February 08, 2024

SCOTUS Rules on SOX Whistleblower Burden of Proof

Congress enacted the whistleblower protections of the Sarbanes-Oxley Act of 2002 (SOX) to prohibit covered employers (publicly traded companies, certain issuers of securities, and companies required to file certain forms with the SEC) from retaliating against employees who report what they reasonably believe to be instances of criminal fraud or securities law violations. Title 18 U. S. C. §1514A(a) specifically provides that employers may not “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of ” protected whistleblowing activity.

If that sounds familiar, you may have recently read about this standard of proof in an article in last month’s newsletter.

On appeal from the trial court, the Second Circuit U.S. Court of Appeals ruled in favor of the employer who fired an employee after he reported his belief that two employees were engaged in illegal and unethical workplace conduct. The Second Circuit held that “[r]etaliatory intent is an element of a section 1514A claim.”

So, who has to prove what? Must a plaintiff show that the employer’s adverse employment action was because of protected whistleblower activity? That is, but for a retaliatory motive, the employer would not have taken the adverse action. Or does the plaintiff only have to show that the individual’s protected activity was a factor resulting in the adverse employment action, even if it was not the motive?

Today, SCOTUS unanimously laid the question to rest, at least for now. “A whistleblower who invokes §1514A must prove that his protected activity was a contributing factor in the employer’s unfavorable personnel action, but need not prove that his employer acted with ‘retaliatory intent.’”

Lessons learned?  While SOX generally applies to publicly traded companies and certain academic institutions, SCOTUS references Title VII at least three times. The article referenced above addresses the burden-shifting framework under the Age Discrimination in Employment Act, and other laws.

This is yet another example of why HR asks managers for documentation when they want to fire an employee. It you cannot reasonably demonstrate your bona fide, business-related reasons for discharging an employee (or taking any adverse employment action), someone may infer a discriminatory motive. Coach, counsel, correct employee performance and document, formally and informally, each of those efforts. If all that fails and you discharge the employee, you will have a clear record to show that your decision was without regard to any legally protected status, as a whistleblower or any other. You will be able to show that the adverse action happened based solely on performance-based factors and would have happened regardless of any legally protected status or activity.