The New York State Court of Appeals declined this week to recognize an exception to the at-will employment doctrine for a hedge fund’s Chief Compliance Officer who alleged that he was fired for objecting to his employer’s unlawful trading practices. In Sullivan v. Harnisch, Plaintiff Joseph Sullivan was an employee and minority owner of Defendants Peconic Partners LLC and Peconic Asset Managers LLC (collectively, “Peconic”), holding various titles including Chief Compliance Officer. Defendant William Harnisch was the majority owner, President and Chief Executive Officer. Sullivan filed a lawsuit for wrongful discharge, alleging that Peconic fired him for objecting, in his capacity as Chief Compliance Officer, to Harnisch’s “manipulative and deceptive trading practices.” The trial court denied Defendants’ motion for summary judgment seeking to dismiss the claim. The Appellate Division, First Department, reversed and Sullivan appealed.
According to the Court of Appeals, the “gist of Sullivan’s claim is that the legal and ethical duties of a securities firm and its compliance officer justify recognizing a cause of action for damages when the compliance officer is fired for objecting to misconduct.” The Court reiterated the at-will employment doctrine, explaining that, “absent violation of a constitutional requirement, statute or contract,” an employer has the right to terminate employment at will. The Court indicated that it has “recognized an exception” to this doctrine “only once.”
That exception arose in Wieder v. Skala, in which a law firm had allegedly fired a lawyer for insisting that it comply with the profession’s ethical obligations. According to the Court, that decision “stressed both the ethical obligations of members of the bar and the importance of those obligations to the employment relationship between a lawyer and a law firm.” Moreover, the decision focused on the legal profession’s “unique function of self-regulation.”
In Sullivan, the Court emphasized the narrow scope of the Wieder decision. Although the Court left open the possibility that “there are some employment relationships, other than those between a lawyer and a law firm, that might fit within the Wieder exception,” the Court concluded that “the relationship in this case is not one of them.” Distinguishing Wieder, the Court explained that Sullivan’s regulatory and ethical obligations were not inextricably tied to his duties as an employee. Indeed, the Court observed, Sullivan “was not even a full-time compliance officer.” The Court also stated that regulatory compliance was not at the “very core” and the “only purpose” of Sullivan’s employment.
The Court affirmed the Appellate Division’s decision. In a strongly-worded dissent, Chief Judge Lippman charged that the “majority’s conclusion that an investment adviser like defendant Peconic has every right to fire its compliance officer, simply for doing his job, flies in the face of what we have learned from the Madoff debacle, runs counter to the letter and spirit of this Court’s precedent, and facilitates the perpetration of frauds on the public.”
Notwithstanding the dissent’s alarm that New York employers are now free to fire employees who allege wrongdoing, prudent employers – particularly in highly regulated fields like the securities industry – take such allegations seriously and investigate them, and are careful to avoid allegations of retaliation.
The New York State Court of Appeals recently issued a decision highlighting the importance of including clear disclaimers in employee handbooks. In Ryan v. Kellogg Partners Institutional Services, Plaintiff Daniel Ryan left an established securities firm to go to work for Defendant Kellogg Partners, a startup venture. According to Ryan, Kellogg lured him with the oral promise of a $175,000 bonus. When Kellogg failed to pay the bonus and then terminated his employment, Ryan filed a lawsuit asserting claims for failure to pay wages in violation of New York State Labor Law §§ 190-198 and breach of contract.
At trial, the jury returned a verdict in favor of Ryan. With interest, attorneys’ fees and costs, the judgment totaled $379,956.65. The Appellate Division, First Department, affirmed.
On appeal, Kellogg argued that statements in its employment application and employee handbook negated “Ryan’s alleged expectation of or entitlement to a guaranteed or non-discretionary bonus.” The Court observed that the “Acknowledgments” section of the employment application merely confirmed that, if hired, Ryan would be employed on an at-will basis. According to the Court, the at-will language was irrelevant because Ryan was not asserting an “alleged right to continued employment, compensation or benefits.”
The signed “Receipt” section of the employee handbook indicated that the handbook did not create “a promise of future benefits or a binding contract … for benefits or any other purpose.” The Court explained that this language did not undermine Ryan’s claims, because the “handbook [did] not say that oral compensation agreements are unenforceable, or mention bonuses at all.” Thus, the Court observed, “there are no statements in the handbook that bar Ryan’s recovery on his breach-of-contract and Labor Law claims for compensation alleged to be due and owing him.” The Court of Appeals affirmed the judgment for Ryan.
At-will language in employment applications and employee handbooks is critical. However, as the Ryan decision makes clear, employers should also be sure that policies state unequivocally that bonus decisions are left to the employer’s sole discretion. Policies should also state that promises regarding bonuses and other terms and conditions of employment are valid only if made in a writing and signed by the employer.
The New Jersey Appellate Division recently re-affirmed that an employer is not required to provide an indefinite leave of absence in order to meet its obligation under the New Jersey Law Against Discrimination (“LAD”) to reasonably accommodate the disabilities of its employees. In Lozo-Weber v. New Jersey Department of Human Services, Plaintiff, who suffered from lupus, requested a medical leave of absence and submitted a doctor’s note indicating that she would be unable to work for at least one year. The employer placed Plaintiff on leave pursuant to the Family and Medical Leave Act (“FMLA”). Once she exhausted her FMLA time, the employer agreed to an accommodation of an additional six months of unpaid leave, advising her in writing that it could not continue the leave longer than that due to operational needs. When the extended leave was about to expire, Plaintiff requested additional leave as an accommodation, but did not provide a date certain by which she would be able to return to work. Instead, the doctor’s note stated only that she would need to be out of work for “approximately” six more weeks. At the expiration of the approved six months leave, the employer terminated Plaintiff’s employment.
In affirming summary judgment for the employer on the claim of failure to accommodate under the LAD, the Appellate Division observed that the employer had provided Plaintiff with a reasonable accommodation by extending the FMLA leave by an additional six months. The court further held that an indefinite leave of absence was not a reasonable accommodation where the Plaintiff admittedly could not say when she would be able to return to work. While courts recognize that “reasonable accommodation” includes medical leaves of absence for reasonable periods of time, employers in New Jersey should look carefully at the notes submitted by doctors in support of requests for continued medical leaves, as there is no requirement to provide indefinite leave to employees who are physically unable to work and who cannot specify how long they will need to be out of work.
The talk of the employer community lately has been the National Labor Relations Board’s highly controversial final rule that severely and substantially modifies certain procedures in representation cases. The Board claimed that the final rule, approved December 22, 2011, was designed to reduce unnecessary litigation in representation cases and thereby enable the Board to better fulfill its duty to expeditiously resolve questions concerning representation.
On April 25, 2012, the EEOC issued its first update in 20 years of its position on employers’ use of arrest and convictions records in making employment decisions.
The EEOC’s Guidance discusses employers’ use of arrest and conviction records in the context of Title VII of the Civil Rights Act’s prohibition on race and national origin discrimination. It first makes clear what most employers already know – employers cannot require or apply criminal background checks differently for one group of employees than another protected class of employees. The focusof the EEOC’s new Guidance, however, is that reliance on criminal records can have a disparate impact on certain protected groups and, therefore, violate Title VII.