diff --git a/src/protocols/secure_channel/PairingSession.h b/src/protocols/secure_channel/PairingSession.h
index ccbbd4a452ae64..c604cd0662dfd3 100644
--- a/src/protocols/secure_channel/PairingSession.h
+++ b/src/protocols/secure_channel/PairingSession.h
@@ -162,44 +162,40 @@ class DLL_EXPORT PairingSession : public SessionDelegate
     CHIP_ERROR HandleStatusReport(System::PacketBufferHandle && msg, bool successExpected)
     {
         Protocols::SecureChannel::StatusReport report;
-        CHIP_ERROR err = report.Parse(std::move(msg));
-        ReturnErrorOnFailure(err);
+        ReturnErrorOnFailure(report.Parse(std::move(msg)));
         VerifyOrReturnError(report.GetProtocolId() == Protocols::SecureChannel::Id, CHIP_ERROR_INVALID_ARGUMENT);
 
         if (report.GetGeneralCode() == Protocols::SecureChannel::GeneralStatusCode::kSuccess &&
             report.GetProtocolCode() == Protocols::SecureChannel::kProtocolCodeSuccess && successExpected)
         {
             OnSuccessStatusReport();
+            return CHIP_NO_ERROR;
         }
-        else
-        {
-            err = OnFailureStatusReport(report.GetGeneralCode(), report.GetProtocolCode());
 
-            if (report.GetGeneralCode() == Protocols::SecureChannel::GeneralStatusCode::kBusy &&
-                report.GetProtocolCode() == Protocols::SecureChannel::kProtocolCodeBusy)
+        if (report.GetGeneralCode() == Protocols::SecureChannel::GeneralStatusCode::kBusy &&
+            report.GetProtocolCode() == Protocols::SecureChannel::kProtocolCodeBusy)
+        {
+            if (!report.GetProtocolData().IsNull())
             {
-                if (!report.GetProtocolData().IsNull())
+                Encoding::LittleEndian::Reader reader(report.GetProtocolData()->Start(), report.GetProtocolData()->DataLength());
+
+                uint16_t minimumWaitTime = 0;
+                CHIP_ERROR waitTimeErr   = reader.Read16(&minimumWaitTime).StatusCode();
+                if (waitTimeErr != CHIP_NO_ERROR)
+                {
+                    ChipLogError(SecureChannel, "Failed to read the minimum wait time: %" CHIP_ERROR_FORMAT, waitTimeErr.Format());
+                }
+                else
                 {
-                    Encoding::LittleEndian::Reader reader(report.GetProtocolData()->Start(),
-                                                          report.GetProtocolData()->DataLength());
-
-                    uint16_t minimumWaitTime = 0;
-                    err                      = reader.Read16(&minimumWaitTime).StatusCode();
-                    if (err != CHIP_NO_ERROR)
-                    {
-                        ChipLogError(SecureChannel, "Failed to read the minimum wait time: %" CHIP_ERROR_FORMAT, err.Format());
-                    }
-                    else
-                    {
-                        // TODO: CASE: Notify minimum wait time to clients on receiving busy status report #28290
-                        ChipLogProgress(SecureChannel, "Received busy status report with minimum wait time: %u ms",
-                                        minimumWaitTime);
-                    }
+                    // TODO: CASE: Notify minimum wait time to clients on receiving busy status report #28290
+                    ChipLogProgress(SecureChannel, "Received busy status report with minimum wait time: %u ms", minimumWaitTime);
                 }
             }
         }
 
-        return err;
+        // It's very important that we propagate the return value from
+        // OnFailureStatusReport out to the caller.  Make sure we return it directly.
+        return OnFailureStatusReport(report.GetGeneralCode(), report.GetProtocolCode());
     }
 
     /**
diff --git a/src/protocols/secure_channel/tests/TestCASESession.cpp b/src/protocols/secure_channel/tests/TestCASESession.cpp
index 26cb1e0f71ed58..c0a6e6ac2c5b48 100644
--- a/src/protocols/secure_channel/tests/TestCASESession.cpp
+++ b/src/protocols/secure_channel/tests/TestCASESession.cpp
@@ -122,7 +122,14 @@ CHIP_ERROR InitFabricTable(chip::FabricTable & fabricTable, chip::TestPersistent
 class TestCASESecurePairingDelegate : public SessionEstablishmentDelegate
 {
 public:
-    void OnSessionEstablishmentError(CHIP_ERROR error) override { mNumPairingErrors++; }
+    void OnSessionEstablishmentError(CHIP_ERROR error) override
+    {
+        mNumPairingErrors++;
+        if (error == CHIP_ERROR_BUSY)
+        {
+            mNumBusyResponses++;
+        }
+    }
 
     void OnSessionEstablished(const SessionHandle & session) override
     {
@@ -137,6 +144,7 @@ class TestCASESecurePairingDelegate : public SessionEstablishmentDelegate
     // TODO: Rename mNumPairing* to mNumEstablishment*
     uint32_t mNumPairingErrors   = 0;
     uint32_t mNumPairingComplete = 0;
+    uint32_t mNumBusyResponses   = 0;
 };
 
 class TestOperationalKeystore : public chip::Crypto::OperationalKeystore
@@ -314,6 +322,7 @@ class TestCASESession
     static void SecurePairingStartTest(nlTestSuite * inSuite, void * inContext);
     static void SecurePairingHandshakeTest(nlTestSuite * inSuite, void * inContext);
     static void SecurePairingHandshakeServerTest(nlTestSuite * inSuite, void * inContext);
+    static void ClientReceivesBusyTest(nlTestSuite * inSuite, void * inContext);
     static void Sigma1ParsingTest(nlTestSuite * inSuite, void * inContext);
     static void DestinationIdTest(nlTestSuite * inSuite, void * inContext);
     static void SessionResumptionStorage(nlTestSuite * inSuite, void * inContext);
@@ -536,6 +545,58 @@ void TestCASESession::SecurePairingHandshakeServerTest(nlTestSuite * inSuite, vo
 
     chip::Platform::Delete(pairingCommissioner);
     chip::Platform::Delete(pairingCommissioner1);
+
+    gPairingServer.Shutdown();
+}
+
+void TestCASESession::ClientReceivesBusyTest(nlTestSuite * inSuite, void * inContext)
+{
+    TestContext & ctx = *reinterpret_cast<TestContext *>(inContext);
+    TemporarySessionManager sessionManager(inSuite, ctx);
+
+    TestCASESecurePairingDelegate delegateCommissioner1, delegateCommissioner2;
+    CASESession pairingCommissioner1, pairingCommissioner2;
+
+    pairingCommissioner1.SetGroupDataProvider(&gCommissionerGroupDataProvider);
+    pairingCommissioner2.SetGroupDataProvider(&gCommissionerGroupDataProvider);
+
+    auto & loopback            = ctx.GetLoopback();
+    loopback.mSentMessageCount = 0;
+
+    NL_TEST_ASSERT(inSuite,
+                   gPairingServer.ListenForSessionEstablishment(&ctx.GetExchangeManager(), &ctx.GetSecureSessionManager(),
+                                                                &gDeviceFabrics, nullptr, nullptr,
+                                                                &gDeviceGroupDataProvider) == CHIP_NO_ERROR);
+
+    ExchangeContext * contextCommissioner1 = ctx.NewUnauthenticatedExchangeToBob(&pairingCommissioner1);
+    ExchangeContext * contextCommissioner2 = ctx.NewUnauthenticatedExchangeToBob(&pairingCommissioner2);
+
+    NL_TEST_ASSERT(inSuite,
+                   pairingCommissioner1.EstablishSession(sessionManager, &gCommissionerFabrics,
+                                                         ScopedNodeId{ Node01_01, gCommissionerFabricIndex }, contextCommissioner1,
+                                                         nullptr, nullptr, &delegateCommissioner1, NullOptional) == CHIP_NO_ERROR);
+    NL_TEST_ASSERT(inSuite,
+                   pairingCommissioner2.EstablishSession(sessionManager, &gCommissionerFabrics,
+                                                         ScopedNodeId{ Node01_01, gCommissionerFabricIndex }, contextCommissioner2,
+                                                         nullptr, nullptr, &delegateCommissioner2, NullOptional) == CHIP_NO_ERROR);
+
+    ServiceEvents(ctx);
+
+    // We should have one full handshake and one Sigma1 + Busy + ack.  If that
+    // ever changes (e.g. because our server starts supporting multiple parallel
+    // handshakes), this test needs to be fixed so that the server is still
+    // responding BUSY to the client.
+    NL_TEST_ASSERT(inSuite, loopback.mSentMessageCount == sTestCaseMessageCount + 3);
+    NL_TEST_ASSERT(inSuite, delegateCommissioner1.mNumPairingComplete == 1);
+    NL_TEST_ASSERT(inSuite, delegateCommissioner2.mNumPairingComplete == 0);
+
+    NL_TEST_ASSERT(inSuite, delegateCommissioner1.mNumPairingErrors == 0);
+    NL_TEST_ASSERT(inSuite, delegateCommissioner2.mNumPairingErrors == 1);
+
+    NL_TEST_ASSERT(inSuite, delegateCommissioner1.mNumBusyResponses == 0);
+    NL_TEST_ASSERT(inSuite, delegateCommissioner2.mNumBusyResponses == 1);
+
+    gPairingServer.Shutdown();
 }
 
 struct Sigma1Params
@@ -1115,6 +1176,7 @@ static const nlTest sTests[] =
     NL_TEST_DEF("Start",       chip::TestCASESession::SecurePairingStartTest),
     NL_TEST_DEF("Handshake",   chip::TestCASESession::SecurePairingHandshakeTest),
     NL_TEST_DEF("ServerHandshake", chip::TestCASESession::SecurePairingHandshakeServerTest),
+    NL_TEST_DEF("ClientReceivesBusy", chip::TestCASESession::ClientReceivesBusyTest),
     NL_TEST_DEF("Sigma1Parsing", chip::TestCASESession::Sigma1ParsingTest),
     NL_TEST_DEF("DestinationId", chip::TestCASESession::DestinationIdTest),
     NL_TEST_DEF("SessionResumptionStorage", chip::TestCASESession::SessionResumptionStorage),