At a Glance

• The U.S. Supreme Court will decide in Murray v. UBS Securities, LLC whether a whistleblower must prove that an employer acted with “retaliatory intent” to be protected under the Sarbanes-Oxley Act.
• The Court’s decision will settle a split between the circuit courts, which will impact how employers defend against Sarbanes-Oxley Act retaliation claims.

The U.S. Supreme Court will soon decide whether a whistleblower must prove that an employer acted with “retaliatory intent” to be protected under the Sarbanes-Oxley Act. In doing so, the Court will resolve a circuit split, and provide needed clarity regarding a whistleblower’s burden of proof when asserting a claim under the Sarbanes-Oxley Act’s anti-retaliation provision.

Background

Under Sarbanes-Oxley’s anti-retaliation provision, a publicly traded company may not “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee.” 18 U.S.C. § 1514A. The elements of a prima facie Sarbanes-Oxley claim include: (1) the employee engaged in protected activity or conduct; (2) the employer knew of the employee’s protected activity; (3) the employee suffered an unfavorable personnel action; and (4) the employee’s protected activity was a contributing factor in the adverse action. Gattegno v. Administrative Review Bd., 353 Fed. Appx. 498 (2d Cir. 2009); Seybold v. Charter Communications, Inc., 2023 WL 7381438 (5th Cir. 2023). A “contributing factor” is defined as “any disclosure that affects an agency’s decisions to threaten, propose, take, or not take a personnel action with respect to the individual making the disclosure.” Id. This “contributing factor” framework is the burden of proof standard in Section 1514A, but Murray v. UBS Securities, LLC may change the burden. The result will clarify Sarbanes-Oxley and other whistleblower statutes that protect employees. This case is specifically important to public companies and companies that do business with public companies.

Facts of the Case

Trevor Murray was hired by UBS Securities, LLC (UBS) as a commercial mortgage-backed securities strategist in 2011. He was responsible for creating reports that were distributed to UBS’s clients about commercial mortgage-backed securities. Murray was required by the Securities and Exchange Commission (SEC) to certify that his reports were produced independently and accurately reflected his views.

Murray alleges two leaders of UBS — Ken Cohen and Dave McNamara — pressured him to skew his research and publish reports that support UBS’s business strategy. Murray reported this conduct to his supervisor, Michael Schumacher, twice. Murray believed screening the reports was unethical and illegal. In Murray’s second meeting with Schumacher, Schumacher told him to do what Cohen and McNamara told him to do. Shortly after this conversation, Schumacher emailed his supervisor recommending that UBS “remove Murray from their head count” or move him to the trading desk as a desk analyst. The trading desk refused to have Murray work with them, so Murray was fired.

Procedural History

Murray sued UBS in 2014 alleging he was terminated in response to his complaints about fraud to shareholders in violation of Sarbanes-Oxley’s anti-retaliation provision. UBS claims Murray’s employment was terminated because of a strategic reorganization. The case went to trial and the jury awarded Murray over $900,000 in damages and over $1.7 million in attorney’s fees. UBS appealed.

On appeal, the U.S. Court of Appeals for the Second Circuit vacated the district court’s verdict and remanded for a new trial, finding Murray failed to demonstrate that his termination was ordered with retaliatory intent in response to his reports. The Second Circuit added retaliatory intent as a sub-requirement to the “contributing factor” element, focusing on the statutory language regarding discriminatory intent “because of whistleblowing.”

On May 1, 2023, the United States Supreme Court agreed to hear the employee’s appeal. Oral arguments were heard by the Court on October 10, 2023. Several justices expressed skepticism about UBS Securities’ argument. Justice Ketanji Brown Jackson questioned the difference between causation and intent in this instance. However, Justice Clarence Thomas stated the statute includes but-for causation and an intent requirement. Justice Neal Gorsuch suggested the Court could conclude whistleblowers only have to show discriminatory intent, not retaliatory intent because he didn’t see retaliatory intent in the statute.

Conflict With Other Circuits

The U.S. Court of Appeals for the Fifth Circuit and the U.S. Court of Appeals for the Ninth Circuit have held that retaliatory intent is not an element of an employee’s whistleblower claim under Sarbanes-Oxley. The U.S. Court of Appeals for the Fourth Circuit and the U.S. Court of Appeals for the Tenth Circuit have stated that the purpose of the “contributing factor” test is intended to remove a need for the employee to prove that an employer’s adverse action was motivated by retaliatory intent. Conversely, the U.S. Court of Appeals for the Seventh Circuit and the U.S. Court of Appeals for the Eighth Circuit have interpreted the language of Sarbanes-Oxley to require retaliatory intent.

The Second, Seventh and Eighth Circuits have raised the threshold for Sarbanes-Oxley whistleblower plaintiffs. In a retaliatory intent framework, the burden is now on the plaintiff to produce some evidence of the employer’s subjective intent to retaliate. This standard makes it more difficult for plaintiffs to succeed on an anti-retaliation claim under Sarbanes-Oxley whistleblower statute. Plaintiffs would need to produce evidence of the employer’s intent to retaliate against the employee for reporting a violation. This could significantly reduce the number of actions that survive motions for judgment as a matter of law.

Implications of a Retaliatory Intent Requirement

Whichever way the Supreme Court rules will have substantial effects on employers defending against Sarbanes-Oxley retaliation claims. If the Court affirms the Second Circuit’s decision, an employee will have to establish in the case-in-chief that the adverse employment action by the employer was influenced by the employee’s protected action — that is, retaliatory intent. Employers could defeat retaliation claims by proving a nonretaliatory motivating factor for terminations, such as not meeting the employer’s legitimate expectations. Retaliatory intent could reduce the cost to settle these types of claims for the employer.

Conversely, if the Supreme Court sides with the Fifth and Ninth circuits — and the employee — it will become more difficult for employers to defend against retaliation claims. In a Section 1514A suit, an employee would only need to show that retaliation “tended to affect in any way” an adverse employment action. The employer will have the burden to prove a lack of retaliatory intent as part of its affirmative defenses.