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New York High Court Refuses to Extend Exception to Employment-at-Will Doctrine to Chief Compliance Officer at Securities Firm

  • May 11, 2012

Reaffirming the continuing viability of New York State’s at-will employment doctrine, the New York Court of Appeals has rejected a wrongful discharge cause of action brought by a compliance officer who claimed to have been terminated for questioning the personal stock trades of the company’s president.  Sullivan v. Harnisch, No. 82 (N.Y. May 8, 2012). 

Joseph Sullivan was the compliance officer for Peconic Partners LLC and Peconic Asset Managers LLC.  He also held a number of executive roles for the hedge fund, including COO and CCO.  While New York recognizes that private-sector employment generally is at-will, and that employees may be dismissed from their jobs at any time with or without cause, Sullivan alleged his discharge from Peconic fell within an exception to the at-will employment doctrine based on an employee’s adherence to professional ethical requirements announced by the New York high court two decades ago. Wieder v. Skala, 80 N.Y.2d 628, 609 N.E.2d 105 (N.Y. 1992). 

Wieder involved an attorney who was discharged from a law firm because of his insistence that the firm comply with the governing disciplinary rules by reporting professional misconduct committed by a co-worker, also an attorney.  In Wieder, the Court found that the distinctive relationship between a law firm and a lawyer created an implied-in-law obligation based on the ethical standards of the profession that could override New York’s employment-at-will doctrine.
In Sullivan, the plaintiff analogized his position to that of the attorney’s in Wieder. He asserted that the legal and ethical duties of a securities firm and its compliance officer justified recognizing a cause of action for damages when the compliance officer is fired for objecting to misconduct.

Clearly reluctant to extend the reach of Wieder outside of a law firm context, the Court determined the plaintiff’s role in regulatory compliance was not at the core of, nor was it the only purpose of, his job. It also found the existence of federal regulations in the securities business was not sufficient to “make state common law governing the employer-employee relationship more intrusive.” 

The Court deferred to Congress to create protections for compliance professionals who raise internal complaints of misconduct akin to the protections provided under the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Court concluded, “Nothing in the federal law persuades us that we should change our own law to create a remedy where Congress did not.”  Sullivan’s claim was rejected.

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