Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, May 14, 2012

New York's Highest Court Rejects Compliance Officer's Wrongful Discharge Claim

The New York Court of Appeals recently held that a hedge fund's compliance officer, who was an at will employee, had no claim for wrongful discharge because he was allegedly discharged for confronting the CEO about his front-running transactions.  Sullivan v. Harnisch (Download Sullivan.050812[1]).  According to New York's highest court,  exceptions to the state's at-will doctrine are narrow; it specifically declined to extend Wieder v. Skala, 80 NY2d 628, which recognized a wrongful discharge claim in the context of an attorney who claimed he was dismissed because of his insistence that the law firm report professional misconduct committed by another attorney at the firm. 

A majority of the judges rejected the plaintiff's assertion that "compliance with securities laws was central to his relationship with [the hedge fund] in the same way that ethical behavior as a lawyer was central in Wieder to the plaintiff's employment at a law firm."  Noting that the plaintiff did not associate with other compliance officers in a firm where all were subject to self-regulation as members of a common profession and that plaintiff was not even a "full-time compliance officer," the court said that "it is simply not true that regulatory compliance ... 'was at the very core and, indeed, the only purpose' of [plaintiff's] employment."

Moreover, according to the court, "the existence of federal regulation furnishes no reason to make state common law more intrusive."  If Congress wants to create protection for compliance officers, it is free to do so.

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