A federal appeals court in New York, in a decision filed June 16, 2016, has upheld a company’s right to deny employment benefits to two former employees who were terminated for refusing to cooperate in an internal investigation. The name of the case is William W. Gilman, Edward J. McNenney Jr. v. Marsh & McClennan Cos. Inc.
How this issue case about: In 2004, then-New York Attorney General Eliot Spitzer, began investigating contingent commission arrangements through which insurance brokers allegedly steered clients to particular insurers. In September of 2004, the investigation started to focus on a bid-rigging scheme involving Marsh and several insurers, including AIG. After an AIG employee identified Gilman and McNenney as co-conspirators, AIG filed a civil action against Marsh for fraudulent business practices and antitrust violations. The lawsuit had a significant impact on Marsh’s stock price and resulted in other suits being filed against Marsh.
Gilman and McNenney were then requested to sit for in-house interviews, and upon their refusal, were terminated. Under the terms of Marsh’s benefit plans, an employee who is fired for cause forfeits employee benefits, including stock options and severance. Gilman and McNenney sued for the lost benefits. The District Court granted Marsh’s motion for summary judgment, and the Second Circuit affirmed, holding that “Marsh was presumptively entitled to seek information from its own employees about suspicions of on-the-job criminal conduct.” While “Marsh’s demands placed Gilman and McNenney in the tough position of choosing between employment and incrimination” that did not immunize them from the “collateral consequences” of those acts, including leaving Marsh “with no practical option” other than to remove them.
What this means for your business: Workplace investigations are often required by state and federal law, including in cases of complaints to management about harassment or discrimination. The conducting of a prompt and thorough investigation is the first line of defense to a company’s liability for such unlawful conduct. In addition, such investigations can be essential in getting to the heart of employee theft and kick-back schemes. The decision in Gilman is a recognition that companies should be entitled to compel the cooperation of their employees in such investigations upon threat of termination.
Want to know more? Contact Wendy Tice-Wallner at 415-733-3976 or email her at wtice-wallner@sideman.com.
