A case the US Supreme Court agreed to hear back in May that will examine the burden of proof required in whistleblowing cases has pulled in the formal support of several US government entities and advocacy groups.
They filed amicus briefs to help the ex-employee to reverse a Second Circuit Court decision that had voided a nearly $1m retaliation award that former UBS bond strategist Trevor Murray won at the district court level.
The federal government agencies lending their support are the US Solicitor General’s Office, the Department of Labor and the Securities and Exchange Commission (SEC) — each of which argued in a brief submitted last week that the Second Circuit was wrong to hold that petitioner Murray needed to prove UBS acted with retaliatory intent when firing him for his whistleblower claim to stand.
Sarbanes-Oxley Act
The Second Circuit found that the whistleblower protection provisions of the Sarbanes-Oxley Act of 2002 (SOX) require Murray to prove that the bank acted with retaliatory intent.
The decision in that August 2022 case (Murray v. UBS Securities LLC et al.) not only raised a whistleblower’s burden of proof under the statute, but also created a circuit split, pitting the Second Circuit against two other federal circuits that have specifically held retaliatory intent not to be an element of Sarbanes-Oxley whistleblower claims.
Those other circuit courts have held that whistleblowers need only show that their protected disclosure was a contributing factor to their employer’s adverse action.
The jury awarded Murray $903,300 in damages and the court awarded approximately $1.76m in attorney’s fees.
Under SOX’s antiretaliation provision, a publicly-traded company 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” the employee’s participation in either an investigation or a formal proceeding regarding alleged violations by the company of certain securities and antifraud laws.
An employee who feels he or she has faced such retaliation may, after first seeking redress from the Department of Labor, sue the employer in federal court.
The Trevor Murray case
Trevor Murray was hired in 2011 as a strategist in UBS Securities LLC’s commercial mortgage-backed securities (CMBS) business, assigned to research and report on CMBS products for current and potential clients.
He was also required by federal regulation to certify that the views expressed in the reports accurately reflected his own, and were not tied to his compensation.
Murray would later allege that he was pressured by two senior employees at the CMBS desk to skew his research and reports in favor of their business strategies. After he complained about this pressure to his direct superior, he alleged he was excluded from routine meetings and ultimately had his employment terminated.
For its part, UBS claimed that Murray was laid off as part of a strategic reorganization prompted by the company’s mounting financial difficulties.
Whistleblowing as protected activity
Murray took UBS to US district court, and the court instructed the jury that to find for Murray, it must find (among other things) that his whistleblowing activity was a “contributing factor” in his employment termination, which meant that the protected activity “must have either alone or in combination with other factors tended to affect in any way UBS’s decision to terminate [his] employment.”
The jury instruction also clarified that Murray was “not required to prove that his protected activity was the primary motivating factor in his termination, or that UBS’s articulated reasons for his termination … was a pretext”.
With these instructions in mind, the jury awarded Murray $903,300 in damages and the court awarded approximately $1.76m in attorney’s fees.
On appeal, the Second Circuit vacated the verdict and remanded for a new trial because the district court had failed to instruct the jury that the “contributing factor” element required Murray to show that UBS had “retaliatory intent” in terminating his employment.
Anti-retaliation claim
Such a finding is necessary to sustain an anti-retaliation claim, the Second Circuit held, for two reasons. First, the statute’s text – which contemplates an employee being fired “because of” whistleblowing activity – inherently implies an intention to retaliate, whereas the district court’s language of “tended to affect [the decision] in any way” is too broad and could include scenarios that lack any retaliatory animus at all.
For these reasons, and because the district court’s instruction had left it unclear whether the jury had believed UBS in fact acted with retaliatory intent, the Second Circuit held that the error was not a harmless one and required reversal.
In their amicus, or “friend of the court” brief, the federal agencies argued that SOX doesn’t include that requirement, adding that the justices should consider the decisions of the DOL’s Administrative Review Board, which only require proof that a whistleblower’s protected activity contributed to an adverse action, such as Murray’s eventual firing in his case.
“That interpretation is reasonable, and it is entitled to deference,” the US agencies argued.
SEC commissioners dissent
Murray has made similar arguments in court documents and appearances, saying SOX required him to show that his whistleblowing was a contributing factor in the “unfavorable personnel action” against him. But once he did so, the burden would then shift to UBS to clearly show that it would have fired Murray even in the absence of his whistleblowing, he argued.
Two SEC commissioners dissented from the SEC’s decision to join the federal government’s amicus brief. Republican Commissioners Hester Peirce and Mark Uyeda said in a statement that the agency opted to join the amicus brief while weighing major, complex rulemakings on its agenda – and the agency can “engage in only so many robust deliberative processes at one time”.
The commissioners continued: “The commission cannot pursue every item on its wish list all at once, but instead it must prioritize. It is not clear to us that such prioritization is taking place.”
The Anti-Fraud Coalition – along with the National Employment Lawyers Association and the Wall Street reform group Better Markets – plus consumer advocacy group Public Citizen, and Senators Charles Grassley (R-IA) and Senator Ron Wyden (D-OR) writing together – urged the high court to reverse the Second Circuit’s judgment with their friend of the court briefs.
Burden of proof under SOX
In slightly different phrasing, each of them said the Second Court’s interpretation “places an additional elemental burden of proof onto that which Congress unambiguously imposed on whistleblower plaintiffs under SOX.”
The groups also fear the Second Circuit’s interpretation would discourage would-be whistleblowers from reporting financial frauds and could “insulate financial misconduct from detection and prosecution.”
The Second Circuit significantly raised the threshold for SOX whistleblower plaintiffs.
Before last week, and still in at least two other US circuit courts, these whistleblower claims operated as follows: After a plaintiff successfully showed that his or her protected activity contributed in some way to an adverse employment action, the burden would shift to requiring the employer to “present clear and convincing evidence that it had a nondiscriminatory justification” for taking the action it took (Bechtel v. Admin. Rev. Bd., Second Circuit, 2013).
Implications for labor rights
A Supreme Court ruling that turns those federal court and Department of Labor interpretations on their head would be a significant rollback in employee whistleblower protections.
Whistleblowers come forward to make a whistleblower claim with great employment, reputational and financial risk involved in that decision – often in the hopes of stopping ongoing illegal activity.
It could be argued that it’s even in the business’s interest to interpret SOX and its antiretaliation provisions the way several federal agencies, advocacy groups and Murray have argued.
Reporting, promptly investigating and eradicating such illegal activity should be a priority for any company as a whole, and perhaps more critically to its board, shareholders, customers, business partners, and – since trust in a very large business entity like UBS, which just became larger this spring – is involved here, society as a whole.