Second Circuit Creates Split on SOX Antiretaliation Claims

Employment Law

September 28, 2022

A Sarbanes-Oxley Act (SOX) antiretaliation claim requires a showing of retaliatory intent, a unanimous panel of the Second U.S. Circuit Court of Appeals has ruled, creating a split of authority with the Fifth and Ninth Circuits.

Trevor Murray was hired as a strategist in UBS Securities’ commercial mortgage-backed securities (CMBS) business. He was responsible for performing research and creating reports about CMBS products, services and transactions that were distributed to UBS current and potential clients.

As a CMBS strategist, Murray was required by Securities and Exchange Commission (SEC) regulations to certify that his reports were produced independently and that they accurately reflected his own views.

According to Murray, two leaders of the UBS trading desk improperly pressured him to skew his research and to publish reports to support their business strategies. He reported his concerns but was told that “it is very important that you do not alienate your internal client.”

Not long after, Murray was terminated. He sued UBS under the whistleblower protection provision of SOX, 18 U.S.C. § 1514A. UBS countered that Murray was terminated due to a shift in strategy prompted by financial difficulties.

At trial, UBS objected to the jury instructions, arguing that they lacked a key element of a § 1514A claim: proof of UBS’ retaliatory intent in taking the adverse employment action. The district court overruled the objection and the case went to the jury, which found UBS liable, reaching a verdict totaling $1,769,387.52.

UBS appealed and the Second Circuit reversed, based on the plain meaning of the statutory language and the interpretation of a nearly identical statute that retaliatory intent is an element of a § 1514A claim.

“Section 1514A directs that no covered employer ‘may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee … because of’ whistleblowing,” the panel said. “The statute thus prohibits discriminatory actions caused by—or ‘because of’—whistleblowing, and actions are ‘discriminat[ory]’ when they are based on the employer’s conscious disfavor of an employee for whistleblowing.

“A discriminatory action ‘because of’ whistleblowing therefore necessarily requires retaliatory intent—i.e., that the employer’s adverse action was motivated by the employee’s whistleblowing. The plain meaning of § 1514A’s statutory language thus compels our conclusion that retaliatory intent is required to sustain a SOX antiretaliation claim.”

This reading of the SOX antiretaliation provision is consistent with the Second Circuit’s interpretation of nearly identical language in the Federal Railroad Safety Act (FRSA), the panel added.

“The unambiguous, ordinary meaning of § 1514A’s statutory language, along with our identical interpretation of the FRSA antiretaliation provision, thus compel the conclusion that a SOX antiretaliation claim requires a showing that the employer took the adverse employment action against the whistleblower-employee with retaliatory intent,” the court said.

As the jury instruction error was not harmless, the panel remanded to the district court for a new trial.

To read the decision in Murray v. UBS Securities, LLC, click here.

Why it matters: The Second Circuit established a standard for a claim under § 1514A of SOX that requires a whistleblower-employee to prove by a preponderance of evidence that the employer took the adverse employment action against him or her with retaliatory intent—specifically, an intent to “discriminate against an employee … because of lawful whistleblowing activity.” The panel noted that its conclusion created a circuit split with the Fifth and Ninth Circuits, which have held that retaliatory intent is not an element of a § 1514A claim.