U.S. Supreme Court Ruling Eases Burden of Proof for Whistleblowers

Federal and state laws protect whistleblowers from retaliation by employers under the rationale that such laws combat fraud and/or abuse. One of these protective laws is the 2002 Sarbanes-Oxley Act (“SOX”). The U.S. Supreme Court recently interpreted SOX in a manner that will make it easier for whistleblowers to establish unlawful retaliation. 

When Does Sarbanes-Oxley Apply?

SOX applies to publicly traded companies or companies that are required to file certain reports with the Securities and Exchange Commission (“SEC”). Section 806 of SOX prohibits retaliation against whistleblowers who report alleged mail, wire, bank, or securities fraud; violation(s) of SEC rules and regulations; or violation(s) of Federal law relating to fraud against shareholders.

What Standard of Proof Applied to Whistleblower Claims Before Murray v. UBS?

SOX provides that a whistleblowing employee must show that their protected activity “was a contributing factor in the unfavorable personnel action alleged in the complaint.” If the employee meets that burden of proof, the employer must then demonstrate “by clear and convincing evidence that the employer would have taken the same unfavorable personnel action in the absence of that behavior.”

The issue that arose among lower courts in applying this language was whether a whistleblower must prove that the employer acted with a “retaliatory intent” as part of the initial burden of proof.

Lower courts had put the burden of showing retaliatory intent on employees.

What Happened in Murray v. UBS?

The case before the Supreme Court involved a research strategist employed by UBS Group AG who claimed that he was unlawfully terminated for refusing to skew his independent reporting to UBS customers. A jury awarded him $900,000 at trial. UBS appealed to the U.S. Court of Appeals for the Second Circuit, which reversed because it concluded that the employee failed to prove that UBS intentionally retaliated against him. The employee appealed to the Supreme Court. 

The Court concluded that whistleblowers need only demonstrate that their protected activity was a contributing factor to an unfavorable personnel decision, not that the employer acted with retaliatory intent, as the Second Circuit held. The decision makes it easier for whistleblowers to establish retaliation. While the ruling only addressed retaliation claims under SOX, other statutes use similar language, and this ruling may therefore lead courts to apply similar interpretations to additional laws.

What Steps Should Employers Take?

Employers subject to SOX should consult counsel if an employee alleges financial wrongdoing that falls under SOX to ensure that the employer responds appropriately and promptly.

Please feel free to contact any of our attorneys if you have any questions or would like our assistance in developing employment policies and procedures.

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