New York's Highest Court Re-Affirms At-Will Employment Rule

In a 5-2 decision, the New York State Court of Appeals in Sullivan v. Harnisch, No. 82, 2012 N.Y. Slip. Op. 03574 (N.Y. May 8, 2012), refused to extend to compliance officers an exception to the employment-at-will doctrine articulated in Wieder v. Skala, 80 N.Y.2d 628 (1992).

Facts and Procedural History

Sullivan involved a breach of implied contract claim, among others, brought by Plaintiff Joseph Sullivan, who was the Chief Compliance Officer ("CCO") in a hedge fund, as well as its Executive Vice President, Treasurer, Secretary, Chief Operating Officer and a 15-percent partner. Sullivan's employment was terminated after a dispute with the hedge fund's Chief Executive Officer and President, Defendant William Harnisch. Pursuant to his role as the company's CCO, Sullivan confronted Harnisch about a series of stock trades in which Harnisch had sold stock in his personal account and the accounts of his family members before the firm sold clients' shares. Sullivan believed that this practice amounted to "front-running" that allowed Harnisch to take advantage of an opportunity to the exclusion of the firm's clients. Sullivan was fired within days of the confrontation and this lawsuit followed.

In support of his breach of implied contract claim, Sullivan argued that he was fired in retaliation for his internal inquiries into his superior's trading activity, which violated a company policy that prohibited retaliation for this conduct. While Sullivan never identified the policy itself, he nevertheless inferred its existence from the company's obligations under its Code of Ethics and the securities laws to avoid improper transactions and his own duty as CCO to see that these obligations were met. Based on the legal and ethical duties of his securities firm and his duties as a compliance officer, Sullivan's claim asked the court to recognize an exception to the employment-at-will doctrine when a compliance officer is fired for objecting to misconduct.

The Defendants filed a motion to dismiss Sullivan's claim for a breach of implied contract. The New York County Supreme Court denied Defendants' motion finding Sullivan's claim to be legally sufficient. While the court acknowledged an employer's right to terminate an at-will employee in general, it held that the circumstances of Sullivan's discharge could create an exception to the employment-at-will doctrine. The court found that an "express limitation" to the at-will doctrine may have resulted from...