On March 5, 2013, the U.S. Court of Appeals for the Second Circuit “clarified” the burden-shifting framework for whistleblower claims brought under Section 806 of the Sarbanes-Oxley Act of 2002 (“SOX”), 18 U.S.C. § 1514A.[1]  This blog posting summarizes the standard articulated in the decision.


In September 2003, the Petitioner filed a SOX whistleblower complaint with the Occupational Safety and Health Administration (“OSHA”) of the U.S. Department of Labor (“DOL”), alleging that his employer retaliated against him for refusing to sign SOX disclosure forms.  In February 2005, OSHA determined that there was “reasonable cause to believe” that the employer violated SOX, prompting the employer to request a formal hearing before an Administrative Law Judge (“ALJ”).  On October 5, 2005, however, the ALJ dismissed the Petitioner’s complaint.

Petitioner appealed the ALJ’s ruling to the DOL’s Administrative Review Board (“ARB”), which, on March 26, 2008, remanded the case to the ALJ after concluding that the ALJ had not applied the appropriate legal standard under SOX.  On January 20, 2009, the ALJ again dismissed the complaint, with the ARB this time affirming on September 30, 2011.  Petitioner subsequently appealed the ARB’s order to the Second Circuit, contending that the ALJ had again applied an erroneous standard to his SOX whistleblowing claim. 


Prior to this decision, the Second Circuit “had not previously described the elements and burdens of proof”[2] set forth under Section 806 of SOX.  Consistent with its “sister Courts of Appeals,” the Second Circuit held here that, to prevail on a retaliation claim thereunder, an employee must prove by a preponderance of the evidence that (1) he or she engaged in a protected activity; (2) the employer knew that he or she engaged in the protected activity; (3) he or she suffered an unfavorable personnel action; and (4) the protected activity was a contributing factor in the unfavorable action.  Moreover, even if the employee proves these four elements, the employer may rebut this prima facie case with clear and convincing evidence that it would have taken the same adverse action in the absence of any protected activity.

In a lengthy footnote, the Second Circuit explained the operation of the complainant’s prima facie case during the investigatory and evidentiary stages of a SOX whistleblower case.  The Court explained that both OSHA and ALJs are to apply “the same basic four-part framework of the complainant’s prima facie case” during the investigatory and evidentiary stages, respectively.  But the Court also stated that “[a]s other circuits and the ARB have noted . . . at the evidentiary stage, the fourth element requires the complainant to prove by a preponderance of the evidence that the ‘protected activity was a contributing factor in the adverse action,’ and not merely show that ‘the circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the adverse action.’”  (internal citations omitted.)

With respect to the underlying ALJ decision, the Second Circuit also discussed that, “unfortunately,” the ALJ decided “to make further elaborations” on the legal framework under SOX Section 806.  In particular, the ALJ had explained that the employer “need only articulate a legitimate business reason for its action” until the employee has satisfied his or her burden of proof.  The ALJ went on to state that, if the employer shows evidence of a legitimate reason for the adverse action, the employee may prevail by establishing “by a preponderance of the evidence that the employer’s articulated legitimate reason is pretext for discrimination.”  If the employee shows pretext, the ALJ concluded, the employer may avoid liability by presenting clear and convincing evidence that it had a nondiscriminatory justification for the adverse action. 

The Second Circuit accordingly stated that, with “no basis in any relevant law or regulation,” the ALJ incorrectly “thought that, in addition to the framework specified by the statute and regulations, there existed a second burden-shifting system that applied when the complainant failed to prove a prima facie case by a preponderance of evidence.”  The Second Circuit ultimately affirmed the ARB’s ruling, however, because the ALJ’s error was “immaterial” and “did not affect the outcome of the case.”    


The Second Circuit’s iteration of the burden-of-proof framework for SOX Section 806 whistleblowing claims is consistent with that of other circuits.  Accordingly, multi-jurisdictional employers should continue to expect that, at least with respect to burden shifting, federal courts will apply a similar standard.  Moreover, the Second Circuit’s ruling should have the effect of reigning in disparate standards applied at the agency level – but only time will tell.

[1] See Bechtel v. Administrative Review Board, No. 11-4918-ag, slip op. (2d Cir. Mar. 5, 2013).

[2] The SOX burden of proof framework follows that of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR 21”), 49 U.S.C. § 42121(b) (see 18 U.S.C. § 1514A(b)(2),3) and applicable regulations (see 29 C.F.R. §§ 1980.100–1980.115).


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Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.