A recent U.S. Supreme Court ruling clarifies that employees alleging retaliation for protected whistleblower activity under the Sarbanes-Oxley Act of 2002 do not need to prove “retaliatory intent” in order to prevail in their claims. Companies should work with their insurance brokers and counsel to understand the implications of the decision, which will make it easier for employees to pursue whistleblower claims.
The ruling
The case before the Supreme Court, Trevor Murray v. UBS Securities LLC, involved a former UBS research strategist, Trevor Murray, who claimed that he was fired in 2012 after reporting to his superiors “unethical and illegal efforts to skew his independent reporting.” Securities and Exchange Commission (SEC) regulations required Murray to produce independent research reports in his role as a research strategist.
Murray filed a complaint with the Department of Labor alleging that his termination violated section 1514A of the Sarbanes-Oxley Act of 2002, which “prohibits publicly traded companies from retaliating against employees who report what they reasonably believe to be instances of criminal fraud or securities law violations.” Murray subsequently filed a civil action in federal court, which proceeded to trial.
During the trial, UBS moved for dismissal of the whistleblower claim, alleging that Murray failed to prove that his supervisor “possessed any sort of retaliatory animus toward him.” The jury, however, found that the bank had failed to prove that it would have fired Murray had he not engaged in protected activity. The court awarded Murray $900,000 in damages and an additional $1.8 million in attorneys’ fees.
The 2nd Circuit Court of Appeals subsequently vacated the jury verdict, holding that the lower court failed to instruct the jury regarding Murray’s “burden to prove UBS’s retaliatory intent.” As such, the appellate court held that Murray was not eligible for whistleblower protections.
In a unanimous Feb. 8, 2024, decision (opens a new window), the Supreme Court rejected UBS’s argument that a whistleblower is required to prove retaliatory intent. noting that the 2nd Circuit’s opinion was “in direct conflict” with decisions by the 5th and 9th Circuits. Specifically, the court held:
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. While a whistleblower bringing a §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.”
Implications for employers
Since the inception of its whistleblower program in 2011, the SEC has awarded more than $1 billion to whistleblowers (opens a new window). In May 2023, the agency announced its largest-ever award of nearly $279 million (opens a new window). In addition to Sarbanes-Oxley, the Dodd–Frank Wall Street Reform and Consumer Protection Act also includes protections for whistleblowers who report violations of federal securities laws.
The Murray decision makes clear that employees seeking whistleblower protection under Sarbanes-Oxley need not demonstrate any motivating intent behind an employer’s decision to terminate them or otherwise retaliate against them for protected activity.
Instead, a whistleblower must show only that protected activity was a contributing factor in their termination, with the burden then shifting to the employer to demonstrate that it would have terminated the employee even in the absence of protected activity. According to the court, this burden-shifting protects companies from liability “for legitimate, nonretaliatory personnel decisions.”
The Supreme Court’s ruling will undoubtedly make it easier for employees to prevail on whistleblower claims. Whether this will result in an uptick in Sarbanes-Oxley and Dodd-Frank whistleblower claims — or in larger jury awards and settlements — is not yet clear. The higher burden that employers must meet to justify allegedly retaliatory activity, however, is likely to increase the cost for businesses to defend these claims.
Consulting with insurance and legal advisors
Employment practices liability (EPL) insurance typically provides coverage to employers for alleged retaliatory acts in connection with whistleblower activity. Employers, however, should work with their insurance brokers before potential whistleblower claims arise to ensure they have adequate protection.
Employers should also consult with counsel to understand any broader potential impacts of the ruling. These may include the need to more thoroughly investigate whistleblower complaints, document any personnel decisions involving whistleblowers, and train managers on how to avoid retaliatory actions that could prove costly to employers.
For more information, contact a member of your Lockton Financial Services team or email us at financialservices@lockton.com (opens a new window).