proving that the protected action was a contributing factor, but it is not the only way.
Future Implications and Practical Advice for Employers
In addition to its obvious broadening of protections for employees under SOX, the Supreme Court’s recent decision has potential implications for employers in numerous circumstances, since roughly 15 other federal laws contain language and protections similar to those provided in SOX, including the Anti-Money Laundering Act, Federal Rail Safety Act, Affordable Care Act, Food Safety Modernization Act, Consumer Financial Protection Act and National Defense Authorization Act, among others. As a result of the Court’s decision, employers across a wide range of industries may face challenges in defending themselves against claims of retaliation under SOX, as well as the other statutes containing similar anti-retaliation provisions.
Employers should be mindful of whether they are subject to SOX. While EEO laws and other statutes may protect employee whistleblower actions in a broader employment context, SOX applies generally to alleged or suspected fraudulent activity occurring at publicly traded companies, as well as in other specific circumstances.
Even if SOX does not specifically apply, however, employers should be aware that this case may signal a shift in how federal agencies beyond the SEC will apply whistleblower protections. While the Court’s ruling is rooted in Congress’ intent in enacting SOX, it is possible that going forward courts considering statutes with similar whistleblower protections may interpret those laws more broadly to extend greater protection to employees.
Although it has always been critical that employers refrain from engaging in any actions or communications that may be interpreted as retaliation when dealing with employees who engage in protected activities such as raising claims or reporting violations of misconduct, violations of federal law, state law or employer policies, or other alleged misconduct in the workplace, the Supreme Court’s decision makes this imperative even more important. Employers should ensure that their policies and procedures prohibiting retaliation are up to date and clearly drafted, that they conduct thorough and impartial investigations of employee complaints, and that their reasons for undertaking adverse employment actions against employees, particularly those who may have engaged in protected conduct, are well-documented and unrelated to protected activity.
- Murray v. UBS Securities, LLC, Case No. 22-660 (U.S. Feb. 8, 2024)
