Thursday, February 8, 2024: U.S. Supreme Court Unanimously Ruled “Retaliatory Intent” Not Required to Prove SOX Whistleblower Claim
SOX Burden More Plaintiff-Friendly Than Other Laws Prohibiting Employment Discrimination
Recognizing that Congress meant the evidentiary burden-shifting framework of the Sarbanes-Oxley Act’s whistleblower protection provisions to be “plaintiff-friendly,” a unanimous U.S. Supreme Court held that employees bringing such claims are not required to establish that the employer acted with “retaliatory intent.” The decision in Murray v. UBS Securities, LLC (Case No. 22-660) clarified that a plaintiff employee only needs to show that their protected activity contributed to an unfavorable personnel action. Writing for the Court, Justice Sonia Sotomayor contrasted the SOX evidentiary framework with that of Title VII of the Civil Rights Act of 1964 (“Title VII”) and other laws prohibiting employment discrimination which have higher evidentiary hurdles for plaintiffs.
What is SOX?
Employees who work for a publicly traded company or brokerage firm or for contractors, subcontractors, or agents of publicly traded companies have special whistleblower protections under Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002 (18 U. S. C. §1514A), also known as Sarbanes-Oxley Act (“SOX”).
This statute, which Congress designed to protect consumers and bring greater transparency to financial systems on the heels of the sudden collapse after 158 years of business of Lehman Brothers, Inc. (the global securities trading powerhouse based in Manhattan) also protects employee whistleblowers who report violations of securities law or violations of commodities law. Specifically, SOX-protected activities include reporting alleged violations of the federal mail, wire, bank, or securities fraud statutes, any rule or regulation of the SEC, or any other provision of federal law relating to fraud against shareholders.
How Does SOX’s Evidentiary Framework Differ From Other Laws Barring Employment Discrimination?
On Thursday, SCOTUS ruled that employees seeking to establish a SOX claim must prove only that their protected activity “was a contributing factor in the unfavorable personnel action [at issue],” but they are not required to also show that the employer acted with “retaliatory intent.”
Once the employee proves that his or her protected action was a “contributing factor” to the employer’s at-issue adverse action (perhaps only 1% of the total calculus of the employer’s decision-making leading to the employer’s adverse action), the burden 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. Justice Sotomayor explained that:
“While many statutes dealing with employment discrimination apply a higher bar, requiring the plaintiff to show that his protected activity was a motivating or substantial factor in the adverse action, […] the incorporation of the contributing-factor standard in Sarbanes-Oxley reflects a judgment [by Congress] that [an employer’s personnel actions against employees should not be based on protected whistleblowing activities]—not even a little bit.” [citations omitted]
Thereby, Justice Sotomayor’s opinion distinguished the contributing factor requirement under SOX’s burden-shifting framework as a lesser burden than the “motivating factor” standard used in other contexts, such as the evidentiary framework for proving employment discrimination under Title VII.
Alito’s Concurring Opinion Emphasized That Intent Is Still a Required Element
The majority opinion was just over 13 pages. Justice Samuel Alito wrote a concurring opinion that was just over three pages, in which Justice Amy Coney Barrett joined. He wrote separately “to reiterate that [the Court’s] rejection of an ‘animus’ requirement does not read intent out of the statute. Rather, as the Court confirms, a plaintiff must still show intent to discriminate.” “[T]he plaintiff must show that a reason for the adverse decision was the employee’s protected conduct. The plaintiff need not prove that the protected conduct was the only reason or even that it was a principal reason for the adverse decision,” he wrote. Showing that it helped to cause or bring about that decision “is enough,” he added.
What Does This Mean for Employers?
In 2010, Congress amended SOX via the Dodd-Frank Wall Street Reform and Consumer Protection Act to provide potential employee whistleblowers the right to a jury trial, expand available remedies, and expressly prohibit the use of pre-dispute arbitration agreements for SOX claims. Given the exceptionally plaintiff-friendly nature of SOX, covered employers should ensure that their SOX compliance strategy includes robust provisions to adequately address potential whistleblower complaints and prevent retaliation. It will be particularly important regarding SOX-covered adverse employment actions for employers to be clear as to the factors which motivated the decision, and that proof exists that the adverse action decided upon did NOT involve ANY consideration of the employee’s SOX-protected right to complain.