By Lorene D. Park, J.D.
Employees who refused to answer questions after they were named in a criminal investigation that also implicated their employer were fired for "cause" and were therefore not entitled to employment benefits they otherwise would have received, ruled the Second Circuit, affirming summary judgment against their ERISA and contract-based claims. The appeals court found it reasonable, under the circumstances, for the employer to demand that the employees submit to interviews in its internal investigation, and there was no surprise or violation of the employment contract when they were fired the day after they refused (Gilman v. Marsh & McLennan Co, Inc.
, June 16, 2016, Jacobs, D.).
Employees named as co-conspirators.
In April 2004, the New York Attorney General (AG) investigated "contingent commission" arrangements by which insurance brokers steered clients to particular insurers. The employer, Marsh & McLennan, was one of the brokers investigated. It retained outside counsel to perform an internal investigation. The AG’s investigation shifted in September to an alleged bid-rigging scheme involving Marsh and several insurance carriers. The next month, individuals who worked for an insurer pleaded guilty to felony bid-rigging and identified two Marsh employees as co-conspirators. The next day, the AG filed a civil complaint against Marsh for alleged fraudulent business practices and antitrust violations.
Employees suspended, fired.
Soon thereafter, Marsh’s stock price plunged, private civil suits were filed, and the employer’s directors, clients, and shareholders demanded answers. Marsh expanded its internal investigation and suspended the two identified employees (with pay). The employer’s counsel asked them to sit for interviews and warned that failure to comply would result in termination. One employee claimed he was told to submit to an interview by a lawyer from the AG and was told to do so without his counsel (Marsh denied this). Both employees refused and were fired a day later (one on October 28, the other November 2). One of the employees had submitted early retirement paperwork the day he refused, but that was rejected.
CEO meets with AG.
Meanwhile, on October 25, the CEO of Marsh’s parent company was replaced. That same day, the new CEO met with the AG, who agreed to forgo criminal prosecution of Marsh in exchange for its cooperation, including waivers of attorney-client privilege and work product immunity for information from the internal investigation. The AG issued a press release announcing that criminal prosecution would be limited to individuals—which was widely understood to mean the two employees would be indicted (and they were).
Lawsuit for benefits.
The employees were eligible for valuable employment benefits through Marsh, including stock options and stock units, some of which they could have been entitled to upon termination if (for example) they retired or were fired without cause. Also, severance would be available under Marsh’s ERISA-governed severance plan for employees in good standing on their last day of work who were terminated: (1) because they lacked job skills; (2) in a restructuring; or (3) because their positions were eliminated. If fired "for cause," unvested stock benefits would be forfeited and the employees would be ineligible for severance.
Though Marsh asserted that they were fired for cause, the employees filed suit for lost benefits, alleging violations of ERISA and breach of contract. Granting summary judgment for Marsh, the district court found that the interview requests were reasonable, that the employees’ refusal gave Marsh cause for termination, and that the one employee’s purported retirement was ineffective.
Fired for cause.
Affirming, the Second Circuit first concluded that the demand that the two employees submit to interviews was reasonable as a matter of law. Under Delaware law, which governed the employment contract, "cause" for termination includes refusal to "obey a direct, unequivocal, reasonable order of the employer." The only dispute was whether the demand was "reasonable." To the appeals court, it was. The employees still worked at Marsh and "had been implicated in an alleged criminal conspiracy for acts that were within the scope of their employment and that imperiled the company," explained the court. Marsh was entitled to seek information from its own employees about possible on-the-job criminal conduct and was entitled to take measures to protect its standing with investors, clients, employees, and regulators.
While Marsh’s demands put the employees in the tough position of choosing between employment and incrimination (assuming the truth of the allegations), any personal rights to refuse to sit for interviews did not immunize the employees from all "collateral consequences" that come from those acts, including leaving Marsh "with no practical option other than to remove [them]," the appeals court further explained.
Not layoff or retirement.
The court rejected the employees’ argument that they were let go in a reduction in force and that one employee had preemptively retired. There was simply no genuine question that they were fired for refusing to cooperate—they were told they would be fired for refusing the interview requests so it was no surprise when each was fired the day after refusing.
Interviews were not "state action."
Also rejected was the assertion that Marsh’s cooperation with the AG meant that the demand to answer incriminating questions was unreasonable because it amounted to state action. The demand happened before
the Marsh CEO’s October 25 meeting with the AG and there was no evidence the AG forced or pressured Marsh to do the interviews or that the scope of the pending interviews was framed by the government. Moreover, Marsh had good institutional reasons for requiring the interviews: "in the ordinary course, allegations of serious wrongdoing would provoke such an investigation, whether or not the allegations were made by prosecutors and whether or not the company itself was at risk of prosecution. The interests of prudent directors alone would justify or compel such a measure."