Supreme Court’s UBS Case Buoys Whistleblowers Across Industries

The US Supreme Court’s decision siding with a fired UBS Group AG researcher will make it harder for companies in industries ranging from finance to airlines and consumer products to defend themselves from claims that they retaliated against whistleblowing employees.

The court unanimously found Thursday that the Sarbanes-Oxley Act doesn’t require a whistleblower to prove their employer had “retaliatory intent,” which the justices equated to animus. The decision, authored by Justice Sonia Sotomayor, reversed a 2022 US Court of Appeals for the Second Circuit ruling requiring that plaintiffs meet that higher burden of proof to win a whistleblower retaliation claim.

Congress intended to create strong protections for whistleblowers when it enacted the financial recordkeeping and reporting law, with the hope of preventing another massive corporate fraud such as the Enron case by breaking the “corporate code of silence,” Sotomayor wrote.

“This is a major breakthrough for whistleblowers,” not just under Sarbanes-Oxley, but also for more than a dozen other federal laws with similar whistleblower protections, said Stephen Kohn, an attorney who represents employee-whistleblowers at Kohn, Kohn & Colapinto LLP.

“It covers every federal employee,” he said. And in the private sector, “it covers areas like transportation; it covers food safety, product safety, the consumer financial board. All of the modern whistleblower laws have this burden” of proof for retaliation, he said.

Business groups, including the US Chamber of Commerce and Airlines for America, had urged the court to affirm the Second Circuit’s decision, arguing that an overly pro-employee standard for retaliation claims would drain corporate and judicial resources.

“It sends a pretty loud signal, as the court stated in its opinion, that it believes Congress made a policy choice that it was in the interest of the country to make it easier for whistleblowers to come forward and to prevail,” said Preston L. Pugh of Crowell & Moring LLP, a former assistant US attorney who advises businesses on whistleblower and white-collar investigations.

Thursday’s Supreme Court decision sends the case of former UBS research strategist Trevor Murray back to the Second Circuit for further proceedings, 12 years after he was fired from UBS.

Murray argues he was fired in retaliation for raising concerns to his supervisor about undue pressure from a UBS securities trading desk to write his reports in a way that would boost business, according to court records. UBS said Murray’s position was eliminated because of financial pressures in the market.

A federal district court had awarded Murray more than $2 million in attorneys’ fees, back pay, and damages, before the Second Circuit overturned the ruling.

‘Pro-Employee Standard’

The Supreme Court decision resolves a circuit split on the burden of proof for Sarbanes-Oxley retaliation cases. The Second Circuit’s 2022 ruling requiring a plaintiff to prove “retaliatory intent” directly conflicted with decisions from the Fifth and Ninth circuits, Sotomayor wrote in Thursday’s opinion.

The ruling also settles a broader, long-running dispute among courts that have been reluctant to follow the plaintiff-friendly standard for a variety of whistleblower protection laws, Kohn said.

“This case essentially overturns hundreds of lower court decisions and precedents and opens the door for the most pro-employee burden of proof under any federal employment law,” including Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act, and the Americans with Disabilities Act, Kohn said. “It’s a more pro-employee standard.”

The text of Sarbanes-Oxley—and the aviation safety law that it references—derives its standard for proving a whistleblower retaliation case from the Whistleblower Protection Act of 1989. It’s one of 16 federal laws that have included the same language with respect to burden of proof for whistleblower claims since the 1989 law was passed, according to an amicus brief filed in the UBS case by Sens. Charles Grassley (R-Iowa) and Ron Wyden (D-Ore.) with help from the Government Accountability Project.

That standard, as the Supreme Court interpreted it, requires an employee to show that their whistleblowing was a contributing factor in the employer’s decision to fire or otherwise discriminate against them, but workers need not show “retaliatory intent” or animus.

If the employee meets this standard, then the burden of proof shifts to the employer to show by “clear and convincing evidence” that it would have fired the employee even absent the protected whistleblowing activity.

It’s a big win for Murray and for whistleblowers broadly to have the Supreme Court affirm that burden-shifting framework for whistleblower retaliation cases, said Bob Herbst, the New York-based attorney who represented Murray.

The Second Circuit was one of several courts to hold that whistleblower plaintiffs face a higher standard than what Congress prescribed, he said. For example, other circuits have made similar findings in whistleblower cases brought under the Federal Railroad Safety Act, he said.

“It wasn’t just the Second Circuit, but it has been a development that was a strategic move on the part of corporations, banks, investment banks, and railroad companies, in an effort to change the law,” Herbst said. “And the Supreme Court said uh uh, nope, can’t do that.”

Eugene Scalia of Gibson Dunn & Crutcher LLP, who represented UBS in the case, didn’t immediately respond to a request for comment.

Internal Reporting Preferred

The precise reach of the case in setting the retaliation-claim standards for other federal statutes isn’t yet entirely clear, Pugh said.

“I certainly think whistleblower lawyers, plaintiffs’ lawyers, will attempt to apply this in other contexts,” given the strength of the unanimous decision, he said.

But the Supreme Court decision adds to momentum in the US and globally—including a European Union directive and Organisation for Economic Co-operation and Development policy—toward encouraging and protecting more whistleblowing to expose corporate and governmental abuses and fraud, Pugh said.

“What it tells employers is that you need to make sure the whistleblower channels are open, that they listen to them, that they follow up when appropriate,” he said. This way, “problems that may exist can be addressed before they become bigger issues.”

Pushing for weaker retaliation protections could have the opposite effect, causing employees to feel it’s safer to take complaints about misconduct directly to regulators instead of talking to their bosses first, said Jason Zuckerman, a whistleblower attorney who co-authored the amicus brief for Grassley and Wyden.

“Presumably companies are better off learning about fraud early on from their workers so that they have an opportunity to take remedial action,” he said. “Public companies have incurred substantial costs to establish and maintain compliance programs. Why would public companies want to dissuade employee from making disclosures internally?”

The case is Murray v. UBS Securities, LLC, U.S., No. 22-660, 2/8/24.