ARTICLE
18 April 2024

Protecting Employee Rights In Whistleblower Cases And Corporate Ethics Violation

Kilgore & Kilgore

Contributor

Kilgore & Kilgore
On February 8, 2024, the Supreme Court ruled for protecting employee rights in whistleblower cases where lawfully protected actions are contributing factors to adverse employment actions.
United States Employment and HR
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On February 8, 2024, the Supreme Court ruled for protecting employee rights in whistleblower cases where lawfully protected actions are contributing factors to adverse employment actions. In the case of Murray v. UBS Securities, LLC, the Supreme Court held that a whistleblower who was fired after reporting he was pressured to slant his reports to UBS customers could seek whistleblower protection under the Sarbanes-Oxley Act, even if he could not show that UBS specifically intended to retaliate against him. The Murray case is a huge victory for whistleblowers who may now seek protection under the law, even if they can show only that their lawfully protected actions were a contributing factor to an adverse employment action.

Murray also affirms the rationale of the 2014 Fifth Circuit decision in a case known as Halliburton v. Administrative Review Board. Although it is tempting to understand Murray solely in the context of a securities law violation, it may have implications for the burden of proof faced by whistleblowers in a wide range of other federal and state whistleblower protection laws that affect industries as diverse as nuclear energy, railways, and aviation.

Corporate Fraud Reporting: Whistleblower Fired after Reporting Unethical and Illegal Pressure

Under SEC regulations, Trevor Murray, a research strategist at UBS, was required to certify that his reports to customers about the firm's securities business were independent and reflected his own views. He alleges that two UBS trading desk employees pressured him to modify his reports to reflect more favorably on the employer. That is when the UBS unethical pressure started. After he told his supervisor about the attempted improper influence, UBS fired him. UBS insists that his termination was not retaliatory, but rather, that it laid him off as part of an economically driven reduction in force.

At trial, UBS argued it was entitled to summary judgment because Murray failed to produce any evidence that his supervisor possessed any sort of retaliatory animus toward him. The district court denied UBS's motion and instructed the jury that Murray was required only to prove that his protected activity was a contributing factor in the termination of his employment. The jury found for Murray and awarded him over $900,000 in damages and over $1.7 million in attorney fees. UBS appealed to the Second Circuit.

The Second Circuit vacated the District Court's verdict and remanded the case for a new trial, holding that retaliatory intent was an essential element of a Sarbanes-Oxley Act whistleblower retaliation claim. The decision raised troubling questions among some securities industry attorneys.

The first issue was that the Second Circuit appeared to expand the Sarbanes-Oxley Act whistleblower's burden of proof beyond the plain language of the statute. The second was that it also cut directly against the decisions of several other federal Courts of Appeal including the Fifth Circuit. Those Appeals Courts had consistently held that it was sufficient for Sarbanes-Oxley Act whistleblowers to show that their protected activity was a factor contributing to the employer's adverse employment action. Trevor Murray sought Supreme Court review.

Sarbanes-Oxley Act Whistleblower Protection

The Sarbanes-Oxley Act of 2002 was enacted in response to financial fraud scandals in the early 2000s. These involved publicly traded companies such as Enron Corporation, Tyco International plc, and WorldCom. The scandals shook investor confidence in the trustworthiness of corporate financial statements and led many to demand an overhaul of financial regulatory standards. Whistleblowing workers are an essential part of Sarbanes-Oxley and many other statutory efforts to prevent, catch, and punish fraud. Employees are the eyes and ears on the ground and are most likely to be aware of wrongdoing.

The hitch is that they are also very vulnerable to employment retaliation. The retaliation can take many different forms – from employment termination to the workplace ostracism at issue in Halliburton, to the defamatory reporting of negative information on the FINRA Form U-5. The last, which we have encountered in our own practice at Kilgore & Kilgore, can wreck the career of an investment advisor or analyst. The fraud laws don't work if whistleblowers can't speak.

Legal Advice for Sarbanes-Oxley Whistleblower Retaliatory Termination Claims

In general, plaintiffs pursuing a Sarbanes-Oxley retaliation claim must prove four things:

  • Their employer is covered by the law, which extends its protections to employees of publicly traded companies and their contractors.
  • The whistleblower has engaged in activity that was protected by the Sarbanes-Oxley Act, which includes opposing or raising concerns about fraud or securities law violations;
  • An adverse employment action ensued. This includes employer actions (like firing) that would dissuade a reasonable person from blowing the whistle; and
  • The protected activity caused the adverse action.

Number four – causation — can be a bear. That is where the Supreme Court focused in Murray. The Court held that a trial court may infer causation from a sequence of activities. Whistleblowers need not prove a specific statement of retaliatory intent, which few employers would be so incautious as to make.

Well-intentioned employees acting in good faith to comply with the law should not be left wide open to retribution. Whistleblower lawsuits cannot serve their deterrent purpose if the whistleblower's claim is too difficult to prove.

How to Report Securities Fraud as an Employee

This is a sensitive and uncomfortable situation, and the first step you take should be to consult an experienced employment law attorney about protecting yourself. It can cost you your job or your license to practice a profession if you report it. On the other hand, if you have played an unwitting part in the activity, you may be subject to legal penalties. Several different laws protect whistleblowers and other employees who have experienced retaliation, such as wrongful termination.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
18 April 2024

Protecting Employee Rights In Whistleblower Cases And Corporate Ethics Violation

United States Employment and HR

Contributor

Kilgore & Kilgore
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