Supreme Court Takes Up Sarbanes-Oxley Whistleblower Burden Shifting

In Murray v. UBS Sec., LLC, the Court is considering whether, within the burden-shifting framework governing Sarbanes-Oxley cases, a whistleblower must prove his employer acted with a “retaliatory intent” as part of his case in chief, or if the employer bears the burden of proof to establish the lack of “retaliatory intent” in proving its affirmative defense.

Murray, a research strategist in UBS’s commercial mortgage-backed securities business, reported to his supervisor that members of UBS’s trading desk pressured him to manipulate his research to address potential investor concerns about UBS’s participating in mortgage-backed securities trades. Murray claimed that he was terminated as a result of this report.  Murray filed a whistleblower complaint with the U.S. Department of Labor, alleging that his termination violated the Sarbanes-Oxley Act (SOX).

When the Department of Labor did not process his claim within 180 days, Murray filed a de novo action in district court. The jury returned a verdict in his favor. However, the court did not instruct the jury that a Sarbanes-Oxley antiretaliation claim requires a plaintiff to show that the employer intended to retaliate. The Second Circuit concluded that this was an error because SOX prohibits publicly traded companies from taking adverse employment actions to “discriminate against an employee . . . because of” whistleblowing. This provision requires a whistleblower to prove, by a preponderance of the evidence, that the employer took the adverse employment action with retaliatory intent: an intent to “discriminate against an employee . . . because of” whistleblowing. Therefore, the Second Circuit reversed.

The central issue before the Court is whether the Second Circuit improperly shifted the burden of proving retaliatory intent under SOX to the whistleblower in his case in chief rather than as part of an employer’s affirmative defense. If whistleblowers must affirmatively prove retaliatory intent at the start of their case, the standard for such claims would become much greater. But the Court’s decision could reach other federal whistleblower laws such as the National Transit Systems Security Act, 6 U.S.C. § 1142; Consumer Financial Protection Act, 12 U.S.C. § 5567; Consumer Product Safety Improvement Act, 15 U.S.C. § 2087; FDA Food Safety Modernization Act, 21 U.S.C. § 399d; Patient Protection and Affordable Care Act, 29 U.S.C. § 218c; Seaman’s Protection Act, 46 U.S.C. § 2114; Federal Railroad Safety Act, 49 U.S.C. § 20109; Moving Ahead for Progress in the 21st Century Act, 49 U.S.C. § 30171; Surface Transportation Assistance Act, 49 U.S.C. § 31105; and the Pipeline Safety Improvement Act, 49 U.S.C. § 60129 that have similar burden of proof provisions. 

During oral argument, the Justices focused on how the burden-shifting requirement would change the intent element of the statute.  Justice Barrett seemed particularly focused on the gatekeeping function of the statute, questioning whether the hypothetical presented in Respondent’s brief would be properly prevented by the second step of the whistleblower analysis. Predictably, counsel for the Petitioner and counsel for the Respondent disagreed on whether the second step of the whistleblower analysis was the appropriate stage to determine retaliatory intent. Justice Alito in particular seemed interested in the difference between discrimination due to engaging in a protected activity and retaliation under the statute. 

This case was argued on October 10, 2023. A decision is expected later in the term. Stay tuned for Dykema’s client alert discussing the Court’s opinion.

For more information about this alert, please contact the authors of this alert, Chantel Febus, James Azadian, David Schenck, Christopher Sakauye, McKenna Crisp, Monika Harris, and Puja Valera.