Unanimous Supreme Court Bolsters Whistleblower Claims
On February 8, 2024, the Supreme Court ruled that whistleblowers have a lower hurdle to clear to maintain their retaliation claims, even when they are terminated as a part of a company reorganization. The unanimous decision effectively reinstated a $900,000.00 verdict that had previously been overturned and may cause courts to be more receptive to other whistleblowing claims.
The case itself is relatively straightforward. The plaintiff, formerly employed by UBS, had complained to his supervisor that traders had “improperly pressured him to skew his reports to be more supportive of their business strategies” in violation of SEC reporting requirements. Shortly thereafter, UBS terminated the plaintiff as part of a broader reorganization. The plaintiff alleged, as a protected whistleblower, his termination violated the anti-retaliation provisions of the Sarbanes-Oxley Act (“SOX”). After a jury verdict in his favor, the appellate court overturned the award, finding that the SOX anti-retaliation provisions required the plaintiff to show intentional discrimination –“retaliatory intent”– because of the whistleblowing activity. The Supreme Court disagreed, holding that under the applicable SOX anti-retaliation provision, while a whistleblower plaintiff “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.’”
Critical to the Supreme Court’s decision was that “retaliatory intent” is absent from SOX’s statutory text: no employer subject to SOX “may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against” a protected whistleblower. The Supreme Court surmised that when “an employer treats someone worse—whether by firing them, demoting them, or imposing some other unfavorable change in the terms and conditions of employment – ‘because of’ the employee’s protected whistleblowing activity, the employer violates [SOX].” The opinion explained that so long as some part of the reason was based on the whistleblowing activity, it “does not matter whether the employer was motivated by retaliatory animus or was motivated, for example, by the belief that the employee might be happier in a position that did not have SEC reporting requirements.”
Moving forward, this decision will provide greater challenges for employers defending these kinds of retaliation claims. Although SOX applies mainly to publicly traded employers, employers subject to other similarly worded statutory whistleblower protections will have the burden to prove a lack of retaliatory intent if they take adverse action against similarly situated whistleblowers. Requiring an employer to demonstrate with clear and convincing evidence that it “would have taken the same unfavorable personnel action in the absence” of whistleblowing activity is going to impact a wide range of employment-related activities. Employers will not only have to modify their lawsuit strategy and potential settlement value when litigating these claims, but they also will have to carefully monitor reports of whistleblower claims, conduct reasonable internal investigations for protected activity, and make well-documented independent and non-retaliatory employment decisions involving protected whistleblowers.
Despite the sweeping victory for whistleblowers, this decision is unlikely to modify approaches to other employment discrimination cases. The Supreme Court was quick to contrast the SOX anti-retaliation provisions with statutes (like Title VII of the Civil Rights Act of 1964) that “apply a higher bar, requiring the plaintiff to show that his protected activity was a motivating or substantial factor in the adverse action.” Other decisions favorable to employers involving whistleblowing statutes may also be left undisturbed. For example, the day before the Supreme Court handed down its opinion, the Fourth Circuit Court of Appeals upheld summary judgment on February 7 in a retaliation case involving a former Frito-Lay employee who tried to claim whistleblower status because she had allegedly reported a workplace safety violation. Although the Virginia whistleblower statute has some similarity to the SOX anti-retaliation provision, the decision is unlikely to be reconsidered because the Fourth Circuit found that the employee was terminated “for reporting an issue to a third party-not a supervisor, governmental official, or law enforcement official-in a way that violated the company’s confidentiality policy” and thus would not seem to meet the statutory standard as a protected whistleblower.
Even for companies outside the reach of this decision, employers should promote an environment that encourages employees to report violations of applicable law, adopt anti-retaliation policies for employees who make such reports, and provide adequate training and support to promptly investigate any such reports. Management should also be able to articulate legitimate, business-related rationale before terminating or disciplining an employee who has made a report of ethical wrongdoing or illegality. As has been expressed in these pages before, a “well-managed evaluation and termination process with supporting documentation is essential to winning a whistleblower case.”
If you have questions about this or any related matters, please contact Maynard Nexsen’s Employment & Labor Law practice group.
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