NY High Court Upholds At-Will Employment Doctrine

New York's at-will employment doctrine survived scrutiny by the state's highest court in a case that affirmed the termination of the chief compliance officer of a hedge fund. J. Sullivan was fired after he confronted the company's CEO about the timing of stock trades made in the accounts of the CEO and his relatives. The New York State Court of Appeals ruled that the circumstances of Sullivan's termination did not meet New York's narrow exception to the at-will employment rule.

Sullivan alleged that, in his role as chief compliance officer, he had a duty to investigate potential violations of Securities and Exchange Commission rules. He based his lawsuit on the theory that his position with the fund created an implied employment contract, which the CEO of the fund allegedly breached when he fired Sullivan.

An employee who challenges New York's rule bears a heavy burden of proof. The only time the State Court of Appeals has made an exception to the at-will employment doctrine was in the case of a new lawyer who was fired for insisting that his firm report a potential ethical violation. In that case, the court held that the ethical obligations of the attorney and the firm were so intertwined with the employment relationship that the firm's request that the employee break an ethics rule amounted to a frustration of the employment relationship.

Sullivan's claim failed in part because he played five roles for the fund: chief compliance officer, executive vice president, treasurer, secretary and chief operating officer. Because Sullivan's compliance position was not a full-time position and was a relatively small part of Sullivan's employment, the court upheld his termination under the at-will employment rule.

Categories: General Business Compliance
Tags: Managing Within the Law