The U.S. Supreme Court heard arguments in a case that will determine whether fraud whistleblowers alleging retaliation must prove their employer acted with retaliatory intent.
In oral arguments on Oct. 10 for Murray v. UBS Securities, the court analyzed the difference between cause and intent in this context.
“This case is critically important for all public companies and companies that do business with public companies since the Sarbanes-Oxley Act (SOX) essentially prevents these companies from discriminating against their employees who engage in certain types of whistleblowing,” said Brian Hoffman, an attorney with Holland & Hart in Denver.
“Litigating SOX claims will be more difficult for employers if the court holds they must disprove retaliatory intent as an affirmative defense,” said David Baron, an attorney with Seward & Kissel in New York City.
Background
Trevor Murray sued UBS Securities, a broker-dealer based in Weehawken, N.J., and its Swiss parent company, UBS AG, alleging that UBS terminated his employment because he reported alleged fraud. He claimed the company violated the whistleblower protections under the Dodd-Frank Wall Street Reform and Consumer Protection Act. He later alleged a violation of the retaliation prohibitions in SOX.
Murray worked as a strategist in UBS’s mortgage strategy group. He was laid off as part of a reduction in force prompted by the 2008 financial crisis. UBS rehired him in a similar role in 2011, then laid him off again in 2012 as part of another reduction in force.
Murray claimed he was targeted for layoffs because he reported to his supervisors alleged illegal efforts by colleagues to skew or sway his independent research analysis. UBS said Murray did not qualify as a whistleblower under the Dodd-Frank Act because he didn’t allege that he reported the misconduct to the U.S. Securities and Exchange Commission. The company also argued he could not have had a reasonable belief that the conduct he reported was a violation of any applicable law or regulation.
A jury awarded Murry $653,300 in back pay and $250,000 in noneconomic compensatory damages. However, the 2nd U.S. Circuit Court of Appeals reversed that decision and concluded that a whistleblower must prove that the employer acted with retaliatory intent.
First, the employee must show that their whistleblowing was a contributing factor in an adverse action, such as firing or demotion. Then the burden shifts to the employer to prove that it would have taken the same action even without the whistleblowing, said Easha Anand, an attorney with Roderick & Solange MacArthur Justice Center in Washington, D.C., who represented Murray.
The employer’s knowledge of the whistleblowing plus a proximity in time to the adverse action can show the whistleblowing was a contributing factor to the adverse action, Anand said. “Congress believed that employees shouldn’t have to have evidence of what was in the head of the decision-maker at the moment of the decision,” she said.
The contributing factor must be the whistleblowing, not some bigger chain of related events that included the whistleblowing, said Anthony Yang, assistant to the solicitor general for the U.S. Department of Justice, arguing in support of Murray.
The legal definition of discrimination means differential treatment that injures an individual, and it does not turn on animus or intent to harm the employee, Yang noted.
Eugene Scalia, an attorney with Gibson Dunn in Washington, D.C., representing UBS Securities, disagreed, saying Congress did not eliminate a retaliatory intent requirement in SOX by incorporating the contributing factor test. He said looking at causation and intent separately is “fundamental to discrimination law.”
In a friend-of-the-court brief, SHRM said a decision in favor of UBS Securities would promote consistency in federal law and provide clarity for HR professionals about what is and is not retaliation.
But a decision supporting Murray would “leave HR professionals, employers, litigants, and courts guessing about what conduct violates SOX, and would also force human resource professionals to become securities experts in order to decipher which standard applies to which conduct,” SHRM stated.
Justices React
Several justices expressed skepticism about the employer’s argument, asking how the retaliatory intent standard is not already accounted for in the burden-shifting framework.
Justice Ketanji Brown Jackson said, “What I’m struggling with is trying to understand how causation and intent are different in this world. … It seems to me they both get at the same thing.”
However, Justice Clarence Thomas said, “It just seems that the substantive statute provides for but-for causation and has an intent requirement.”
Justice Neal Gorsuch suggested the court could conclude whistleblowers only have to show discriminatory intent, not retaliatory intent. “I see discrimination in this statute, and I see whistleblowing activity, and I know there’s a causation requirement, but I don’t see the retaliation in this statute.”
Overall, the court seemed sympathetic to Murray’s argument, Hoffman said.
The justices who seemed to agree with Murry aren’t typically aligned on issues, and that may be a sign foreshadowing the final ruling, according to Preston Pugh and Alyssa Alvarez, attorneys with Crowell & Moring in Washington, D.C.
Tips for Employers
Employers “should understand that firing an employee in proximity to the employee’s good faith and known whistleblowing is likely to create a presumption that the firing was an illegal retaliation. So there better be a very good excuse for the firing that is independent of the whistleblowing,” said David Chizewer, an attorney with Goldberg Kohn in Chicago. “To avoid retaliation, all good-faith reports of misconduct should be investigated seriously, and results should be documented. Even more importantly, good-faith whistleblowing should be both encouraged on the front end and rewarded on the back end. A culture of transparency and integrity helps employers spot problems before they become crises.”
Because SOX cases often involve comparing a whistleblower’s treatment to that of other employees, employers should maintain accurate documentation about job performance and take consistent, fair and documented employment actions, Hoffman said.