Supreme Court Reverses Second Circuit in Favor of Whistleblower Plaintiff, Holding That SOX Plaintiffs Need Not Prove Retaliatory Intent

Earlier this month, the Supreme Court unanimously reversed the Second Circuit’s decision in Murray v. UBS and resolved a circuit split in favor of employees, holding that although intent is an element of a Sarbanes-Oxley (“SOX”) whistleblower case, a SOX plaintiff does not have to prove retaliatory intent or animus to prevail. The decision, which addressed the meaning of the contributing-factor standard, leaves SOX as one of the, if not the, most protective whistleblower statutes in the country and may extend well beyond the statute itself. As we have discussed previously, the same standard is used for not only a dozen or so other federal whistleblower statutes, but also California’s general whistleblower law, California Labor Code Sec. 1102.5. The article below provides a brief background on SOX’s contributing-factor standard, the facts of the case, an overview of the decision, and some practical takeaways.

Background

SOX prohibits publicly traded companies and their contractors from “discharge[ing], demot[ing], suspend[ing], threaten[ing], harass[ing], or in any other manner discriminat[ing] against an employee in the terms and conditions of employment because of any lawful act done by the employee” under 18 U.S.C. § 1514A(a). Any civil action to enforce this prohibition is governed by the burden-shifting framework in 49 U.S.C. § 42121(b). Under this framework, a plaintiff must first show that the protected activity “was a contributing factor in the unfavorable personnel action alleged in the complaint” (“Contributing Factor Standard”). If the plaintiff meets this burden, the employer can still avoid liability if it demonstrates, by clear and convincing evidence, that it would have taken the same unfavorable personnel action absent the protected activity (“Same-Action Defense”).

The Contributing Factor Standard applies to at least a dozen other federal whistleblower statutes, including the Dodd-Frank Act and the Federal Rail Safety Act (“FRSA”).

Plaintiff Trevor Murray was a securities strategist who filed a SOX whistleblower claim after he was let go as part of a reduction in force five to six months after complaining that he was being pressured to “skew his research.” There was evidence presented at trial that his manager considered trying to find him another position in the company before he was let go as part of the reduction in force. Though the district court commented that this was one of the closest cases it had ever seen, the jury found in Murray’s favor after the court declined to include retaliatory intent as an element in its jury instructions for the Contributing Factor Standard and instead ruled that protected activity only needs to have “tended to affect [the termination] in any way.” 

On appeal, the Second Circuit reversed and held that to prevail on the “contributing factor” element of a SOX antiretaliation claim, a plaintiff must prove that their employer took adverse action against them with retaliatory intent. In so holding, the Second Circuit relied on both the statutory text (that it prohibits “discriminat[ion]”) and Second Circuit precedent finding nearly identical language in the FRSA to require “some evidence of retaliatory intent” as a “necessary component of an FRSA claim.”

At the Supreme Court’s oral argument in December, much of the questioning focused on what “retaliatory intent” means, whether and to what extent intent is an element of a SOX claim, and whether the statute’s Contributing Factor Standard already provides the means of determining intent or whether the statute imposes an additional requirement on plaintiffs to prove it. As we reported, oral argument indicated that a majority of the Court seemed ready to decide in Murray’s favor.

Decision Overview

The Supreme Court based its holding—that a SOX claim does not require proof of retaliatory intent—on several grounds, including the meaning of “discriminate,” the purpose of the burden‑shifting framework, and the function of the Same-Action Defense.

• “Discriminate” Does Not Inherently Require “Retaliatory” Intent: A significant part of the Court’s opinion and the underlying dispute turned on the meaning of such bedrock but slippery terms as “discrimination” and “retaliatory intent.” The Supreme Court agreed with the Second Circuit that retaliatory intent means something “akin to animus,” but disagreed that SOX requires a plaintiff to prove it. In particular, the Supreme Court rejected that the word “discriminate” in the statute’s catch-all provision requires the plaintiff to prove an employer’s retaliatory intent or that such intent is an element in a SOX whistleblower claim. Citing its decision in Bostock v. Clayton County, 590 U. S. 644, 657 (2020), the Supreme Court found that “discriminate” instead means intentionally treating a person worse because of a protected characteristic or conduct, regardless of whether someone is motivated by animosity. Whether protected activity contributes to an employer’s decision does not turn on whether the employer dislikes the employee because of that protected activity and wants to punish them for it. In other words, according to the Court, “[i]t does not matter whether the employer was motivated, for example, by the belief that the employee might be happier in a position that did not have SEC reporting requirements.”
• The Burden-Shifting Framework Provides the Means of Getting at Intent, Not Just Causation: According to the Supreme Court, one of the principal reasons a SOX plaintiff need not prove retaliatory intent is that the statute already addresses intent through its burden-shifting framework. Some had argued that the burden-shifting in SOX addressed causation, not intent, and thus an additional element or instruction of intent was required outside of the burden-shifting framework. The Supreme Court rejected this position. “The burden-shifting framework,” the Court found, “provides a means of getting at intent, and Congress here has decided that the plaintiff’s burden on intent is simply to show that the protected activity was a ‘contributing factor’ in the unfavorable personnel action.” While other employment statutes may apply a higher bar with “motivating” or “substantial factor” standards, “the incorporation of the contributing‑factor standard in Sarbanes-Oxley reflects a judgment that ‘personnel actions against employees should quite simply not be based on protected [whistleblowing] activities’—not even a little bit.”
• The Same-Action Defense Protects Innocent Employers in Situations Where an Employee’s Protected Activity Is an Unintentional Cause of Termination; a Retaliatory Intent Requirement Is Not Needed: One of the employer’s arguments was that SOX needed a retaliatory intent requirement to avoid outcomes where innocent employers would be punished. To illustrate this concern, the employer relied on a hypothetical where an employee’s whistleblowing causes a client to end their relationship with the company, leaving the whistleblower without any work and ultimately leading to the elimination of the whistleblower’s position. The employer argued that, under Murray’s view, the employer would still be liable for retaliation, because it would not be able to show that it would have made the same decision in the absence of the protected behavior. The Court dismissed these concerns and in doing so further clarified the Same‑Action Defense. The same-action analysis “does not require . . . that the adverse personnel action be based on facts completely separate and distinct from protected whistleblower disclosures.” The question is instead whether the employer would have “retained an otherwise identical employee” who had not engaged in the protected activity. So in the hypothetical, “the relevant inquiry would be whether the employer still would have fired the employee if the client had left for some other reason.” “If so, it will have no trouble prevailing under the statute,” according to the Court.
• Lower Standard Is by Design: The Court acknowledged that the Contributing Factor Standard is “more lenient than most,” but found that this was by design. The backdrop against which Congress enacted SOX was the Enron scandal. And, the Court found, Congress has employed the “contributing factor framework in contexts where the health, safety, or well-being of the public may well depend on whistleblowers feeling empowered to come forward.”

Takeaways

• Implications Beyond SOX:
• As we have noted, the Contributing-Factor Standard is used not only in SOX, but also in Dodd Frank, the FRSA, and nearly a dozen other federal whistleblower statutes: Criminal Antitrust Anti-Retaliation Act, 15 U.S.C. § 7a-3(b)(2); Consumer Product Safety Improvement Act, 15 U.S.C. § 2087(b)(2); Defense Contractor Whistleblower Protection Act, 41 U.S.C. § 4712(c)(6); Food Safety Modernization Act, 21 U.S.C. § 399d(b)(2)(C); Moving Ahead for Progress in the 21st Century Act, 49 U.S.C. § 30171(b)(2)(B); National Transit Systems Security Act, 6 U.S.C. § 1142(c)(2)(B); Patient Protection and Affordable Care Act, 29 U.S.C. § 218c(b)(1); Pipeline Safety Improvement Act of 2002, 49 U.S.C. § 60129(b)(2)(B); Seaman’s Protection Act, 46 U.S.C. § 2114(b); and Taxpayer First Act, 26 U.S.C. § 7623(d)(2)(B). Rather than limit its holding to SOX, the Court indicated that it could apply to other federal whistleblower statutes using this same standard. “Congress has employed the contributing-factor framework in contexts where the health, safety, or well-being of the public may well depend on whistleblowers feeling empowered to come forward. This Court cannot override that policy choice by giving employers more protection than the statute itself provides.”
• The Court’s decision applies only to SOX and possibly the other federal whistleblower statutes that use the same standard, but it may still affect how similar state whistleblower statutes are interpreted. For instance, California’s general whistleblower protection statute, Labor Code sections 1102.5 and 1102.6, “contains a nearly identical burden-shifting framework for the adjudication of whistleblower cases.” Lawson v. PPG Architectural Finishes, Inc., 12 Cal. 5th 703, 715 (2022). As recently as 2022, however, the California Supreme Court in Lawson seemed to confirm that “[l]iability under section 1102.6 does require proof of retaliatory intent.” 12 Cal. 5th 703, 713 (2022).
• Still Some Unanswered Questions About How Intent Is Established: While the Court’s decision makes clear that intent is an element, it did not conclusively answer whether a SOX plaintiff must always prove this intent at step one, or whether the question of intent simply comes out through both steps of the burden-shifting framework. Slip Op. at 11 (“Here, the burden-shifting framework worked as it should be to ‘sharpen the inquiry into the elusive factual question of intentional discrimination.’”). To go back to the employer’s hypothetical, could a plaintiff satisfy step one and shift the burden to the employer by showing that his protected activity contributed in some way to his termination even if it is unclear whether the employer intentionally relied at all on such activity in deciding to terminate? The Court’s majority opinion seemed to assume without deciding that this could be enough to satisfy plaintiff’s burden and that the second step of the framework—an employer’s Same-Action Defense—could be the place where intent or its absence would be determined in such situations. The concurrence, authored by Justice Alito and joined by Justice Barrett, seemed to suggest that the plaintiff must always prove intent at step one (“Under this framework, the plaintiff must show that differential treatment was at least in part ‘because of’ his or her protected conduct, §1514A(a), and was thus a ‘contributing factor’ in the employer’s decision-making process. [] This requires proof of intent; the plaintiff must show that a reason for adverse decision was the employee’s protected conduct” (emphasis added)), but the majority’s opinion did not squarely address it.
• Propriety of District Court’s Jury Instruction Unclear: One of the employer’s alternative arguments was that the district court’s jury instruction for plaintiff’s burden—that a contributing factor is something that “tends to affect in any way”—allowed the jury to “look beyond whether the whistleblowing activity actually caused the termination” and instead consider “whether it was the sort of behavior that would tend to affect a termination decision.” The Supreme Court declined to address that issue, saying that the Second Circuit was free to consider it on remand.
• More Clarity on Same-Action Defense: While the Supreme Court’s decision confirms “the contributing-factor framework that Congress chose here is not as protective of employers as a motivating-factor framework,” it also appears to make clear that the Same-Action Defense is not meant to be an extraordinary challenge for employers. The analysis does not require a complete reimagining of the facts separate and distinct from the protected activity. And as the Supreme Court said in addressing the employer’s hypothetical, employers should “have no trouble” prevailing if it is the case that the employer still would have fired the employee if the client had left for some other reason.
• Still, the Same-Action Defense Likely Becomes More Important, as Does an Employer’s Decision-Making: Murray v. UBS addresses technical questions of causation and intent, but practically speaking, the question of liability post-Murray may now end up turning more on what employers can prove than on what plaintiffs can show, as it may be easier for plaintiffs to meet their burden at step one of establishing a contributing factor. As the Supreme Court indicated, the “ordinary meanings of the words ‘contribute’ and ‘factor’ suggest that the phrase ‘contributing factor’ is broad indeed.” This also may encourage more employees to come forward with SOX complaints. Employers also bear a heavier procedural burden than plaintiffs, in that they must prove the Same-Action Defense by a higher standard of “clear and convincing evidence.” Employers should bear all this in mind before making any employment decisions that may implicate these issues.