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).