SCOTUS poised to resolve circuit split on SOX federal whistleblower standard and other statutes

The California Supreme Court recently confirmed that retaliatory intent is required to state a claim under California's general whistleblower statute. Lawson v. PPG Architectural Finishes, Inc., 12 Cal. 5th 703, 715 (2022).

Now, the U.S. Supreme Court is set to decide next term the answer to a similar question under the Sarbanes-Oxley Act (SOX) and potentially a dozen other federal whistleblower statutes in Murray v. UBS. The case, which should resolve a circuit split on whether SOX whistleblower plaintiffs must prove retaliatory intent, could have significant implications for employers facing whistleblower claims generally. In particular, if the Court finds a SOX plaintiff need not prove retaliatory intent, it could further lower what many consider to be an already low standard of liability.

This article provides an overview of SOX's burden-shifting framework, a brief summary of Murray, and some practical takeaways.

Overview of SOX whistleblower standard

SOX prohibits covered employers from "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 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.

The Contributing Factor Standard, which governs not only SOX but also at least a dozen other federal whistleblower statutes, is generally seen as a lower bar than other anti-discrimination laws. Title VII retaliation claims, for instance, require proof that protected activity was the but-for cause of the challenged employment action. To some, the lower Contributing Factor Standard may support the idea that a SOX plaintiff need not establish retaliatory intent.

But, as some courts have noted, causation is often considered to be conceptually distinct from intent or motive. And others argue, as UBS has in Murray v. UBS, that a lower standard of causation does not alone mean that a plaintiff should be able to prove retaliation without proving retaliatory intent.

Murray v. UBS

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 he was being pressured to "skew his research." Though the 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 and instead ruled that protected activity only needs to have "tended to affect [the termination] in any way."

On appeal, the Second Circuit (a three-judge panel, two appointed by former President Trump and one by President Biden) reversed and held that to prevail on the "contributing factor" element of a SOX anti-retaliation 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 Federal Rail Safety Act (FRSA) to require "some evidence of retaliatory intent" as a "necessary component of an FRSA claim."

Takeaways

The Contributing Factor Standard, as noted above, applies to at least a dozen other federal whistleblower statutes, including the Dodd-Frank Act and the FRSA. Circuits are split on what "contributing factor" means for SOX and these other statutes. The Supreme Court's decision in Murray, a SOX case, may bear on the other federal whistleblower statutes that are also subject to this same standard.

The Supreme Court's decision in Murray could also indirectly affect state whistleblower laws that rely on a similar Contributing Factor Standard. 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, at 715. The California Supreme Court seemed to confirm that "[l]iability under section 1102.6 does require proof of retaliatory intent," but this could still be open to interpretation. Id. at 713. For example, in a decision some may argue conflates causation with intent, the Ninth Circuit recently held that, although the FRSA requires a showing of retaliatory intent, a plaintiff satisfies that merely by proving their protected activity was a contributing factor. Frost v. BNSF Ry. Co., 914 F.3d 1189, 1195-97 (9th Cir. 2019).

A Contributing Factor Standard without retaliatory intent as an element would likely increase the importance of temporal proximity and make it easier for federal whistleblower plaintiffs to prove their case.

Take, for instance, a situation where an employee makes a SOX complaint to a lower-level supervisor, who is the only one who knows of this protected activity. Shortly thereafter, the employee violates company policy by endangering a co-worker. The same supervisor reports the violation to the company. Relying solely on the lower-level supervisor's account (without independently corroborating it), the company terminates the employee for violating company policy.

If retaliatory intent were not an element of the plaintiff's case, the plaintiff could still prevail in this situation, even though the company's decision-makers had no knowledge of the protected activity and therefore no intent to retaliate because of it. While the Company could still argue it would have taken the same action regardless of the protected activity, that may not be easy to establish by "clear and convincing evidence" if the Company did not independently verify the supervisor's report of the employee's policy violation.

While some may expect this Supreme Court to affirm the Second Circuit's unanimous ruling, statutory-interpretation cases in the employment context have at times defied expectations. See, e.g., Bostock v. Clayton Cnty., Georgia, 140 S. Ct. 1731, 1737 (2020); Staub v. Proctor Hosp., 562 US 411, 418-419 (2011). Regardless, employers should continue proceeding with caution when deciding whether to take adverse employment action against an employee who has or may have engaged in protected activity.