The Supreme Court unanimously ruled against an investment bank on Feb. 8, reinstating a $900,000 jury award in favor of whistleblowers claiming retaliation.
In a highly technical ruling in Murray v. UBS Securities LLC, the justices found that the Sarbanes-Oxley Act of 2002, a financial services reform law aimed at protecting investors, does not require whistleblowers to demonstrate that they were the victims of intentional retaliation.
Put another way, the Supreme Court held that a whistleblower seeking the protections available under the law has to show that the protected activity contributed to the company’s actions against him but does not have to prove that the employer acted with retaliatory intent.
The statute, which was enacted in the wake of revelations of corporate fraud at Enron Corp. and WorldCom Inc., provides that employers may not “discriminate against an employee” because the individual reported financial wrongdoing.
Congress passed the whistleblower provisions of the law to prevent publicly traded companies from taking adverse action against employees for making bona fide reports about fraud or violations of securities laws. The statute stipulates that employers 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 ” protected whistleblowing activity, according to court documents.
When a whistleblower relies on the provisions, he initially bears the onus of showing that the protected activity “was a contributing factor in the unfavorable personnel action alleged in the complaint,” but after that, the burden shifts to the employer to demonstrate that it “would have taken the same unfavorable personnel action in the absence” of the protected activity.
Driving the adoption of the legislation was the “abundant evidence” that Enron’s massive shareholder fraud was helped by a “corporate code of silence” that discouraged employees from reporting fraudulent behavior to law enforcement. Evidence also showed that Enron employees who tried to report misconduct were often terminated by the company.
Hundreds of claims have reportedly been filed with the Department of Labor by employees in recent years.
Former UBS securities strategist Trevor Murray, who worked on commercial mortgage-backed securities, prevailed over the financial services giant in a lawsuit that was initiated after the company fired him in early 2012 over his complaints about fraud.
He had alleged that the company showed him the door because he declined to skew reports about UBS’s changing business strategies. Mr. Murray claimed that there was a “concerted, extended effort” by managers and colleagues to get him to write bullish assessments.
Although Securities and Exchange Commission regulations required him to certify that his reports were produced independently and accurately reflected his own views, Mr. Murray testified that in 2011 and 2012, officials on the UBS trading desk pressured him to slant his reports and even to have his articles cleared by them before publication.
UBS responded by stating that Mr. Murray was let go as part of a broader staffing reduction related to financial difficulties that it had been experiencing. The company stated that a $2 billion loss by a rogue trader at its London office five months before the termination had contributed to its troubles.
The U.S. Court of Appeals for the Second Circuit vacated a lower court’s judgment and found that the lower court should have instructed the jury that Mr. Murray and the other plaintiffs were obliged to show that their employers acted with retaliatory intent.
“The question before this Court is whether the phrase ‘discriminate against an employee ... because of’ in [Section] 1514A(a) requires a whistleblower additionally to prove that his employer acted with ‘retaliatory intent,’” Justice Sotomayor wrote.
The Second Circuit found that requirement exists, but “this Court disagrees,” she wrote, noting that the Second Circuit’s holding conflicted with rulings of the Fifth and Ninth Circuits.
“Section 1514A’s text does not reference or include a ‘retaliatory intent’ requirement, and the provision’s mandatory burden-shifting framework cannot be squared with such a requirement,” Justice Sotomayor wrote.
“While a whistleblower bringing a [Section] 1514A claim must prove that his protected activity was a contributing factor in the unfavorable personnel action, he need not also prove that his employer acted with ‘retaliatory intent.’
“[The Second Circuit' was wrong when it held that the word ‘discriminate’ in the statute’s catchall provision imposes an additional requirement that the whistleblower plaintiff prove the employer’s ‘retaliatory intent’ or animus. Accepting that the word ‘discriminate’ is relevant to the intent inquiry, the only intent that [Section] 1514A requires is the intent to take some adverse employment action against the whistleblowing employee ‘because of’ his protected whistleblowing activity.
“The statute is clear that whether an employer ‘discriminated’ in that sense has to be resolved through the contributing-factor burden-shifting framework that applies to Sarbanes-Oxley whistleblower claims.”
Justice Samuel Alito filed an opinion concurring in the court’s judgment.
Justice Amy Coney Barrett concurred in Justice Alito’s opinion.
